Over the past week I have received a few queries from clients in relation to the ‘Government Shut-down’ over in the US. Individual investors didn’t know the consequences that this shut-down could have on the US economy itself and also the implications across the world. I have tried to summarize exactly what is going and the consequences it may have in the below 10 points;

The partial shut-down is a direct result from Republicans refusing to approve a budget. They stated that they would only approve a budget if funding for President Obama’s healthcare reforms were delayed.

1. The disagreements have been an on-going issue between the Democrats and the Republicans since the election of Barack Obama. The normal agreement between the two parties to date has been to extend the US budget by a few months and negotiate around the margins and short term fixes.
2. At 11.50pm on September 30th the White House budget office issued an order for government offices to begin shutting down, with all ‘non-essential staff’ being forces to say at home without pay.
3. Areas to be directly affected include; national Parks, museums, federal buildings, federal services, pension and veteran benefits.  Obama has signed a separate document into law to insure all military personnel and border work can continue as normal.
   According to IHS estimates the daily cost in loss of labour as a direct result of the government shut-down is approximately $300. However this number is likely to accelerate if consumer confidence is affected.
4. There needs to be an agreement reached by the October 17th deadline to increase the government’s $16.7 debt ceiling to a level it can borrow to pay its bills.
5. We have seen a relatively mild market reaction to date from the global stock markets however the US dollar has been hit the most losing significant ground against other major currency pairs. The longer this dilemma continues the bigger the effect it will have across the globe.
6. This is the first partial US government shut-down in 17 years.
7. Going back through history the US has never defaulted on its debt before and I don’t see them starting now. Although there seems to be political turmoil between both parties these things usually get ironed out along the way.
8. The below graph shows the debt ceiling from the period of 1980-2013, interesting to note normally debt should be reducing not increasing. Wonder what the local bank manager would have to say if this was the case of an individual and not the US government.

                                                                                                                                                                                                                       *Source: Whitehouse.gov