US government shutdown looms if Republicans and Democrats fail to agree on a funding bill due on Monday and the White House decides to go forward with its veto regarding attempts to sabotage the health care program. During its meet on Sunday, The House voted 231-192 to delay Obama’s signature healthcare law by a year despite a veto threat from the White House; this essentially means the government can be funded until mid December upon enactment of the one year delay for the Affordable care act.
What does it mean?
A shutdown means US government cutting down as much as 40% of its expenses, with the exception of essential expenditures. The government will no longer be empowered to borrow and need to bank on revenues from taxes and fees to meet essential expenses. It also means that millions of federal workers will go on unpaid leaves and for many others this will also be synonymous to delayed pay. Non-essential services like passport, mortgages application, National park, museums and many more will be affected. A shutdown will put the credibility of the world’s largest economy at stake.
What remains unaffected?
Essential services such as national security/public safety, medical health insurance and social security benefit for retired seniors will remain unaffected.
History of Shutdown and impact
Since the mid 70s there have been 17 occasions of US shutdowns and the most recent one was in 1995 when government had to shutdown over funding issues of Medicare and public health programs. The shutdown lasted for 21 days back then.
How investors are concerned?
Government shutdown can make for a volatile market; it can also create issues to fund raising activities. IPO’s could be on a hiatus due to a shutdown of the Security and Exchange Commission (SEC). WSA advises investors to remain on the sideline until this current situation settles down.
As per Eric Jensen, a partner with law firm Cooley LLP in Palo Alto, California, “Capital-raising will have a huge hiccup if the SEC shuts down as it has said”. (Source: Reuters)