The Banking Executive Magazine - October 2023

The Wider Impact of Us Government Shutdown REASON BEHIND 2023 US SHUTDOWN The US federal system of government allows different branches of govern- ment to be controlled by different parties. This structure was devised by the nation's founders to encourage compromise and deliberation, but lately has had the opposite effect. That is because in 1980, the Attorney General under President Jimmy Carter's administration issued a nar- row interpretation of the 1884 Anti- Deficiency Act. The 19th Century spending law banned the govern- ment from entering into contracts without congressional approval. For almost a century, if there was a gap in budgets, the government allowed necessary spending to continue. But after 1980, the government took a much stricter view "no budget, no spending". That interpretation has set the US apart from other non-parlia- mentary democracies, such as Brazil, where a strong executive branch has the ability to keep the lights on dur- ing a budget impasse. The US was on the brink of a federal government shutdown after hard- right Republicans in Congress re- jected a longshot effort to keep offices open. The move comes as they fight for steep spending cuts and strict border security measures that Democrats and the White House say are too extreme. Even though the House bill has al- ready included routine Ukraine aid, an intensifying Republican resistance to the war effort means the Senate's plan to attach $6 billion to support Ukraine in war with Russia, may have bipartisan support from De- mocrats but not from most of Mc- Carthy's Republicans. Republican Senator Rand Paul of Kentucky is working to stop the Ukraine funds in the Senate package entirely. IMPACT ON EVERY ECONOMIC SECTOR A government shutdown can have a significant impact on the economy and every economic sector. During a shutdown, many government opera- tions come to a halt, resulting in a full or partial shutdown until Con- gress acts. The following are some of the potential impacts of a govern- ment shutdown on the economy: • Consumer spending: During a shutdown, federal employees may not receive their paychecks, which can lead to a decrease in consumer spending. • Loan defaults: A decrease in con- sumer spending can lead to a rise in loan defaults, which can affect the overall economy and, in turn, the banking industry. the BANKING EXECUTIVE 28 ISSUE 178 OCTOBER 2023