Impending US government shutdown looms as GOP infighting persists

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by Glenn Dyer

The US government is heading for a shutdown next Sunday, October 1, if extreme right-wing Republicans in the House of Representatives don't agree to a new funding arrangement with others in their party, as well as the Democrat-controlled Senate.

A shutdown will occur at 12:01 a.m. on October 1, Washington time (3 pm Sydney time) if Congress is unable to pass a funding plan (consisting of 12 separate bills) that President Biden signs into law.

Usually, these impasses are handled by what's called a Continuing resolution, which keeps the government funded while negotiations on a new arrangement and budget continue until an agreement is reached.

The hard-right, mostly Trump-supporting Republicans in the House will not even agree to that arrangement, so unless there is a dramatic change of heart in the next few days, most of the US government will shut down or slowly run out of money.

A prolonged shutdown will hit investor and consumer confidence. Goldman Sachs has estimated that a shutdown would reduce economic growth by 0.2% every week it lasted, but growth would then bounce back after the government reopens, as it has done in past situations like this.

In their intransigence, the Republicans could end up seeing America's last remaining AAA credit rating from Moody's vanish, the way S&P cut their rating in 2011, and Fitch did earlier this year.

The Republicans are fighting with each other - the extreme right-wing doesn't like less conservative members of their own party, who have tenuous control of the House. But because of the unresolved arguments inside the party, the Republicans can't bring the necessary legislation to the floor of the House for debate and a vote.

The imbroglio and the way the Republicans are carrying on underlines the accuracy of the reasons Fitch gave for downgrading America's credit rating in its shock announcement in early August.

"The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to 'AA' and 'AAA' rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions.

"In Fitch's view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025.

"The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management. In addition, the government lacks a medium-term fiscal framework, unlike most peers, and has a complex budgeting process.

"These factors, along with several economic shocks as well as tax cuts and new spending initiatives, have contributed to successive debt increases over the last decade.

"Additionally, there has been only limited progress in tackling medium-term challenges related to rising social security and Medicare costs due to an aging population.”

That echoes the reasons S&P advanced back in 2011 when it moved America to a AA+ rating - and hasn't seen the need for an upgrade in the intervening 12 years.

In fact, the Fitch downgrade shows the situation has worsened, not improved, and the pressure will now be on Moody's to lower its rating, especially if the shutdown is prolonged.

As a result, millions of federal workers face delayed pay, including many of the roughly 2 million military personnel and more than 2 million civilian workers across the nation.

Nearly 60% of federal workers are in the Defense, Veterans Affairs, and Homeland Security departments.

Air travel, airports, ports, rail, and road activities could be affected because the federal government is involved in the funding or operations of these services.

No statistics, no passports, no firearm checks, no courts, limited policing around Congress and in Washington, federal courts shut down or on limited service (helping Donald Trump stave off the many legal actions against him).

But the special counsel running two investigations of Trump will continue because they have special funding. That applies to the other who is investigating Hunter Biden, President Biden's son.

True to form, Trump has demanded that Republicans defund the two prosecutions against him as a condition of funding the government, declaring it their “last chance” to act.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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