Closed for Business: US Government Shuts Down.

The US government has commenced a partial shutdown as its two Congressional parties have failed to agree a new budget. Recent disagreements between Barack Obama and Congress over the US budget, has left the government in a state not seen for 17 years.

The Democrat-Republican standoff stems from the refusal of the Repulican’s to pass a budget which contains Obama’s healthcare reforms, dubbed Obamacare. Obama has accused Republicans of blackmailing America by demanding spending cuts and changes to proposed healthcare reforms in exchange for voting to re-open the government, and raising the debt ceiling before the October 17 deadline.

With neither side looking to budge, the deadlock remains and the US government ceases to run at full capacity

All ‘non-essential staff’, estimated at more than 700,000 people, have been told to stay at home, whilst national parks, museums, federal buildings and services are also closed.

Obama has warned that the shutdown would have “a very real economic impact on real people, right away,” however; it appears that the severity of the consequences will depend upon how long it takes for the two sides to reach an agreement.

If a conciliatory approach is taken and a compromise between the Democrats and Republicans can be made within the next few days, the recovery of the US economy will not be jeopardized, with ramifications fairly limited. 

Yet, if the shutdown lasts longer, the effects on confidence and consumer spending will be far greater. Goldman Sachs have already estimated a fall of around 0.9% in US GDP this quarter if the dispute continues for more than two weeks.

There is also a more pressing matter arising too; the US government must reach an agreement in order to rise their debt ceiling.

As the US is already up to its borrowing capacity, the money will run out should both sides fail to resolve the deadlock by the ever-looming deadline of October 17^th.

Indeed, Christine Lagarde, head of the IMF, has said it was “mission critical” that the US agrees a new debt ceiling in order for the country to continue paying its bills. Furthermore a report released on Thursday by the US Treasury department said “negative spillovers could reverberate around the world”. They also added that there are potentially catastrophic ramifications to credit markets, the value of the dollar and US interest rates if both sides fail to resolve their differences.