The US government has run out of money for many of the day-to-day activities that any administration needs to cover since the 2013 budget allocation has been exhausted. If the next budget can be agreed, it would mean that these services can be resumed now, but Republicans who control the House of Representatives are demanding that this should be accompanied by concessions on the so-called Obamacare programme, either pulling its funding or delaying its implementation for another year. The Democrats control the Senate and both the Senate House leader and President Obama say that they will not bow to what they see as Republican blackmail over the budget.
Speaking on CNBC about the shutdown, President Obama said he would not negotiate with “the extremist wing” of the Republican Party. “The message I have for the leaders is, as soon as we get a clean piece of legislation that reopens the government... until we get that done, until we make sure that Congress allows to pay for things that Congress itself already authorised, we are not going to engage in a series of negotiations".
The government partial shutdown has sent the Dollar lower against other major currencies and has subdued the markets. However, a more critical deal is the forging of bipartisan agreement to raise the debt ceiling by 17th October. Unless a deal can be struck, America will not be able to borrow further funds from this date and could be forced into a partial debt default. The consequences of not raising the ceiling could be on a par with the Global Financial Crisis, according to the US Treasury.
If the world’s largest economic power was unable to meet its financial obligations, it would send a shockwave of seismic proportions through the global financial system. Given that this crisis would be engineered by the elected representatives of the American people and it is a scenario that nobody wants, hopefully common sense will prevail, but at the moment, compromise does not seem to be in the air.