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What is a government shutdown 2023?

What is a government shutdown 2023?

  • Kamran Imtiaz

On the night of Sunday, October 1, 2023, a government shutdown 2023 was averted in Washington at the last second. Specifically, a postponement of 45 days until November 17, 2023 was decided. What was once conceived as an extreme measure is increasingly becoming a political power play in Washington. Since the government's fiscal year always ends on September 30th, it is currently about the next budget, starting on October 1st, 2023 and ending on September 30th, 2024. A total of twelve budget templates must be approved.

The budget approved by Congress expires at the end of the month. If MPs do not manage to pass a transition budget by then, there is a risk of a “government shutdown 2023”.

In the past 40 years, the United States has experienced a partial or complete government shutdown 2023, 10 times, depending on how many of the 12 appropriations bills in the general budget could not be agreed upon. The average duration of a “shutdown” was 14 days. While the political power game is usually between Democrats and Republicans, this time it is dominated by Republicans from the far right wing and the rest of the Republican Party. The moderate Republican Speaker of the US House of Representatives, Kevin McCarthy, the third most powerful politician in the US, made the postponement possible and was removed from office by the hardliners in his party.

A possible government shutdown 2023 would come at the worst possible time

There is currently no clear successor for Speaker of the House of Representatives, which does not appear to be conducive to finding political consensus. There is currently disagreement about all twelve approval proposals for the state budget. The ideas between the House of Representatives and the Senate differ, particularly when it comes to the question of where and by how much the out-of-control US government spending should be cut. In terms of amounts, differences of at least USD 120 billion would have to be bridged, probably without affecting the defense budget. However, bridging these differences by November 17 may prove more difficult than possibly achieving further temporary postponements. If it is not possible to find a compromise, a possible government shutdown 2023 in the USA would come at the worst possible time, as it would undermine the previous partial successes on the way to a “soft landing” for the US economy. In a quarter with expected zero growth, there is a risk of a relapse into contraction.

What happens in a “government shutdown 2023”?

During a shutdown, the national debt continues to be serviced and the most important state tasks continue to be fulfilled (e.g. air traffic controllers) - albeit without pay - many state employees stay at home and temporarily do not receive any wages. A government shutdown 2023 therefore has a direct impact on economic growth through the loss of production by state employees. Estimates suggest that a shutdown will hit annualized GDP growth by -0.2 percentage points per week - although about half of the economic impact can be reversed once the government shutdown 2023 is lifted. Interestingly, such a situation may also make it impossible to publish relevant macroeconomic data. In the current situation, in which the US central bank navigates data-driven, this would be problematic for the extremely interest-sensitive bond and stock markets. It can therefore be assumed that in the event of a government shutdown 2023 due to the “flying blind” the Fed would not make any further interest rate steps for the time being.

In the dispute over the federal budget, there is a threat of a “government shutdown 2023” in the USA. The MPs only have this week to agree on the budget, otherwise the government is threatened with insolvency. If the talks fail, hundreds of state employees would be forced to take leave or work without pay. Social benefits could also be temporarily suspended. An agreement is made more difficult by internal party power struggles among the Republicans, who currently have a narrow majority in the House of Representatives.

Deadline expires Saturday night

If there were a government shutdown 2023 , essential employees would first have to do their work without pay, while other state employees - hundreds of thousands - would be sent on unpaid compulsory leave without knowing when it would start again. Citizens who need state services, be it social benefits from the federal government, applications or a passport, would find themselves in front of closed doors.

The power games in Washington are at the expense of the population. So far there is no solution in sight. If a compromise is not found by 11:59 p.m. local time on Saturday night, the superpower will go into government shutdown 2023 starting Sunday.