The article discusses the possibility of a government shutdown in the United States due to infighting among Republican members of the House of Representatives. The deadline to pass new budget legislation and avoid a shutdown is September 30. However, hardline Republicans are refusing to pass any legislation without massive cuts to discretionary funding. If the government shuts down, it would result in federal workers not receiving pay and citizens losing access to important programs. The economy could also be negatively affected, with potential losses of 0.1 to 0.2 percentage points of quarterly economic growth for each week the shutdown persists.
A shutdown could have severe consequences for the US economy, as around a quarter of the country’s gross domestic product is government expenditure. Investments and consumption would be affected if government spending is significantly reduced. Economists predict potential losses of 0.1 to 0.2 percentage points of quarterly economic growth for each week of a shutdown. If a four-week shutdown occurs, there could be a 0.4 percentage point reduction in GDP. This would result in lost hours, wages, productivity, and a decrease in small business loans and companies listed on the stock market. The impact on consumer confidence and a potential automatic one-percent cut in discretionary spending could further worsen the economic situation.
The options to avoid a shutdown are dwindling, as Congress is unlikely to complete the appropriations bills in time. One option is to pass a temporary funding measure called a “continuing resolution” or CR. However, hardline Republicans have rejected this approach. House Democrats are turning to a bipartisan stopgap from the Senate, but it is uncertain whether House Speaker Kevin McCarthy will introduce this bill. The blame for the shutdown is likely to fall on Republicans, but it remains unclear whether this will lead to effective action. The possibility of a shorter two- to three-week shutdown is still possible, but tensions within the Republican party increase the risk of a more prolonged shutdown.