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US shutdown: an explainer for non-Americans US shutdown: a guide for non-Americans
(about 20 hours later)
What is the shutdown all about? Please explain what just happened
In a word, money. The US financial year ends at midnight on Monday. Under US law a new bill to approve funding for the next financial year is required, which must have been approved by the House of Representatives, and the Senate, and the president. This has yet to happen. The US government has begun shutting its non-essential services. Hundreds of thousands of workers are waking up to the news that they are on unpaid leave, and they don't know how long it will last. The shutdown, triggered at midnight Washington time, will bring a range of services to a standstill across the world's largest economy.
Why not? Why?
In two words, politics and Obamacare. The core problem is that the Republican party controls the lower house, or House of Representatives, while the Democrats control the Senate. The Federal government had no choice. The US financial year ended on 30 September, and politicians on Capitol Hill have failed to agree a new budget for the 2013-2014 financial year. Even a 'stopgap' funding deal proved beyond them. Without a budget deal approved by both parts of Congress, the House of Representative and the Senate, there's no legal agreement to pay non-essential staff.
Republicans have been pushing for the budget to include cuts to Barack Obama's healthcare bill. Key parts of the Affordable Care Act kick in on Tuesday, so this is a last-ditch attempt to thwart the legislation. Weren't they supposed to fix this last night?
Early on Sunday morning, the House approved legislation that would delay the act by a year. The Senate has refused to meet to discuss it. It's deadlock. They tried. A series of proposals rattled between the two sides on Monday night until midnight struck without a deal.
Would the shutdown mean the entire US government grinds to a halt? Why couldn't they agree a deal?
No, it's not an anarchist's (or libertarian's?) dream. Essential services, such as social security and Medicare payments, would continue. Under the US constitution, the president cannot unilaterally bring in legislation. And despite weeks of talks, Republicans continue to include cuts and delays to Barack Obama's Affordable Care Act in the budget legislation they sent up to the Senate.
The US army would keep operating, even if pay packets are suspended. But hundreds of thousands of workers at non-essential services, from Pentagon employees to rangers in national parks, would be told to take an unpaid holiday (full breakdown here). The House of Representatives is controlled by the Republican Party, whose Tea Party movement remain deeply opposed to Obamacare. They tried to use the budget as leverage to crowbar changes to the Act. The Senate, which is under the control of Obama's Democrats, has stood firm.
This sounds unprecedented. Is it? Will the shutdown mean the entire US government grinds to a halt?
Nope. The US government has shut down 17 times since 1977. However, it has not happened for 17 years, since the historic face-off between Bill Clinton and the Republican-controlled House halted services for 28 days in 1996. No, it's not an anarchist's (or libertarian's?) dream. Essential services, such as social security and Medicare payments, will continue.
/>The US military service will keep operating, and Obama signed emergency legislation on Monday night to keep paying staff. But hundreds of thousands of workers at non-essential services, from Pentagon employees to rangers in national parks, will be told to take an unpaid holiday.
So what happens how?
US politicians will meet again in Washington on Tuesday. Before Monday's session broke up, the lower house proposed a 'bipartisan committee' to consider a way forward. The Senate is expected to reject this proposal, sticking to its position that Obamacare cannot be unravelled. Federal staff will remain unpaid until a budget is agreed. A 'stopgap' funding plan is an option, but Obama appeared wary of that option, arguing that would simply guarantee a repeated fight in a few weeks' time.
How much damage will it cause?
If people aren't getting paid, they won't spend as much in the shops. They may be unable to meet essential financial commitments, such as mortgages and credit card payments.
Analysts at IHS Global Insight have calculated that it will knock $300m a day off US economic output (total US nominal GDP, or output, was around $16 trillion last year).
The key issue is how long it lasts. Moody's Analytics reckons that a two-week shutdown would cut 0.3% off US GDP, while a month-long outage would knock a whole 1.4% off growth.
When did this last happen?
It's the first shutdown since 1995-1996, when Bill Clinton and the lower house (and its speaker, Newt Gingrich) also failed to agree on a budget to fund federal services. That row ran for 28 days (over two stages).
But it was a more regular event in the 1980s, usually for a few days at a time. In total, the US government has partially shut down on 17 occasions. Here's more details.
Why doesn't it happen in other countries?Why doesn't it happen in other countries?
The shutdown situation is a product of the US democratic system. The president is both head of state and head of the federal government, without a guaranteed majority in either of the legislative bodies where new laws are debated and voted upon (because presidents, congressmen and women and senators are elected separately). The president can't simply ram laws through Capitol Hill.The shutdown situation is a product of the US democratic system. The president is both head of state and head of the federal government, without a guaranteed majority in either of the legislative bodies where new laws are debated and voted upon (because presidents, congressmen and women and senators are elected separately). The president can't simply ram laws through Capitol Hill.
In Britain, for example, tax and spending policies are outlined in the budget, presented to parliament by the chancellor of the exchequer. These changes are brought into law in a finance bill in the House of Commons. That's in effect a confidence vote in the government, and even the most fractious backbench MP would balk at rebelling on it.In Britain, for example, tax and spending policies are outlined in the budget, presented to parliament by the chancellor of the exchequer. These changes are brought into law in a finance bill in the House of Commons. That's in effect a confidence vote in the government, and even the most fractious backbench MP would balk at rebelling on it.
Finance bills are also one area where the elected House of Commons has the upper hand over the unelected House of Lords. The Lords have no power to reject a money bill; they can only delay it for a month.Finance bills are also one area where the elected House of Commons has the upper hand over the unelected House of Lords. The Lords have no power to reject a money bill; they can only delay it for a month.
How does the US shutdown row tie in with the debt ceiling battle?How does the US shutdown row tie in with the debt ceiling battle?
They are separate issues. They are separate issues, but the shutdown is raising fears over the debt ceiling.
The shutdown battle is about approving future spending. The debt ceiling is another problem facing Washington – America has a legal limit on its borrowing of $16.7tn dollars, and it's likely to hit that point in mid-October. America has a legal limit on its borrowing of $16.7tn dollars, and it's likely to hit that point in mid-October.
If a deal isn't reached, then America would run out of borrowing room, meaning the world's biggest economy would default on its debts. Both problems need solving – and a shutdown would eat into valuable time to fix the debt ceiling. If a deal isn't reached, then America would run out of borrowing room, meaning the world's biggest economy would default on its debts. Both problems need solving – and a shutdown is now eating into valuable time to fix the debt ceiling.
Why can't they just raise the debt ceiling?Why can't they just raise the debt ceiling?
It's up to the House of Representatives and the Senate. And you will never guess what the Republicans want in return (yup, cuts to Obamacare). Again, legislation is needed. Republicans are again trying to link the plan to Obamacare – arguing that the healthcare reforms are unaffordable.
Is the shutdown going to cause a stock market crash? How are the markets reacting?
Investors are certainly worried. A short shutdown of a few days probably wouldn't have much impact on the US, but if it dragged on then the row could quickly hit economic growth. So far, there's no panic. Investors are calculating that the shutdown will be short. But prepare for nervousness as that debt ceiling deadline gets closer.
/>The dollar, though, is being hit – dropping half a cent against major currencies.
Moody's, the rating agency, calculates that a two-week shutdown would cut 0.3% off US GDP, while a month-long outage would knock a whole 1.4% off growth. This article originally confused the two Houses of Congress. Now corrected. Thanks to readers who flagged up.
Stock markets are down on Monday because of the risk of a US government shutdown and the danger that the Italian government may collapse. It's not a panic. Yet.
How could the Shutdown deadline be broken
Congress could pass a new "clean" funding plan, which didn't include a delay to the Affordable Healthcare Act. Or the Senate and the White House could accept such a delay. Or a compromise between the two positions could be finessed.
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