US Government Shutdown And Its Economic Implications

After a 35-day government shutdown, lawmakers in the US finally reached an agreement on 25 January 2019 to re-open the government for 3 weeks, till 15 February 2019. The US Federal Government Shutdown, which began from the midnight of 22 December 2018, was the longest in the US history and the second during the controversial presidency of Donald Trump.

Reason for Shutdown

The longest government shutdown in the US history was stemmed from an impasse over Trump’s proposed US$5.7 billion bill to fund a US-Mexico border wall. Since his 2015 presidential campaign, Trump has repeatedly claimed at his numerous campaign rallies, press conferences, interviews as well as Twitter tweets that “he is going to build a border wall between the US and Mexico” and “have Mexico pay for the wall.” Obviously, this is only Trump’s own wishful thinking. Mexican President Enrique Pena Nieto responded negatively to Trump’s demand to pay for the border wall, in his address to the nation in January 2016. Consult your economics tutor in your economics tuition class for an explanation from the economic point of view, why it does not make sense to build a US-Mexico border wall. You may sign up for economics tuition with a good economics tutor to learn more. A good economics tutor should be able to incorporate real world events into his economics tuition.

With the other party refusing to pay, Trump had to resort to other means to fund the US-Mexico border wall that he had promised to build during his presidential campaign, in a bid to ease the various social problems arising from the illegal immigrants from Mexico. Unfortunately, he failed to secure strong support from his own party, not to mention Democratic lawmakers. To force his way through, Trump declared government shutdown on 22 December 2018. Mr Edmund Quek, a well-known economics tutor, also principal economics tutor of Economics Cafe Learning Centre, the best economics tuition centre in Singapore has shared with his students in your economics tuition class an interesting case study on this. You may visit his website to find out more about this economics tutor and his economics tuition.

Economic Implications of US Government Shutdown

The government shutdown has left some 800,000 federal employees in jeopardy. Among them, 380,000 were furloughed and the remaining 420,000 were required to work without pay. One quarter of the government carrying out non-essential activities was shut down. Damage to the US economy is estimated at US$11 billion, not including indirect costs which are often difficult to quantify. With guidance from your economics tutor in your economics tuition class, list out the indirect costs.

Fitch Ratings warned of a possible downgrade in the US’s credit rating should the shutdown continue. A credit downgrade will make borrowing more costly for the US companies and households. Economists believe that an extended shutdown will have a negative impact on consumer confidence, which will in turn affect the stock market performance and consumption, pushing the US economy into another recession.

In the US, the personal savings rate on average is only 2.4 per cent. The majority of American people live from pay cheque to pay cheque. Therefore, a government shutdown for 35 days has seriously affected their livelihood. Some of them may not even have money to buy groceries or milk powders to feed their kids. The current stopgap bill is only to re-open the government temporarily for three weeks. Should Trump fail to reach a deal with the Congress by 15 February, the government will shut down again. It is evident that Trump is using 800,000 federal employees’ livelihood as his bargaining chip to force his way through. The Congress, now under Democratic control is unlikely to give in. It remains to be seen who will be the ultimate winner. Regardless, federal employees are the ones suffering most from this tug of war.

Linda Geng

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