ever heard of Govt shutting down ..... US does and that is news !!!

Have you ever heard of  ~ ‘furlough’ – it is a type of leave… !!  - people crib that things do not move – it is tough in making the bureaucracy act and all……….. but have you ever wondered of a situation when the Govt machinery comes to a standstill….

There is news that ‘US begins government shutdown as budget deadline passes’ ~ it was earlier reported that US Congress must agree to a budget by October 1. If it cannot, the federal government will shut down.  For most of the world, a government shutdown is very bad news - the result of revolution, invasion or disaster. Even in the middle of its ongoing civil war, the Syrian government has continued to pay its bills and workers' wages.

In Indian democracy as also in Europe, the Parliamentary system ensures that the executive and legislature are controlled by the same party or coalition. Conceivably, a parliament could refuse to pass a budget proposed by the prime minister, but such an action would likely trigger a failure of the government and a new election. US is different – for leaders of one of the most powerful nations on earth to willingly provoke a crisis that threatens to suspend public services and decrease economic growth, then, is astonishing to many. American policymakers "are facing the unthinkable prospect of shutting down the government as they squabble over the inconsequential accomplishment of a 10-week funding extension", In the United States, however, government shutdowns - or the threat thereof - have become an accepted negotiating tactic, thanks to the quirks of the American federal system, which allows different branches of government to be controlled by different parties. It was a structure devised by the nation's founders to encourage compromise and deliberation, but lately has had just the opposite effect.

In U.S. politics, a government shutdown is a situation in which the government stops providing all but "essential" services. Typically, federal services that continue despite a shutdown include the National Weather Service and its parent agencies, medical services at federal facilities, the postal service, armed forces, air traffic management, and corrections (the penal system). A government shutdown is similar to a lockout in the private sector.

A federal government shutdown causes a large number of civilian federal employees to be furloughed. Military personnel and essential employees are not furloughed, but may not be paid as scheduled.  A ‘furlough’  is a temporary unpaid leave of some employees due to special needs of a company, which may be due to economic conditions at the specific employer or in the economy as a whole.  The exact details of which government functions would stop during a shutdown is determined by the Office of Management and Budget.

It is reported that the partial shutdown became inevitable after the Republican-led House of Representatives refused to approve a budget for next year. A midnight deadline passed without agreement despite a last-gasp appeal by President Barack Obama. More than 700,000 US government workers face unpaid leave with no guarantee of back pay once the deadlock is over. Republicans have insisted on delaying President Obama's health care reforms as a condition for passing the budget. Shortly after midnight, President Obama tweeted: "They actually did it. A group of Republicans in the House just forced a government shutdown over Obamacare instead of passing a real budget."

On Monday afternoon, the Democratic-led Senate voted 54-46 against a bill from House Republicans that would have funded the government only if President Obama's healthcare law - dubbed Obamacare - was delayed for a year. The US stock market dropped amid fears of political deadlock, although analysts say serious damage to the economy is unlikely unless the shutdown lasts for more than a few days. "The American people don't want a shutdown and neither do I," House Speaker John Boehner said, but added that the healthcare law was "having a devastating impact... Something has to be done". The defence department has advised employees that uniformed members of the military will continue on normal duty, but that large numbers of civilian workers will be told to stay home.

The US budget year ends on September 30 and the nonpassing of budget makes Govt kneeling down to a halt. A three-week shutdown would slow the economy's annual growth rate in the October-December quarter by up to 0.9 percentage point, Goldman Sachs estimates. It could be disastrous if the gaps are not plugged. . What if Congress can't agree to raise the cap in time? It could be disastrous. According to analysts, there will be high volatility and dollar could further weaken …. Not sure whether that is good news for the Rupee. 

The solace is that ‘Govt shutdown is not the first of its kind’ and that it is the 18^th since 1976 in US.

With regards – S. Sampathkumar

1^st Oct 2013.