From the FT:
Parts of the US government will shut down at midnight on Monday for the first time since 1996 unless Congress and the White House find a way out of their latest stand-off on fiscal policy.
After a weekend of political drama, angst and mutual blame, all non-essential staff of the federal government could be placed on unpaid leave, with agencies closing down many of their services.
Early on Sunday, the Republican-controlled House of Representatives voted to renew funding for the government until December 15, but maintained a tough line in tying the measure to a one-year delay in the healthcare law known as “Obamacare”.
…Democrats in the Senate immediately said the legislation approved by the House was unacceptable and driven by the staunchly conservative Tea Party wing of the Republican party. The White House signalled it would be vetoed by President Barack Obama.
Economists at Goldman Sachs have estimated that a government shutdown could deliver an $8bn hit to the US economy each week, based on the experience of the mid-1990s when Democratic President Bill Clinton and Newt Gingrich, the Republican House speaker, locked horns during a 21-day closure of federal operations.
With the deadline approaching, Republicans in the House sought to deflect blame for a possible shutdown and pin it on Mr Obama’s party.
Good luck with that.
$8billion per week is pretty small beer in a $14 trillion economy but with growth still lousy and housing slowing, the shutdown will knock off 0.1% of GDP every fortnight or so. The SMH has some more extreme forecasts:
Mark Zandi of Moody’s Analytics estimates a three-to-four week shutdown would cut growth by 1.4 points. Zandi projects a 2.5 per cent annualised pace of fourth-quarter growth without a shutdown. A two-week shutdown starting October 1 could cut growth by 0.3 percentage point to a 2.3 percent rate, according to Macroeconomic Advisers.
A shutdown would slow the expansion because output lost when workers are furloughed subtracts from gross domestic product.
The combined prospect of a budget standoff between the White House and Congress and haggling over the debt ceiling could have a bigger impact on the economy as businesses hold off on investment and households delay spending.
My base case remains that the Republicans will not push this far. Thus I don’t see this having a big effect on markets unless the Republicans really are truly suicidal…
