Q&A: Resolving the US shutdown

Resolving the shutdown is important, for the longer it drags on, the greater the risk to the US economy, which remains weak. A drawn-out squabble over a stopgap budget would hit consumer spending, for example, as the furloughed federal workers tighten their belts. But in the short term, attention is turning to the debt ceiling because the federal government will hit its Congressionally mandated borrowing limit no later than 17 October.

Q. Why is the debt ceiling so critical?

Simply put, the US government spends more money than it has. To bridge the gap, it borrows money from the markets. It must also keep servicing its debts and does this by borrowing (it is also important to remember that the government’s spending commitments have already been authorised by Congress). The problem is that the amount it can borrow is capped by Congress. Legally, this “ceiling” cannot be raised by the President. So, when the government nears the ceiling, it has go back to Congress to ask for a higher limit. If Congress fails to raise the limit in time – in the current scenario, by 17 October – the US Treasury could be forced to default, a disastrous outcome that could have serious and sudden economic consequences. World markets would face collapse and the global financial system, vast swathes of which remain in post-crisis repair mode, would be dealt a hefty blow.

Q. Why is Congress dragging its feet?

The answer can be summed up in two words: House Republicans. The opposition party in the US controls the House of Representatives, and many within its ranks want to force the President and his Democratic colleagues to accept changes or a delay in his signature health reforms before they pass a stopgap budget. Fears are rising that they will also hold the full faith and credit of the US hostage until the President gives in.

Q. Are the Republicans united on blocking the stopgap budget?

Not entirely. According to reports from Capitol Hill, there are at least 19 Republicans who would vote for a stopgap budget without altering Obamacare. If they were backed in such a move by the Democratic minority in the House, the bill would clear. As it has already been approved by the Senate, it could then go to the President’s desk.

Q. That sounds sensible. So why aren’t they doing that?

The speaker of the House, Republican John Boehner, runs the risk of an internal revolt against his leadership if he allows such a “clean” bill to come on to the floor. He knows that most of his House Republican colleagues, and particularly right-wing Tea Party supporters, do not back funding the government without winning concessions from Mr Obama. He is therefore not allowing a straightforward stopgap budget to come to a vote.

Q. What now?

Mindful of the risks associated with a default, the Democrats would like the Republicans to agree to raising the debt ceiling immediately. On the stopgap budget, they would like the Republicans to fund the government temporarily while other issues are discussed. Thus far, the Republicans have shown little sign of going down this road. But if the shutdown continues, the Democrats and the President are likely to focus on a quick solution to the debt ceiling issue while negotiating questions over government funding.