US Shutdown: Understanding the Real Issue

The world is discussing it, people are getting excited and they fail to remember that such Shutdowns also took place in the past. It is more like an internal economic issue of the US than a global issue; more of a theatrical show off, created by media masters, to carry on the circus globally.

The shutdown of the U.S. government, which took effect on Monday midnight (0400 GMT Tuesday), has raised questions about Washington’s ability to carry out its most essential duties. It appeared likely to be dragged on for another week, and possibly longer, as lawmakers consumed day three of the shutdown with a stalling game.

The New York Senator added, “Even coming close to the edge of default is very dangerous,” as he urged quick passage of legislation to raise the $16.7 trillion cap on borrowing.

Though in reality, it would do relatively little damage to the world’s largest economy in the short term, the global markets could be roiled if the Congress also fails to raise the debt limit before borrowing authority runs out in the coming weeks.

Senator Charles Schumer, the second-ranking Senate Democrat, reacting to the reports, said, “This could be the beginnings of a significant breakthrough.”

The U.S. government shutdown is more theatrical and less significant; shutdowns like these have happened over the past years, have had little effect on the economy and have never produced any significant change in the policy. The U.S. government either has to decide to spend or to cut expenses.

ObamaCare undoubtedly will help the people of the U.S. get better health care, but it will also raise the government expenditure in an economy which is already spending 1 trillion dollars more than the revenues they are generating for the past four years. Also recently, President Obama, in a speech, has argued that since the new health care acts have been passed, there is a record low increase in health care spending by the average citizens.

The significance of cutting the budget comes as the U.S. has reached its debt ceiling of 16.7 million, and is asking the Federal Bank to print money and pay back for their economy to come back to normal. Trillions of Dollars of bailouts were given to big corporations like JPMorgan when the financial crunch came in 2007-08. Experts argue that it is more rational to spend on ObamaCare as it will help the tax paying average American rather than helping the billionaires.

The congress is hesitant to raise the debt ceiling, but it is a charade because at first, the Congress has voted to spend money that the government does not have, now it is voting a second time to allow the treasury to borrow that money. Also, refusing to raise the debt ceiling will not have any effect on reducing expenditure.

The government shutdown and the debt ceiling are only helping the Congress force the President to do things he is reluctant to do, and nothing else.

The loophole in the government shutdown is that the treasury will prioritize payments, choosing some bills to pay on time and others to delay, while this is not legal or possible, given the volume of bills the treasury receives every day. Nor is it clear whether the treasury could or would pay the interest on national debt before it pays the people.

The real effect of the shutdown:

Any delays in payment by the U.S. government would endanger the U.S. government’s credit rating, and all over the world, people will lose confidence over the U.S. government as they cannot manage their finances. In return, the investors will demand higher interest rates on U.S. Treasury bonds which would cost the American taxpayers billions of dollars over time. This can destabilize the economy as well as increase inflation rates.

FEDERAL WORKERS: As many as 1 million federal employees could face unpaid furloughs or missed paydays, according to the president of the American Federation of Government Employees, which represents 670,000 union members.

DEPARTMENT OF HEALTH AND HUMAN SERVICES: Signup for the new U.S. health exchanges under the Affordable Care Act due to start on October 1 will proceed. Across the vast department and its sub-agencies, about 52 percent of the staff will be furloughed – some 40,512 workers. Among the programs shuttered would be the Centers for Disease Control’s annual seasonal flu influenza program. The National Institutes of Health would not admit new patients in most circumstances.

U.S. FOOD AND DRUG ADMINISTRATION: The FDA will cease most of its food safety, nutrition and cosmetics activities, such as routine inspections of plants and facilities. It will also be unable to monitor imports, and will cease certain compliance and enforcement activities. Its website is already out of service due to the lapse in funding.

NATIONAL PARKS: National parks would close, meaning a loss of 750,000 daily visitors and an economic loss to gateway communities of as much as $30 million for each day parks are shut, according to the non-profit National Parks Conservation Association.

JUSTICE DEPARTMENT: Civil litigation would be curtailed or postponed as much as possible, “without compromising to a significant degree the safety of human life or the protection of property,” the department said in its contingency plan.

U.S. TRADE REPRESENTATIVES OFFICE: Already squeezed by automatic spending cuts imposed by the so-called sequester, the USTR office has reduced travel to the 41 countries where there are concerns about intellectual property, Trade Representative Michael Froman said.

ENVIRONMENTAL PROTECTION AGENCY: The agency would be one of the hardest hit, with less than 7 percent of its employees exempt from furlough. The broad-based shutdown of all but emergency services would delay rule-making, potentially including finalization of renewable fuel volume requirements for 2014.

WASHINGTON SIGHTS: Most popular tourist spots in the nation’s capital would close, including the Lincoln Memorial, the Library of Congress, the National Archives, the National Zoo and all Smithsonian Museums. The zoo’s live animal webcams would be disabled.

Conclusion:

As Senator Ron Paul has said in a recent interview, “The world is different now, we are down to an end where markets are fragile and the pie is getting smaller and they are fighting over what’s left of the pie. It gets to be very personal but they won’t address the issue like big bankruptcy or endless welfare spending including ObamaCare, or the endless overseas spending, or the endless monetizing debt with Fed.”

The congress is working on an absolute assumption that the deficit does not matter as long as we have the Fed with us, and the Fed will monetize because “we are too big to fail”. It has yet again been proven by the JPMorgan $11 billion settlement of government mortgage probes that the assumption that “we are too big to fail” is wrong.

This is a game that the lobbyists are playing precisely over again, and are getting away when they have failed the government and the people again and again, while analysts are crying on the fact that they have not learned from the past.

In a few days, the Congress members will make a deal and the shutdown will come to an end. At October 17, the U.S. would not go bankrupt but their creditworthiness will go down, interest rates over a period of time will increase and the U.S.A will be stepping closer to an economic collapse, but no Congressman or President will ever confront the real issues, meanwhile, the average American will keep on suffering.