US Government Shutdown

Over the next week the news is going to be dominated about stories about the US government being shut down. It's a great example of the three branches of the US government (Execitive, Congress, Judicial) being unable to solve complex, nuanced, problems. This post briefly describes what the impact of a shutdown may be, why this is happening and why it matters to Canada.

What It Might Look Like
The US government shut down in 1995 and again in 1996, when Bill Clinton was President giving us some idea of what a shutdown may look like. All non-essential functions of the government stop in a shutdown, which can get pretty bad pretty quickly. Exactly what gets shutdown, or slowed is a grey area, but some examples are likely to include:

• Ancillary education programs such as head-start
• Workplace safety inspections would stop. 
• National parks would close 
• Regulation of the financial markets would be weakened
• Environmental regulation would be weakened
• Processing of new visa, passport, social security and medicaid applications or changes would stop or slow
• Military workers would likely continue to work without pay, under the assumption they would receive back pay when the shutdown ends

Essentially, if you're a person who receives a paycheque from the US government; that cheque doesn't come when the government is shut down.

Why it is Happening

In an attempt to make a highly controversial debate simple, I'll try this in point form:

1. The US creates spending commitments in their budget. Since either 2000 or 2001, the US government has committed to spending more than it has taken in revenue each year, known as a deficit.
• See: 9-11, Iraq War, Fannie May-Freddie Mac, Economic Collapse in 2008, aging population, etc. for reasons why that happened.
2. In order to pay for this deficit, the government has to borrow the money. The amount of money that the US can borrow is known as the debt ceiling. Every time the US borrows up to this ceiling, they have to raise that ceiling to continue to pay for the commitments made in the budget.
3. The total US government debt is increased every year that they run a deficit. If the government was to run a surplus, they could choose to pay off debt.
• IMPORTANT: The debt ceiling is not the budget. The debt ceiling is the artificial limit Congress imposed on the country for how much money the government can borrow. 
4. Therefore (and this point would see some debate from extreme Conservatives) a refusal to raise the debt-limit is a refusal to pay bills they have already committed to.
5. The US is about to reach their debt limit and congress is saying they will not raise the ceiling without putting conditions on a bill approving a raise to the ceiling:
• Congress is broken in to two houses: Senate and House of Representatives. The House of Representatives has a majority of Republicans and the Senate is majority Democrats. The Republicans in Congress are mostly made of members who would describe themselves as Tea Party members, an extreme Conservative group who believe that government is generally a bad thing and should be limited.
• The main condition the Tea Party members want to place on raising the debt limit is to not fund the health care law that all three branches of Government approved in President Obama's first two years in office.
• If Congress sends a bill to the President for approval that raise the debt ceiling but has any conditions, the President has said he will veto that bill. This is likely where the government shutdown will occur.
6. This should all come to a head in October. Currently the treasury department in the US is saying that if the debt ceiling is not raised the US will default on it's bills by the end of October.

Why This Matters to Canada
It's challenging to say what the exact impact on Canada will be, but some examples could be:

• Longer lines at US borders, as customs officials are government employees.
• Impact on manufacturing in Canada, as the US is our largest customer.
• Financial Markets are likely to plummet, with many people around the world having vast sums of money invested in the US market or ties to companies listed on those markets.

Links
http://www.forbes.com/sites/kellyphillipserb/2013/09/20/government-shutdown-101-what-happens-when-the-lights-go-off/
http://www.sfgate.com/business/bloomberg/article/Republican-Clash-With-Obama-Adds-Risk-of-4832222.php
http://www.nytimes.com/2013/09/21/us/politics/house-spending-bill.html?pagewanted=all&_r=0
http://www.politico.com/story/2013/09/house-gop-debt-limit-increase-96982.html