October 2, 2013

US Government Shutdown: @$300 Million A Day, and 1 Million Without Pay

By Economy Watch

The U.S. federal government’s partial shutdown, starting on October 1st, will cost the economy at least $300 million a day in lost output, according to a Bloomberg report, with close to 1 million federal employees now on unpaid leave, while national parks and some government services have all been closed.

The shutdown came into effect after the two houses of Congress failed to meet a September 30th midnight deadline to agree on a new budget, with President Barack Obama’s Affordable Care Act, otherwise known as Obamacare, at the heart of the fight.

In the hours leading up to the deadline, the Democratic-controlled Senate repeatedly stripped measures passed by the Republican-dominated House of Representatives to delay or scale back the Affordable Care Act, While President Obama accused Republicans of taking the government hostage in order to sabotage his signature health care law.

Goldman Sachs estimates that a three-week shutdown could shave as much as 0.9 percent from U.S. GDP this quarter. IHS Inc, a global market research firm, also predicted that the shutdown would cost the economy at least $300 million a day at the beginning, with the daily impact likely to accelerate as long as the shutdown continues and reduces confidence and spending by businesses and consumers.

“Each day the shutdown drags on, the more federal employees will discount the possibility that they won’t get back to work anytime soon, and they will pull back on their spending,” said Mark Zandi, chief economist at Moody’s Analytics Inc., to Bloomberg.

A shutdown will probably add to the budget deficit because it “is costly to stop and start programs,” added Ban of America Merrill Corp’s co-head of global economics research Ethan Harris.

A Reuters poll showed 24 percent of Americans blamed the Republicans for the mess, while 19 percent blamed President Obama or Democrats. Another 46 percent said everyone was to blame.

During the partial government shutdown, many essential government operations will cease. The Internal Revenue Service has closed its call centres, while more than 90 per cent of Environmental Protection Agency workers have been told to stay home.

The Department of Defence, the U.S. Postal Service, the Federal Reserve, the Department of Homeland Security and the Justice Department are expected to see little to no disruption; but the U.S. Department of Energy will send home nearly 12,700 staff, with just 1,113 remaining to oversee its nuclear arsenal, while the Department of Education could see staffing severely hit at public schools.

U.S. politicians will try again to renegotiate a deal and restart the government on Wednesday. Another looming deadline is on October 17 when lawmakers must decide on extending the government’s borrowing limit.

Courtesy Economy Watch (EconMatters author archive here

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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