Bloomberg News

U.S. Government Shut Down With No Quick Resolution Seen

October 02, 2013

U.S. Government Shuttered With No Quick End Seen Amid Discord

Day one of the first shutdown since 1996 wrapped up with no talks scheduled between the White House and Congress, making it more likely the standoff would merge with the fight over raising the U.S. debt limit later this month to make sure the government can pay all its bills. Photographer: Marvin Joseph/The Washington Post via Getty Images

(Corrects figure on budget deficit as a percentage of GDP in 20th paragraph. For more on the shutdown, see EXT2.)

The partial shutdown of the U.S. government showed no signs of ending quickly, as lawmakers stiffened their positions and sought to shift blame to the other side.

Lawmakers began the second day of the first shutdown since 1996 with no talks scheduled between the White House and Congress, making it more likely the standoff would merge with the fight over raising the U.S. debt limit later this month to make sure the government can pay all its bills.

“We’re this far, so you have to let it play out,” said Representative Devin Nunes, a California Republican who has criticized his party’s hard-liners for dictating its strategy.

House Republicans are seeking a way out of the impasse, today flinging five proposals for partial funding at the Democrats and seeking to engage the Senate and President Barack Obama in direct talks. All five measures are expected to come to the House floor today and drew immediate veto threats from the White House.

On the list are the three measures that failed to win enough votes through an expedited process yesterday that would reopen parks and the Department of Veterans Affairs and allow Washington’s city government to spend its money. Another two -- funding for the National Institutes of Health and to pay the National Guard and Reserve forces -- are also set to be considered.

Visible Effects

The move is designed to blunt some of the most visible effects of the shutdown and compel Democrats to choose between popular programs and their insistence on a full resumption of government funding.

“We’re going to stay here and keep working, putting more options on the table to continue funding government, while also ending the sweetheart deals in Obamacare,” said Representative Steve Scalise, a Louisiana Republican.

Calling the Republicans’ ideas “cockamamie,” Senate Majority Leader Harry Reid said today the Senate will reject the piecemeal approach driven by what he called “modern-day anarchists” in the House.

“It’s time for my Republican colleagues to do a gut check,” he said, urging a vote on a spending bill without policy conditions attached.

Stocks fell and Treasuries rose, a day after as many as 800,000 federal workers were sent home with no paychecks and parks and other services were shuttered across the country.

The Standard & Poor’s 500 Index (SPX) slid 0.8 percent as of 10:14 a.m. in New York. The benchmark 10-year Treasury yield fell five basis points to 2.60 percent. The dollar weakened versus 12 of 16 major currencies.

Obama Trip

White House officials announced today that Obama is shortening his planned trip for meetings with leaders in Asia, canceling stops in Malaysia and the Philippines because of the shutdown.

Senate Democrats have rejected the Republican ideas as political theater and insisting that Republicans fund the whole government temporarily and stop demanding major changes in Obama’s Affordable Care Act. Obama had harsh words for the Republicans yesterday, saying they had “demanded ransom just for doing their job” of passing a budget.

Health Exchanges

The shutdown coincided with the first day of enrollment for the health-care law, as new exchanges tried to handle of flood of consumer interest. Republicans called computer glitches a sign the measure, passed in 2010, isn’t workable. Obama said the demand shows the law -- which House Republicans have sought to defund or delay -- is important and popular.

Treasury market volatility increased by the most in six weeks yesterday. Price swings as measured by the Merrill Lynch Option Volatility Estimate Index jumped 9 percent as the gauge advanced for a fifth day, the longest run of increases in four weeks. The index was at 87.37, versus the average of 69 for the past year.

The furlough of about 800,000 federal employees and the closing of offices, parks and museums may cost the U.S. at least $300 million a day in lost economic output at the start, according to IHS Inc. (IHS:US)

Though that’s a fraction of the country’s $15.7 trillion annual economy, the effects may multiply over time as consumers and businesses defer purchases and other spending plans.

Both sides are jockeying for the political high ground in the standoff. Democrats said the nation was being taken hostage by the Republicans’ Tea Party faction, while the Republicans faulted Senate Democrats and Obama for being unwilling to negotiate over any proposal to delay or curtail the health-care act.

Spending Level

Unlike past fiscal feuds, this dispute is more about the health law than the overall amount of government spending. Democrats say they have already made a concession by accepting spending levels set under the across-the-board cuts known as sequestration, which first went into effect earlier this year and were part of the deal to avoid a 2011 default.

The U.S. budget deficit in June was 4.2 percent of gross domestic product, down from 10.1 percent in February 2010 and the narrowest since November 2008, when Obama was elected to his first term, according to data compiled by Bloomberg from the Treasury Department and the Bureau of Economic Analysis.

House Republicans are divided between the hard-liners insisting on confrontation over the health-care law and at least 13 others who say they would support the Senate Democrats’ spending bill, which would end the shutdown without conditions attached.

Democratic Support

Democrats are counting on the split to force House Speaker John Boehner of Ohio to allow a vote on that short-term spending bill, which probably would pass with the support of most Democrats and some Republicans.

“Most people view this as irresponsible and reckless with a lot of victims, including America’s economy,” said Senator Richard Durbin, an Illinois Democrat. “The moderate Republicans are starting to feel the heat. If they’ll step up, we might bring this to an end.”

The effects of the partial government include the closure of Internal Revenue Service call centers. Also, more than 90 percent of Environmental Protection Agency workers are off work.

Octogenarian veterans ignored barricades around the World War II memorial on Washington’s Mall yesterday to view the outdoor site. National parks and museums, though, will stay shuttered.

Head Start

Head Start programs covering almost 19,000 children across the country lost funding, according to Sally Aman, a spokeswoman for the Alexandria, Virginia-based National Head Start Association.

The U.S. military academies suspended intercollegiate athletics and the Centers for Disease Control and NIH were sent home many of their workers.

Other services will continue uninterrupted. Social Security and Medicare benefits will be paid. U.S. troops will remain at their posts around the world and will be paid under a bill Obama signed on Sept. 30. Air-traffic controllers and airport security screeners will keep working.

To contact the reporters on this story: Richard Rubin in Washington at rrubin12@bloomberg.net; Roxana Tiron in Washington at rtiron@bloomberg.net; Kathleen Hunter in Washington at khunter9@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net


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