So the 11th hour resolution proved elusive this time. The cynics amongst us must, as they have many times since the GFC, be again musing on whether the biggest challenge facing many democracies today is democracy itself.
With the failure of the House and the
Senate to reach an agreement on a Continuing Resolution (CR), the US Government
has moved into its first shutdown in 17 years.
Both sides were actually getting closer.
A House position that started with the defunding of the Affordable Care
Act (“Obamacare”) was soon whittled away to a one-year delay and a ban on
health-care subsidies for Congressional staff.
The House has appointed a conference
committee to negotiate with the Senate, should the Senate wish to
participate. If they go to conference the
process is to agree a position which is then returned to both the House and the
Senate for a vote. Assuming it would
pass both chambers, it would then go to the President for either his signature
If the Senate doesn’t agree to go to
conference we see a continuation of the recent process whereby both sides
continue to whittle away at the gap between the two sides, where it appears to me
the only outcome can be a “clean” CR (i.e. with no conditions on the Affordable
Care Act) which funds the Government for a period of time, although not for the
full fiscal year. The biggest unknown is
how long either of these two routes will take.
Markets are taking this in their
stride. At this point my expectation is
the shut-down will be relatively short.
As I said the other day, no one wins out of a shutdown, least of all the
Republicans. A short shut-down means that in terms of
economic impact, it should prove to be more of a disruption rather than
anything more serious.
However, it must be said that relationships between
the House, the Senate and the President appear to be at a low ebb. That’s a concern because there is a bigger
issue on the horizon in the form of the need to raise the debt ceiling by the
end of the month. Failure to act
decisively on that issue could have more serious implications. Watch this space.