As the global brouhaha over the US government shutdown sends out shockwaves and ripples of potential disruption, we need to hold our horses and reassess what this really means. Although, the impasse over raising the debt ceiling by 30 September led to the temporary dissolution of the state starting 1 October, the beginning of the American fiscal, it is not as calamitous as the shrieking headlines of the US newspapers have been claiming. In fact, while it’s true that nearly 800,000 of the 2.1 million people who work directly under the US government would be on extended ‘unpaid leave’ (a furlough) until the Capitol Hill reopens its doors, the consequences would restrict themselves to just the non-essential state-sponsored services being disallowed, including national parks, libraries, museums and other such programmes, until the crisis is resolved. Of course, the encumbrances that have been blown out of proportion hide a larger malady, which is the Congress versus Senate deadlock over budget allocation and raising the upper limit of how much the US government can borrow in order to carry on with the public spending. The crux of the problem is really the severe differences between the Republican-controlled House of Congress and the Democratic-led Senate over the idea and purpose of the government, with the Republicans dead against the landmark Obamacare that seeks to bring over 67 per cent of Americans under the ambit of public healthcare and medical insurance. So, even though the Republicans have scored a vicious point by bringing the Obama administration to a grinding halt, this might actually vehemently go against them in the longer run, since the government shutdown is more a prestige issue, despite the fiscal setback.
Naturally, the American day-to-day life would be affected, with one-third of federal employees not getting their paychecks, and crucial state-backed institutions such as the Environmental Protection Agency, NASA, etc, closing their operations for the time being, though essential functions of the government, including the military, security and other defence and intelligence-related services, would not be discontinued. However, the fiscal fallouts of the shutdown might be felt in the October-December quarter of the budget year, in case the closure carries on for three weeks, as being feared currently. Moreover, the GDP might shrink by about 0.9 percentage points and growth rate might come down to 1.6 per cent from the earlier projected 2.5 percent, causing ripple effect in the next fiscal, and sending down the dollar in the global market. Yet, what is far more fundamental in nature is the question whether the Obama government would be at last able to raise the debt ceiling, higher than the 16.7 trillion USD current limit, and also bring into effect the progressive healthcare bill. Solving the Capitol Hill conundrum might actually take high doses of diplomacy and some politics of triangulation, so that by 17 October the US president has some cards up his leave.