Obama at the White House. (AFP)
Washington, Oct. 1: The vast machinery of the US government began grinding to a halt this morning, hours after weary lawmakers gave up hope of passing a budget in the face of Republican attacks on President Barack Obama’s health care law.
For the first time in 17 years, Congress failed to agree on a new budget and refused to extend the current one.
Without the authority to spend money, the executive branch this morning started the process of temporarily mothballing facilities and suspending the many services the government provides.
About 800,000 federal workers are being forced off jobs and most non-essential federal programmes and services are being suspended.
The shutdown, the first since the one in the winter of 1995-96 severely damaged Republican election prospects, raised fears the political gridlock between the White House and a Republican Party influenced by hardcore conservative lawmakers would prevail.
It was far from certain that Republicans could remain unified on their insistence on health care concessions if a shutdown lasted for some time.
The rest of the world, though bemused, appeared to be taking the shutdown in its stride in the initial hours.
Global investors reacted calmly, taking heart from the latest sign that the Japanese economy is gaining momentum after years of torpor.
Indian stock exchanges largely ignored the shutdown with market pundits expecting the crisis to blow over soon. As a result, the sensex gained more than 137 points to close at 19517.15.
The US government has shut down 17 times since 1977. However, it has not happened for 17 years since the historic face-off between Bill Clinton and the Republican-controlled House that halted federal services for 28 days in 1996.
The perceived view in the Indian markets is that the shutdown could impact emerging markets like India only if it prolongs as a result of long-drawn impasse in the US Congress.
Some believe that if the standoff persists and US government employees are furloughed for a longer period, the US Federal Reserve may not be in a rush to taper its $85-billion a month bond-buying programme.
“The Fed could go slow on the withdrawal of the quantitative easing (QE) programme which will have a bearing on the flow of funds, especially to the emerging markets, including India,” said Madan Sabnavis, chief economist at CARE Ratings.
The prospect of a “taper” — which the Fed first spoke about on May 22 — had sent the rupee crashing to a life-time low of 68.85 against the dollar on August 28.
Exporters in India are keeping their fingers crossed. “The US is the largest export market for engineering goods from India,” said Anupam Shah, chairman of the EEPC, which promotes engineering exports.
“For Indian exporters, this would mean that cargo clearances would take longer time. Our exports might slow down unless the deadlock is taken care of,” he added. The engineering exports to the US from India between April and August had fallen by 12.3 per cent, compared with that a year ago.
In the US, federal workers were told to report to their jobs for a half-day but to perform only shutdown tasks like changing email greetings and closing down agencies’ Internet sites.
The Environment Protection Agency will be one of the hardest hit, with less than 7 per cent of its employees exempt from furlough.
The military will be paid under legislation freshly signed by Obama, but pay for other federal workers will be withheld until the impasse is broken.
The self-funded postal service will continue to operate and the government will continue to pay retirement and health benefits to the poor and elderly. The health care law itself was unaffected as enrollment opened for millions of people shopping for insurance.
The standoff pits Democrats against a core of conservative activists who have mounted a campaign to seize the must-do budget measure in an effort to derail the 2010 health care reform they have dubbed “Obamacare”.
There are few issues Republicans feel as passionately about as the health care law. They see the plan, intended to provide coverage for the millions of US citizens now uninsured, as wasteful and restricting freedom.
The Democrat-controlled Senate twice yesterday and again today rejected bills passed in the Republican-majority House of Representatives that conditioned keeping the government open on delaying key portions of the law.
In one of their final moves, House Republicans attached language to a government funding bill that would delay the mandate that individuals obtain health insurance and would force members of Congress, their staff and White House staff members to buy their health insurance on the new exchanges without any government subsidies.
The language will put poorly paid junior staff members at a disadvantage.
Most people buying coverage on the exchanges will receive subsidies through generous tax credits. Most Americans will still get their insurance from their employers, who will continue to receive a tax deduction for the cost of that care.
Under the House language, lawmakers and their staff, executive branch political appointees, the White House staff and the President and the Vice-President will have to pay the entire cost of health insurance out of their pocket.