Obama warns US shutdown will cause global tremors
The President hailed the Senate for clearing on Friday a stopgap federal funding measure that knocked the ball into the House of Representatives, where a diehard conservative faction is bent on thwarting Mr Obama's healthcare law.
However, the Republican-led lower chamber will likely tweak the bill and send it back to the Senate, which could leave insufficient time for the legislation to pass both chambers before a fiscal year-end deadline of midnight on Monday (5pm Tuesday, AEST).
A shutdown could reduce fourth-quarter economic growth by up to 1.4 percentage points, depending on its duration, according to economists. The biggest effect would come from the output lost from furloughed workers.
The President made clear he would stand firm, saying a default "would have a profound destabilising effect on the entire economy - on the world economy".
"We've got to break this cycle," he said. "My message to Congress is this: Do not shut down the government. Do not shut down the economy. Pass a budget on time. Pay our bills on time."
With the threat of a shutdown likely to have "a dampening effect on the economy", Mr Obama suggested it was time for House Speaker John Boehner to isolate the "extremists" who are holding the Republican Party captive.
"Nobody gets to threaten the full faith and credit of the United States just to extract political concessions," Mr Obama said. "No one gets to hurt our economy and millions of innocent people just because there are a couple of laws that you do not like."
Concerns that the budget impasse will hurt economic growth helped push the Standard & Poor's 500 Index to its first weekly decline since August. The index fell 0.4 per cent to 1691.75 on Friday, and was down 1.1 per cent for the week. The rate on 10- year Treasury notes fell three basis points to 2.62 per cent yesterday.
"Let's keep this government running," Democratic Senator Mark Begich of Alaska, said. "Look at the markets the last few days. The shenanigans they're playing are causing the markets to falter and that's bad for the economy and bad for jobs."
House Republicans have voted more than 40 times to delay, defund or repeal all or part of the 2010 "Obamacare" law, which is designed to expand coverage to at least 30 million people. Some of the narrower proposals became law. The US Supreme Court upheld the law in June 2012.
The latest move marks a sharp turn for Republican leaders, who earlier this month tried to pass a plan that would have let the Senate strip out anti-Obamacare language and send the spending bill to Mr Obama.
Frequently Asked Questions about this Article…
A US government shutdown risks disrupting the economy and could have global effects, President Obama warned. Economists cited in the article say a shutdown could reduce fourth-quarter US economic growth by up to 1.4 percentage points depending on how long it lasts, largely because furloughed federal workers reduce output. The president said a shutdown or a default would be profoundly destabilising for the world economy, so investors should take the political risk seriously.
Concerns about the budget impasse helped push the S&P 500 to its first weekly decline since August. The article notes the index fell 0.4% to 1,691.75 on Friday and was down 1.1% for the week, as investors reacted to the risk that a shutdown could dampen economic growth.
As investors sought safety amid shutdown worries, the yield on 10-year US Treasury notes fell three basis points to 2.62% according to the article. A drop in yields often reflects increased demand for government bonds when markets become risk-averse.
The article highlights a key deadline: the fiscal year-end cutoff at midnight on Monday (which was 5pm Tuesday AEST). The Senate cleared a stopgap funding measure and sent it to the House, but the Republican-led House was expected to tweak the bill and possibly send it back to the Senate, creating the risk that legislation might not pass both chambers before that deadline.
Yes. The article explains the shutdown risk is linked to efforts by a conservative faction in the House to delay, defund or repeal parts of the 2010 healthcare law (often called Obamacare). House Republicans have voted more than 40 times on measures aimed at altering the law, which was upheld by the US Supreme Court in June 2012 and is designed to expand coverage to at least 30 million people.
President Obama warned that a default would have a 'profound destabilising effect' on the entire and world economy. The article contrasts a government shutdown with the separate but related risk of a default; both are serious for markets because they undermine confidence, can slow growth, and prompt moves into safer assets like Treasuries.
The biggest near-term economic effect highlighted in the article would come from furloughed federal workers who stop producing output during a shutdown. That loss of output can weigh on GDP and is likely to dampen consumer and market confidence, which in turn can hurt jobs and corporate revenues—key considerations for everyday investors.
Based on the article, investors should keep an eye on congressional votes and the progress of stopgap funding measures, the fiscal deadline (midnight Monday / 5pm Tuesday AEST), major market indicators such as the S&P 500, and Treasury yields (which reacted in the article). These signals reflect how markets are pricing the political risk and potential economic impact.
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