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The US economy’s battle over spending cuts and funding for a new health care act has led to shutdown of non-essential services by the federal government.
The US economy has slipped into another precarious situation because of its fiscal problems that continue to hamper spending as fiscal debt has reached its limit, expressed by the debt ceiling, leading to cut down expenditure and simultaneously badly affecting growth. Meanwhile the economy is still caught in a weak growth rate trajectory and struggling to fully recover from the aftermath of the great recession of 2007
Policymakers at the White House are finding it hard to negotiate the debt ceiling deadlock and reach a consensus over the proposed new health care act. The crises has turned so dreadful that for the first time in the last 17 years, the US Federal government has given up on paying the bills of some of its services, leading to partial closure of government.
Political deadlock in Washington between Congress and the Obama administration, along with continuing non-conformity by republicans over funding to the new health care program popularly known as Obama care, remains the biggest threat to US economy as of now and can lead to the demolition of American economic might on a global scale.
Over the last five years, US economy has been subjugated by the recession of 2007, which came about when the housing bubble burst, and is now trapped under a congested budget and a polarized political landscape. It is a striking fact of how US economy descended from private sector crises of housing industry to budgetary complications and an equally important lesson to the world.
Point of Inflection
According to The Economist, the republicans are stalling the budget, not just because they hate it but because they aim to delay something else. What they are trying to achieve is to defund the Obamacare act or at least postpone the mandate for Obamacare.
Republicans demand an overhaul or at least a few legislative changes to the Obamacare act and are using the budget ceiling as leverage to bend the Obama Administration over the demands.
They want the Obama Administration to fall prey to their tactics and introduce a delay in the individual mandate of the Obamacare act or else, the debt ceiling will stay in place, leading to shortage of funds and continuity of federal shutdown.
According to Reuters, many republicans see the debt limit as an opportunity to weaken the Obamacare act and by extension, the President’s political sway.
Primarily it is seen as a political divergence and an economic impasse that is leading to shutdowns, but additionally, if the political tug of war is stronger and more important than the welfare of the society and administration, then it will became impossible to govern.
Shutdown, a Set of Crisis
According to Reuters News, the US treasury warned about the “catastrophic” impact of a debt default. Adding further to the warning, they said a failure to pay the nation’s bills could punish American families and businesses with a worse recession than the 2007-2009 downturn.
According to Economic Times, IMF Chief Christine Lagarde said that “finding a way out of the debt limit dead end as soon as possible was “mission critical”.”
With thousands of people left jobless, long-term of temporarily, and with ever increasing uncertainty in the economy impact will be much greater on consumer spending, the housing market, the credit markets, the Dollar, and the entire economy during the days to come.
Policy making, implementation, administration, and amendments are directly tied to the government budget and rely upon the government to make changes as per political plans and intentions. Because of this, the whole economy will face the consequences of poor growth, reduced credibility in international markets and even bankruptcy if the shutdown continues.
Image credit: Government Shutdown via Facebook