(Photo: Reuters/Gary Cameron)
With the Senate expected to reject a House bill that seeks delay of President Obama's health care law in exchange for funding government operations for a few more months, stock investors were bracing for a shutdown. But its effects will also be felt by many common citizens.
Senate Majority Leader Harry Reid chose that the Senate wait until Monday, hours before the government loses its spending authority, to vote on the House proposal that would delay the implementation of Obama's signature health care reform law, or "Obamacare," and repeal its tax on medical devices.
This apparent attempt to put pressure on the Republican-controlled House increases the prospect of the first government shutdown since 1996.
A new fiscal year begins Tuesday, and the shutdown would lead to suspension of many activities of federal agencies and furlough more than 825,000 workers. It will also temporarily close down facilities like national parks, zoos and museums, and make federal loans unavailable for small businesses. However, spending on essential services would continue.
The likelihood of a shutdown may also crash markets when they reopen Monday, as the shutdown stalemate may lead to a fiercer fight between the Senate and the House when on Oct. 17 Congress will have to increase the debt ceiling or risk defaulting on its debt. House Republicans have said that they would seek more concessions before increasing the debt ceiling.
"A shutdown is just one domino; if it falls, it will cause a series of unknowns, and those unknowns are impossible to quantify," Adam Sarhan, chief executive of Sarhan Capital in New York, told Reuters. "The immediate shock could be 200 Dow .DJI points, could be 1,000 Dow points. Those moves may be exaggerated at first, but if things aren't resolved quickly that could just be the start."
Len Blum, managing partner of Westwood Capital LLC in New York, added: "We're in a game of chicken. Once it became clear that people were willing to risk Federal employee jobs, that's when it became a real concern. We've become somewhat desensitized to this kind of apocalyptical thing coming out of D.C., but as time goes on with no resolution, it will get increasingly bad."
If treasury bonds lose credibility, there could be a financial catastrophe, analysts fear. "Even if it's a brief failure, it would forever be a signal to the market that you can't trust the United States government to make its payment when it's due," Millan Mulraine, the director of United States research and strategy at TD Securities, told The New York Times. "That would shake the foundations of the global financial system."
The House plan, passed late Saturday, funds the federal government through Dec. 15 – excluding Obama's health care law, which Republicans believe will cause premiums to rise steeply and harm the economy.
Reid said the plan was sure to get rejected. "To be absolutely clear, the Senate will reject both the one-year delay of the Affordable Care Act and the repeal of the medical device tax," he said in a statement Saturday. "After weeks of futile political games from Republicans, we are still at square one. Republicans must decide whether to pass the Senate's clean CR, or force a Republican government shutdown."
The White House also said Saturday that the president will veto any measure that challenges his health care law. "Republicans have tried and failed to defund or delay the health care law more than 40 times, and they know this demand is reckless and irresponsible," spokesman Jay Carney said in a statement.