Since Obama’s presidency began, there have been threats about a government shutdown. Fighting a two-front war and continuing to pay for ever-increasing Medicare, Medicaid, and Social Security programs have been the main culprits. Over the years, however, Democrats and Republicans have been able to resolve their differences in just enough time to avoid the shutdown.
Things don’t look so great this time, though. By September 30, the government will hit its debt limit of $16.7 trillion dollars, meaning that it will have no more money to both pay its operations costs and its debts to other countries. While the term “shutdown” sounds big and scary, the event isn’t unprecedented. A government shutdown happened every year of Carter’s presidency, 6 times under Reagan, and the biggest shutdown occurred under Clinton in 1995-96.
So, what exactly does it mean when experts say that the government will “shutdown”? Essentially, it means that the government will have to stop federal funding of certain programs, and will have to either lay-off or furlough its workers. But don’t worry – the federal government only eliminates those programs and workers that it deems “non-essential” for the operation or security of the nation – the military will still be paid, Congress will continue to operate, mail will still be delivered, police officers will still patrol the streets, courts will continue to operate, and Social Security benefits will still be paid. However, thousands of government workers will have to go on furlough (leave without pay – this is traditionally repaid whenever the government starts to operate once again), meaning that governmental operations will become less efficient. If you apply for Social Security, your claim could be delayed? Applying for a passport or VISA to travel to a foreign country? Expect that trip to come at a later date due to a delay in processing.
There is a bigger implication, however. “If the federal government actually were to default on its debt obligations, the full faith and credit of the U.S. government is in question and it can have devastating effects on Treasury’s ability to borrow and on the stability of financial markets in general,” stated Keith Hennessey, former director of the National Economic Council. This means that the value of the American dollar would plummet internationally, leading to hyperinflation and the cost of goods drastically increasing in a very short period of time.
Why can’t the Republicans and Democrats come to terms this time – the Affordable Care Act, more pejoratively known as Obamacare. The Republicans have taken a hard-nosed stance and have essentially said that if the Affordable Care Act is not repealed, then they will not agree to raise the debt ceiling and a government shutdown will result. On the other-hand, Obama’s press security has said that the government is not willing to accept a delay or repeal in the ACA in order to avoid a government shutdown.
Republicans in Congress seem to believe that if the government shuts down, the American people will blame President Obama for his willingness to cooperate on the ACA issue. However, history shows that the Republicans will come out looking the fool. In the 1995-96 government shutdown, the Newt Gingrich-led Republicans pulled the same tactic Republicans are pulling today – they believed that if they held onto their morals and values staunchly enough, no matter the outcome, that the American people would flock to their side and catapult Republicans to office across the nation. That’s almost the exact opposite of what occurred.
Instead of championing the stubbornness of the Republicans, the American people decided to re-elect Bill Clinton in a landslide vote. Voters decided that the actions of the GOP proved that they were not competent enough to run the government, and continued to place their faith behind Clinton (this was ultimately the end of Newt Gingrich). When the government was able to resume operations, Clinton was essentially able to get anything he wanted; all of the support was in his corner.
So, how worried should the American people be? Chris Krueger, an analyst for Guggenheim Partners, a global financial services firm, believes that “Government Shutdown Odds Increase to 40% … We are raising our odds of a government shutdown in 14 days to 40% from a 1 in 3 probability. We are basing the 60% odds that there will not be a government shutdown on blind faith because there is little to no evidence to suggest that the House, Senate, and White House can agree to a stopgap measure in time.”
But please, whatever you do, don’t decide that this is a good time to reenact the Panic of 1837. Unemployment is already bad enough, and America definitely isn’t ready for another Andrew Jackson.
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