Of Shutdowns and Credit limits

With the US government shutdown moving into the third week, the fear of US defaulting for the first time in history has intensified. The credit limit set at $16.7 trillion will be reached by mid October -17^th the treasury presumes. The Republicans are using this predicament along with the recent deadlock over the fiduciary budget spending for the new fiscal year to delay Obama’s signature Healthcare policy – Obamacare.

The Deadlock:

The reason the US government is in a state of semi-paralysis is due to the senate’s inability to finalize the current continuing Resolution or CR. Republicans are using this opportunity to postpone the implementation of Obamacare and hence has proposed a bill to implement the budget cuts, the next fiscal year budget and to delay the healthcare plan by a year. The democrat controlled Senate however has refused to give in to the demands and has sent the bill back to congress for ‘Reconsideration’. Because of this, the government was unable to fund itself post 1^st October, their new fiscal year and has asked its 800,000 of 3.3 million strong workforce to stay at home (A bill was passed last week to give back-dated wages to about half of them).

Not all government functions were closed  from Oct. 1 — Social Security checks will still get mailed, and veterans' hospitals will stay open. But many federal agencies shut their doors and sent their employees home, from the Environmental Protection Agency to hundreds of national parks.

So in short, because of its inability to spend the government is unable to continue its less essential services like tourism, research, overseas embassies, etc.

( More details can be found at : http://www.washingtonpost.com/blogs/wonkblog/wp/2013/09/30/absolutely-everything-you-need-to-know-about-how-the-government-shutdown-will-work/)

The Credit Cliff :

In his letter to the US house speaker John Boehner, treasury secretary Jack Lew warned the congress that on October 17,US would reach its credit limit of $16.7 trillion. If the congress fails to  increase the limit, the government will have to survive on the 80 million payments accrued per day which is far from sufficient to meet the daily requirement – a whopping $60 trillion. Hence the request.

(FYI - Since 1960, Congress has raised the debt ceiling 78 times.)

Consequences of not increasing its borrowing limit - running out of money to pay its bills, increase in interest rates, crash in the value of dollar, gravely wounding the economy, and perhaps even throwing it back into recession.

However, the speaker Mr Boehner is using this opportunity to not only pressurize the democrats but also to trash the democrat’s reputation. He wants the people to realize that “The debt limit remains a reminder that, under President Obama, Washington has failed to deal seriously with America's debt and deficit."

Ultimately whether the shutdown is reverted or the debt limit increased, congress’s reputation has taken a major hit and has proved that it is impossible for the two parties to work cohesively.