10 things to know about the US government shutdown

Global markets were choppy on Tuesday as hopes of a last minute resolution on the US government shutdown died and the White House ordered government agencies to begin shutting down. The shutdown could slow growth and spook investors worldwide. Asian stocks pared gains and India's benchmark Sensex shed around 100 points after a positive start. Overnight, the Dow Jones Average in the US closed down 129 points, its seventh loss in eight sessions.

 Here's your 10-point cheat-sheet on the global development:-

1. Democrats, Republicans in showdown over shutdown: The White House ordered government agencies to begin shutting down after the Democratic-led Senate and Republican-controlled House refused to back down in a clash over scaling back President Barack Obama's landmark health care law as the price for essential federal funding.
2. What is the US government shutdown? It is a political situation in which the government stops providing for all but "essential" services such as police, fire fighting, etc. So unless Congress raises the federal borrowing cap (the legal limit on how much debt the US government can pile up), some of the government would shut down on October 1 as it will run out of money to pay its bills.
3. Why will the government stop funding services? The US budget year ends on September 30. The House of Representatives and Senate are considering bills to fund the government past the deadline. But Republicans want to cut off funding for President Barack Obama's health care law as a condition of passing the spending measure. The Senate and the White House are unwilling to agree. Unless one side essentially blinks, a partial shutdown of the government will occur.
4. Has it happened before? The US federal government has shut down on 17 occasions since 1976.
5. How will it affect US citizens? About one-third of the government will shut down. About 800,000 of about 2.1 million federal employees will be sent home without pay. National parks will close. The Environmental Protection Agency, NASA and other agencies will close most operations. The military and other agencies involving safety and security would continue to function.
6. What would be the effect on the economy? A three-week shutdown would slow the economy's annual growth rate in the October-December quarter by up to 0.9 percentage point, Goldman Sachs estimates. If so, the growth rate next quarter would be a scant 1.6 per cent, compared with the 2.5 per cent that many economists now forecast.
7. What if Congress can't agree to raise the cap in time? It could be disastrous. The government might be forced to immediately slash spending by 32 per cent, the Bipartisan Policy Center estimates. The government could miss interest payments on Treasurys, triggering a first-ever default by the U.S. government. U.S. Treasurys are held by banks, governments and individuals worldwide. Ultimately, a prolonged default could lead to a global financial crisis.
8. Will the economy escape harm if both deadlines are met? Probably. The last major fight over the borrowing cap, in the summer of 2011, wasn't resolved until hours before the deadline. Even though the deadline was met, Standard & Poor's issued the first-ever downgrade of long-term U.S. credit. That, in turn, led to a 635-point plunge in the Dow Jones industrial average the next day. The International Monetary Fund estimated last month that U.S. budget disputes, like the 2011 showdown, can slow annual growth by up to 0.5 percentage points in other parts of the world.
9. What about financial markets? The price declines in stock markets have been modest so far as investors feel they have seen this movie before and know how it ends: with another last-minute deal.
10. High volatility and weak dollar: Andrew Freris of BNP Paribas Wealth Management told NDTV that a possible shutdown will lead to sharp volatility in stock markets and will lead to a weakening of the US dollar, though temporarily.

US government agencies begin shutting down for first time in 17 years

Washington: The United States lurched into a dreaded government shutdown early Tuesday for the first time in 17 years, triggering agency closures and hundreds of thousands of furloughs as Congress missed a deadline to pass a budget.

Ten minutes before midnight bells rang throughout a deeply divided Washington, and after a day of furious brinkmanship President Barack Obama's Democrats and rival Republicans, the White House ordered federal agencies to initiate their shutdown procedures.

"We urge Congress to act quickly to pass a Continuing Resolution to provide a short-term bridge that ensures sufficient time to pass a budget for the remainder of the fiscal year," Management and Budget director Sylvia Mathews Burwell said in a memo to agencies.

Lawmakers had hardly haggled over budgetary matters in the final frantic hours before the deadline -- the end of the fiscal year. Instead, they argued over whether to link the budget pact with efforts to delay Obama's health care law.

"This is an unnecessary blow to America," Senate Majority Leader Harry Reid said on the Senate floor two minutes after the witching hour.

As a mood of crisis enveloped Washington no compromise emerged to head off the first such disaster since 1996.

Instead, the Democratic-led Senate and Republican House of Representatives played a futile game, sending funding bills between them that were doomed to fail.

Obama accused Republicans of holding America at ransom with their "extreme" political demands, while his opponents struck back at his party's supposed arrogance.

Around 800,000 government workers are expected to be sent home, government services are to be slashed and monuments such as the Statue of Liberty and national parks will close.

The crisis is rooted in an attempt by "Tea Party" Republicans in the House to make passage of a new government budget conditional on thwarting Obama's signature health reform law.

The Democratic-led Senate and the president have repeatedly rejected this strategy and urged Republicans to pass an extension to government funding to temporarily stave off the shutdown.

In a deeper sense, the shutdown is the most serious crisis yet in a series of rolling ideological skirmishes between Democrat Obama and House Republicans over the size of the US government and its role in national life.

"One faction of one party in one house of Congress in one branch of government doesn't get to shut down the entire government just to re-fight the results of an election," Obama said, referring to his own re-election.

"You don't get to extract a ransom for doing your job, for doing what you're supposed to be doing anyway," he said, in a stern televised statement at the White House.

But on a day of accelerating brinkmanship, Republicans doubled down on their bid to gut Obamacare, as the health care law, the most sweeping social legislation in decades, is known.

With just three hours to go, House lawmakers passed a bill that would delay the individual mandate, which forces all Americans to buy health insurance under the new law, for a year.

"It's a matter of fairness for all Americans," said Republican House speaker John Boehner, who has struggled to control the riotous anti-government Tea Party faction of his caucus.

But the Senate, which must also sign off on budget measures, immediately rejected the bill.

That led House leaders, less than an hour before midnight, to move to go to conference, meaning the two chambers would appoint formal negotiators to thrash out a budget deal.

That process was already showing signs that it would take hours to coordinate, and Reid sent the Senate into recess until 9:30 am Tuesday.

"We said we'd go to conference if they wouldn't shut the government down, but they're shutting the government down," number two Senate Democrat Dick Durbin told AFP.

Obama warned that a government shutdown could badly damage an economy which has endured a sluggish recovery from the worst recession in decades.

"A shutdown will have a very real economic impact on real people, right away. Past shutdowns have disrupted the economy significantly," Obama said.

Consultants Macroeconomic Advisors said it would slow growth, recorded at a 2.5 percent annual pace in the second quarter.

A two-week shutdown would cut 0.3 percentage point off of gross domestic production.

It would also have a painful personal impact on workers affected -- leaving them to dip into savings or delay mortgage payments, monthly car loan bills and other spending.

Stocks on Monday retreated as traders braced for the shutdown. The Dow Jones Industrial Average was down 128.57 points (0.84 percent) to 15,129.67.

Markets are likely to be even more traumatized if there is no quick solution to the next fast approaching crisis.

Republicans are also demanding Obama make concessions in the health care law to secure a lifting of the current $16.7 trillion debt ceiling, without which the United States would begin to default on its debts for the first time in history by the middle of October.

Polls show more Americans would blame Republicans for the shutdown than Democrats, leaving Boehner torn between his party's wider political interests and a vocal section of his own party.