In the US, the danger of a partial standstill of government business is approaching. During a formal vote in the US Senate on Monday evening (local time), the Republicans blocked a proposal to secure government funding beyond the end of the fiscal year this Thursday. If no budget regulation has been decided by the start of the new financial year on October 1st, a “shutdown” occurs.
President Joe Biden is determined to avoid that. But there is an even greater misfortune looming: a potential default by the government in October. In addition, Biden is fighting for the implementation of two huge investment packages – here, too, this week should decide on the success or failure of the president.
“Shutdowns” by parts of the government are common in the US. This means that civil servants would have to be given compulsory leave or work for a period without pay. Depending on the length, certain government services could be restricted or payments could be delayed. In the past, such “shutdowns” sometimes only lasted a few days or hours, which means that the consequences are limited – or weeks, which can lead to major disruptions.
The House of Representatives passed the government’s temporary funding scheme last week with the vote of the Democrats. In the Senate, however, the Republicans resisted. They complained that the bill also provides for the debt ceiling to be suspended for the time being.
According to Treasury Secretary Janet Yellen, if Congress does not raise the debt ceiling, the US government is at risk of default in October. It is not possible to give an exact day, but the government will run out of money “during the month of October”, Yellen last warned. If the government fails to service its debt in October, the US economy and financial markets around the world face “irreparable damage.”
