White House Warns of Economic Consequences of Shutdown

The White House recently issued a statement regarding the potential of a governmental shutdown. The stance of the Obama Administration on the impending governmental shutdown is that the shutdown would threaten the nascent economic recovery exhibited in the US markets. 

The controversial budget proposal presented by Representative Paul Ryan, the Chairman of the House Budget committee, adds fuel to the fire, and likely solidifies divergences among the Democrats and Republicans. If a shutdown does occur, this would result in 800,000 federal employees being put on temporary hiatus, unless a deal is reached in the next few days. Additionally, this would mean small business loans would be temporarily stopped, tax returns wouldn’t be processed, and most importantly federal loan guarantees would be no longer available.

President Obama has taken steps to broker a deal between the two parties, and remains hopeful about a deal preventing shutdown being reached. Others such as Charles E. Shumer (D-NY) indicate that while there is hope, this is a glimmer at best. Michelle Bachman (R-NY) has indicated that she could not vote in favor of measure that would cut only $33 billion to $40 billion in spending from President Obama’s budget proposal for 2011.

Despite the uncompromising position of Republican’s, many are concerned that a shutdown would prevent an opportunity to further address the long-term fiscal questions the United States currently faces with its budgetary concerns. The detrimental effect of a shutdown should be avoided according to economists cited in the New York Times, which has the distinct possibility of preventing further growth of the US markets and the national debt.

According to Bloomberg, as the Democrats and Republicans race the clock to compromise on the 2011 Budget, there are several indications that cards are stacked in the favor of shutdown. Particularly, the numerous riders that were added to the Budget Proposal dealing with environmental legislation, healthcare, abortion, among many others. Republicans have been firm in their stance about not foregoing these riders for more spending cuts as a compromise.

Sources:

http://www.nytimes.com/2011/04/07/us/politics/07fiscal.html?_r=1 

http://www.businessweek.com/news/2011-04-06/u-s-lawmakers-race-clock-for-spending-deal-to-avert-shutdown.html