Investor alert: The reasons behind the persistent threat of a US government shutdown

In the United States, the threat of a government shutdown At the end of the weekdespite the efforts of House Speaker Mike Johnson, for presenting a new commitment plan. This plan, however, excludes hardline conservative priorities, such as spending cuts and reduced immigration.

A government shutdown could trigger a downgrade in the US credit rating by Moody’s Investors Servicewhich has identified the political crisis as a growing riske for bond investors. Furthermore, it would have significant political implications for both parties.

Congress is under pressure, with just days to pass a new stopgap law before funds run out after November 17. Johnson has proposed a plan that he said would provide time for lawmakers to negotiate individual spending bills, a demand from fiscal conservatives.

Although Johnson hopes his plan will be approved tomorrow, Tuesday, he faces resistance from both Republican Party conservatives and the White House.. The lack of aid to Ukraine and the extension of funding for some agencies until January 19 and others until February 2 have generated discontent.

The vote on the plan tomorrow will be crucial, as Johnson will need the support of some Democrats due to their narrow majority and opposition from fiscal conservatives. Before the vote, conservatives could block the plan, expressing their discontent.

Political crisis in the US

The political crisis in the north reached critical levels this year, bringing the country to the brink of default on its debt and causing the downgrade of the sovereign debt rating by Fitch Ratings. The political situation was also a determining factor in the dismissal of the then president of the House of Representatives, Kevin McCarthy whose proposed similar solution was not well received by hardline Republicans.

Moody’s credit rating agency, the only one that still gives the highest rating to the United Stateschanged its outlook from stable to negative on Friday, signaling risks to fiscal strength and political polarization in Congress.

The chaotic election of a new president over three weeks has weakened the position of Republicans in undecided states, according to a survey by the Bloomberg agency. Voters in swing states said the chaos in the electoral process made them lean more toward Democrats in 2024, a margin 9 percentage points higher than those who leaned Republican. Among independents, the margin in favor of the Democrats was 7 points.

The threat of a government shutdown adds more pressure to the situation. If it starts on Saturday, would leave hundreds of thousands of federal workers out of work just before the Thanksgiving holiday, delay government contracts and supplier payments. Although military personnel and law enforcement officers would continue to work without pay, uncertainty would increase.

Although financial markets have initially shown little interest in the risk of closure, concern is growing as the long-term economic impact is considered. The University of Michigan’s consumer confidence index has fallen to its lowest level in six months, reflecting growing uncertainty.

Johnson’s proposed plan seeks to extend funding through Jan. 19 for several departments, but faces hurdles in the Senate, where Republicans could block Democrats’ rival plan. The complexity of the immigration issue also complicates the possibility of reaching an agreement this week, especially regarding emergency security aid for Ukraine, Israel, Taiwan and the US border, these being the main areas of dispute between the parties.