US government financial shut down

US government financial shut down

The first partial shutdown in the last seventeen years has begun when two houses of Congress failed to reach at any agreeable point. The Republican-led House put the condition of delaying Mr. Obama’s healthcare reform for passing a bill. As a result of this shut down more than 800,000 federal employees are on leave without cash without any guarantee of back pay after the deadlock is over. So for the exact economic impacts are not determined but Goldman Sachs estimates the shutdown could have as much as 0.9% from GDP this year.

The following key departments will be affected by this shut down.

Department of Defense:

Military personnel are exempted. The active-duty uniformed military personnel are not affected from this shut down. About 400,000 out of 800,000 civilian employees of the defense department are no more on work till the deadlock is over.

Department of Energy:

Most of the employees will stop work and only 1,113 out of 13,814 will continue to perform their duties. Those who are associated with nation’s nuclear arsenal and operating dams or something like hydroelectric power are exempted. Similarly those who are oversee the protection of human life and other properties will remain at work.

Department of Transportation:

About 33% employees here stopped working as a result of this shout down. 36,987 out of 55,468 are still working. Those staff member will have to continue working who involved in overseeing commercial space launches.

Smithsonian Institution:

Only 16 percent employees are allowed to work and the rest wait till the deadlock is over. Out 4202 only 688 employees who are taking care and feed animals are working. The national zoo and 19 museum and galleries would close remain close. The Smithsonian Institution cannot accept any voluntary services legally during the shut down.

National Parks:

Only 3,266 out 24,645 staff members will continue duty. The working staff includes fire management, law enforcement and emergency responders. Visitors will be instructed to leave the parks immediately.

Department of Homeland Security:

About 86% employees are exempted here. Those working on borders and ports of entry, coast guard, secret service and other law enforcement agencies workers are allowed to perform their duties as usual.

Department of Justice:

96,744 out of 114,486 employees are expected to continue their work. FBI agents and supported staff are exempted. DEA agents and employees of Bureau of Alcohol, Tobacco, Firearms and Explosives and US attorneys all are exempted. Similarly those who are working for federal prisons are also expected to work.

Economic Implications:

As the US economy is already in a fragile state and the shut down is no less than a dent on investor’s confidence that’s an obvious reason why most of the investors cautiously pulled back from the market as an immediate response. Stock markets around the world showed a steady behavior on Tuesday but a broad decline a day after on Monday. The dollar fell in value against major currencies and touched the lowest in the past 19 months against the Swiss Franc.
Many of the economists are of the opinion that the direct hit of shutdown will not be much drastic on the factors that drive stocks or stock market. They support their claims by arguing that that the essential functions will continue their operations so nothing worse will happen.
But several economists are of the opinion that shut down will have drastic impact on market psychology if lasted for few days or more and will drag down the economic recovery already in trouble.

Bottom Line:

The impact is associated with the period of this shut down. If it lasts for few weeks then definitely the economy will suffer a lot until all the money transfers to state employees are renewed. The better is to come out of the situation as soon as possible to restore investor’s confidence. If the government clash remains for longer period then chances are there it will become a cause of fight over government’s borrowing limit which is then a symbol of red line for the economy.