Looming U.S. Government Shutdown Sign of Future Financial Crisis

[Editor's Note: Last week we asked readers if they were concerned about a U.S. government shutdown. A collection of responses is included below, along with next week's Question of the Week, "How Do You Feel About the GOP's Proposed Spending Cuts?"]

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Washington for months has been tangled in a messy political debate over the 2011 federal budget. The newest deadline to reach a budget deal – April 8 – is just a couple of days away.

The phrase "government shutdown" is being used with increasing frequency.

Temporary funding measures have kept the government running this year as U.S. lawmakers repeatedly extended the final budget deadline. An end to negotiations is still nowhere in sight – stoking the shutdown discussions.

While the thought of a Capitol Hill ghost town has a certain allure, federal budget expert Stan Collender says most Americans would find little to joke about in the face of a real shutdown.

"Everybody may hate federal spending, but they like federal services," Collender told NPR. "And that's what happened back in '95 and '96 when we had the last two shutdowns. Within minutes…after everyone got over the initial kind of amusement of the situation, they realized suddenly that they couldn't apply for a passport, couldn't apply for a visa, and national parks were closed. Government contractors suddenly found out there was no one there to review their proposals or process their checks – and they were angry as hell about it."

A U.S. government shutdown means running essential operations only. National parks and museums close, cleanup at toxic waste sites stops, passport applications and Social Security claims go unprocessed, and hundreds of thousands of federal employees and government contractors go without pay.

When asked last Tuesday to rank the odds of a U.S. government shutdown on a scale of one (shutdown) to 10 (no shutdown), House Minority Whip Rep. Steny Hoyer, D-MD, said, "I would've said 'eight' two weeks ago. At this point in time, I'll tell you five to six."

Republicans and Democrats both have developed budget plans – with a $51 billion difference in the proposed spending cuts. Both parties are hesitant to compromise, but more than willing to point fingers at each other for delaying the process.

"One thing about a government shutdown, the government doesn't stop taking money out of your paycheck every Friday," Rep. Robert Andrews, D-NJ, told NPR. "People still pay taxes, but they get no services. How anybody could put the country at risk of that situation is beyond me."

While some anxiously await the deadline, others think the U.S. government will continue to delay a final decision until it runs into more problems – like next year's budget and the approaching debt limit.

"My guess is we end up with another short-term resolution taking it to, say, 4/29," said Money Morning Contributing Editor Martin Hutchinson. "After that, it's tied up with the 2012 budget and the debt ceiling, in both of which the GOP House has rather more leverage. My guess would be a fair number of threats and mock-crises in May, followed by an overall agreement on a giant package involving only modest cuts in early June, just before the government finally runs out of the ability to borrow."


This prompted last week's Money Morning "Question of the Week": Do you think we are headed for a U.S. government shutdown? Do you think the parties will reach a budget agreement, or continue with temporary funding measures? How would you be affected by a government shutdown?

Readers sent in the following comments on what the possible looming government shutdown means for the country.

"I'm Not a Pessimist – I'm a Historian"

It seems likely to me that we are headed for a government shutdown, because there are enough people on opposite sides of the debate who figure that they could spin such a shutdown to their benefit. The effects on the "little people" don't really matter to such, only whether or not such a move will help their re-election efforts.

In a larger sense, though, we are headed for a government crisis, as our financial situation will blow up or collapse at some point. A shutdown on April 8 would be a minor and easily reversed inconvenience for the United States. A sudden rise of several percentage points in interest rates, or an acceleration of real inflation by the same amount, or both, would have a far more catastrophic effect on the nation, and I don't see how we can avoid both of these for much longer. We will get one or the other, and we may get both.

This would not result directly in a U.S. government shutdown, but when it becomes evident to everyone that the government is impotent to deal with the problems that it has created, and everyone is hurting and angry, the situation will be far more serious than a simple shutdown in the near term. My real fear is that by the time the crisis becomes real and evident, it will be too late to make real changes to fix it. But now, when we may still have a small window of opportunity to make a difference, our politicians are threatening to shut down the government over annual cuts that would not cover two weeks of our deficit.

The saddest part about the whole thing is that whatever compromises are made (to either avoid a shutdown or to pass a budget and get the government going again) are likely to make the long-term problems worse. Sorry to sound so negative, but as a co-worker of mine used to say, "I'm not a pessimist – I'm an historian!"

- Gordon F.

Wasted Money on Wages

We have too many politicians lining their personal pockets with our money, politicians who give themselves a raise while we pay for their high wages. Then when the budget can't be balanced, they threaten us with shutting down things that do not need to be shut down.

If only the American people will say enough and demand our fat cats in government to cut their wages instead of criticalservices that the American people want. Wake up America! We have been asleep at the wheel way too long!

Maybe the government should shut down so things can finally change. Has to get bad before it can get better.

I love my country (America) so very much! But I have had it with wasted money on rich politicians and pork barrel spending.

- Kirk M.

Bring It On

I say bring it on. Give the economy a breather without Washington trying to micro-manage every detail of our lives. Other countries have somehow managed to go months without a "government." Italy and Belgium come to mind. Just think of all the money we could save in two weeks if Congress and the White House could not use their debit cards!

- Jay

Keep 'Em Shut

'
Hooray! What can we do to make this happen? If non-essential services can be "shut-down" let's keep them "shut-down."

- M.S., Mississippi

I wish it would shut down forever!

- Holly J.

[Editor's Note: Thanks to all who responded to last week's "Question of the Week" about a possible U.S. government shutdown.

Be sure to answer next week's question: What do you think about the GOP's proposed spending cuts? Do you think the budget proposal is good for the country, goes too far, or doesn't do enough? What do you think about the proposed changes for Medicare and Medicaid?

Send your answers to mailbag@moneymappress.com.!

Is there a topic you want to see covered as a "Question of the Week" feature? Then let us know by e-mailing Money Morning at mailbag@moneymappress.com. Make sure to reference "question of the week suggestion" in the subject line. We reserve the right to edit responses for length, grammar and clarity.

Thanks to everyone who took the time to participate - via e-mail or by posting their comments directly on the Money Morning Web site.]

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  1. stareshooter | April 6, 2011

    its not about politics ebventually ..its about arithemetic.
    Gov debt is 35 times what it takes in taxes.We are screwed.
    only way out is massive devaluation of the $ ( its gonna come when the markets stop buying our debt).
    get ready for 10$ gas folks.
    Buy a house, buy gold, buy land …buy real stuff becasue the Banksters have killed our currency.
    They are fighting their last battles..but their fraud and mis- management are so horrific and spectacular that they look like Hitler in the bunker.

  2. Michelle | April 6, 2011

    Non Essential may not matter to M.S Mississippi but to some people it does matter and it is not a good thing if it is shut down. Grow up M.S Mississippi it is not all about you.

  3. cornelis | April 6, 2011

    Thanks for your article! Have read it with unbelief but know it's reality It's a big shame for the people you've voted for and I do not understand why they call it Democracy at all? I am not from the USA but for me when read all of this how is the US defending and promoting Democracy in the world and make such a mess at home? About Belgium, you mentioned, there is no government and thing
    s are not collapsing,food to think about for our Democratic Leaders !!Thanks again for your article and stay on top of this very necessary to bring this information to a greater public not in the US alone but also in the EU

  4. John C. Bonser | April 6, 2011

    I find it sad that so many who hate the government fail to realize that it is our country that is being harmed.

  5. Louise Cave | April 6, 2011

    The people who say "bring on a government shutdown" surely must be jesting because the failure to pay salaries to lower echelon workers, military families, and Social Security benefits to retirees would lead to hardship and chaos not seen since the Great Depression. While it would feel nice and retaliatory that some elected officials weren't receiving their padded expense accounts, the majority of people most affected would be those who could least withstand curtailment of funds. I would urge people to spend today and tomorrow emailing and phoning their representatives in an effort to reach some sort of budget agreement before we find ourselves faced with bank closures and bread lines in what has been historically the greatest nation in the world!

  6. Valdanie Jerome | April 6, 2011

    Thanks

  7. Jill | April 6, 2011

    Congress needs to take a huge paycut that should be the very first thing on their list of cuts!!! They make an absurd amount of money to screw up our finances (as well as other things). Put in someone that actually cares what happens with the American People instead of how much money they can make being a politician and our budget problems would be resolved! We need to go back to the basics that our Founding Fathers started and start from scratch…everything has been so distorted from our government over the decades…I don't even think government knows what the Constitution is about.

    I was so happy to hear that THEY will still get paid to figure out the budget while my family and friends are fighting a war in a third world country that the UNITED STATES sent them to and they will not get paid for their service. However they will still be able to get shot at and killed during this time, but it's okay that their families (who live paycheck to paycheck) will not have the money to pay essential bills or put food on the table for their children. A stress the soldiers do not need on their mind while in the field…. God Bless America my back end.

  8. Bonnie | April 6, 2011

    We would all benefit from a 6 month gov. shut down!
    Think of the money we would save.
    Think of how our population would have to step up and take care of the needy,
    and clean up our towns, and cities, and look out for each other!
    Oh my goodness, the Tea Party already does all that!

  9. Barbara | April 6, 2011

    Belgium's federal government has been shut down around 275 days and they seem to be better off. A good deal of our problem is Congress spending more money than they take in. Maybe if they shut down for awhile and couldn't spend, we'd be better off. More importantly we might learn that we can get along just fine without so much that the federal government assumes for itself and has no business doing.

  10. Tusker DeMan | April 7, 2011

    At last, the crunch is almost on us. I have no idea what the fuss is about. This has been planned for decades and the infrastructure is all in place to accommodate this shutdown or collapse, whichever is your preferred description.
    The eight hundred FEMA internment camps are locked, loaded and ready to receive the first shipments of dissenters possibly transported via the Chinese constructed rail human cattle trucks purposely built for this shipment. And it is with some relief the US government has already prepared sufficient quantity of body bags and multiple person coffins, all stacked and ready for those leaving the camps.
    So all in all, all is good. The politicians will close government for an extended period, the populace will revolt, civil unrest and the same politicians can then claim immunity as they were not responsible at the time. Good 'ol yankee, "plausible deniability". Of course, by the time it all sorts itself out. the US will be ready for more immigrants to make up for the losses, who will be glad of the opportunity to live the life of debt.
    Am unsympathetic and avidly waiting the news over the coming months.

  11. DD | April 7, 2011

    Jill – Please do not say God Bless America – It sickens me to my stomach when I hear and read that. God would not be so stupid to bless this country due to its insatiable greed and exploitation of other countries!! Imo, the likes of Darfur and Haiti and other (alike) countries need blessing a sht load more than the US. – What makes this country more deserving for God's blessing over another, for I fail to see it? Please don't anyone say it's because this country is so giving because behind this giving facade are ulterior motives. So everyone please stop with the false sense of patriotism and self glory – the world is tired of it and are very baffled as to why people here continually think they deserve God’s blessing over others.

    I absolutely agree with you on everything else you commented on though and would like you to know that.

  12. jim marshall | April 7, 2011

    how does cutting taxes reduce the deficit? lets cut out all the wasteful senate staffing and representative staffing as well. these guys live too high on the hog.

  13. Hooah 4 Paycuts | April 8, 2011

    What some may not realize how much this is impacting my family at home. I am currently serving overseas on a strenuous deployment and my family at home with a infant is going to suffer and be forced to have the household bills pile up because we will no longer have the money to pay them. So not only is it affecting us mentally and emotionally over here its destroying our famiies at home.

  14. ALAN MACDONALD | April 10, 2011

    RE U.S. GOVT SHUTDOWN -YES MUST REDUCE SPENDING ON EVERYTHING EXCEPT EDUCATION THAT IS THE KEY -FROM A CANADIAN -HIGER INCOME TAXES FOR THE MORE AFFLUENT AND I MEAN 65% AS IN CANADA OVER SAY 150,000 -AND WHAT ABOUT VAT-GST ALL COUNTRIES HAVE -15% NOT ON NUTRITIOUS FOODS-EVERYTHING ELSE-WHAT ARE YOU WAITNG FOR AND -LUXURY TAXES- IE BUY AND EXPENSIVE CAR PAY EXTRA VAT OF 5%
    I DONT GET IT -SIMPLE, IMPLEMENT-STOP WASTING TIME AND MONEY WITH ALL THE RETORIC

  15. Waggis | April 11, 2011

    If the republicans wouldn't have started the war in Iraq and the war in Afghanistan and if they would neither have cut the taxes for the rich people to a ridiculous low level, the Obama administration wouldn't face such huge problems. And remember, Greenspan, who was spending money like water, was a republican too.
    I personally think that America and the USD are in a worse state than Europe and the Euro.

  16. jj | April 11, 2011

    I keep hearing that the U.S. economy is 70% dependent on consumer spending and that Americans borrow too much and save little.Then I read that we don't produce much anymore. I get the idea that this is a problem.Why not change the tax system to more consumption taxes that would encourage less consumer spending and lower taxes on income and investment to increase production.Makes sense to me.This would also cause the people who support big govt,but don't pay any taxes,to start picking up the charge for all this inefficient,wasteful govt spending.

  17. DD | April 12, 2011

    Waggis – Couldn't agree with you more. It's total BS when the US mainstream media implies "Europe's Demise, America's Recovery" type of scenario – it couldn't be more further from the truth! The fact remains the US is in more debt than the whole of the EU combined, so whatever happens there is sure to happen here – it's not if, but when and when will be here soon enough.

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