Is A Government Shutdown Going To Happen? How Does It Affect You?

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There is a threat of a government shutdown next weekend. If that were to happen, a shutdown would pose widespread and potentially severe financial risks to American families.

These risks range from delays in federal paychecks and benefits to long payments and expectations. Hours at airports and reduced customer service teams at federal agencies will increase as the shutdown lasts, experts said.

"We will likely see a government shutdown,” Emerson said. Sprick, senior economic analyst at the Bipartisan Policy Center.

"The question is how long," he added. “The length of time it takes has a real impact on American families, even more than whether or not it happens.”

What else but a government shutdown?

During a shutdown, the federal government suspends operations deemed nonessential.

Each year, Congress must pass legislation to maintain the federal government in operation during the subsequent term period. to finance the fiscal year. Closure occurs if the Legislature is unable to complete this approval process in a timely manner.

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The government's 2024 fiscal year begins on 1 October. If Congress does not pass the necessary spending legislation or a continuing resolution providing interim funding, the shutdown will begin Sunday morning.

This is what will happen this year, as right-wing conservatives say. in the Republican-controlled House of Representatives they are using a possible shutdown as leverage to impose deep cuts in federal spending.

There have been 14 shutdowns since 1980, according to the Center of bipartisan politics. The most recent was a partial closure in 2018-2019; According to the Congressional Research Service, this was also the longest delay, at 34 days.

A shutdown impacts “discretionary” spending. “Mandatory” spending, such as Social Security and Medicare, is saved because it does not require annual congressional approval.

Spending discretionary accounts for about 27% of spending. According to the Congressional Budget Office, the federal budget for fiscal year 2022 amounts to $6 trillion.

In which How would a shutdown affect your portfolio?

The entire shutdown is "one-off," making it difficult to measure its exact impact, Sprick said.

Here's how it probably it will end. 

One of the most immediate and direct consequences: An additional 2 million federal civilian employees will be laid off or continue to work without pay until the shutdown is resolved.

"Loss of income for one, two or three pay periods can mean the difference between paying rent or paying a mortgage," Sprick said. “This could really raise big questions nationwide.”

Workers considered non-essential would be laid off, while those considered essential would continue to work. According to Mark Zandi, chief economist at Moody's Analytics, a 50-50 split is likely.

Also, about 1.3 million people are in military service active. . would remain in the job without receiving a salary. Contractors hired by the federal government would also run the risk of not being paid for their services, and these companies could begin laying off or furloughing workers, Zandi said.

Millions of people could also lose some federal benefits, and experts say that risk increases the longer the shutdown lasts.

For example, about 7 million people would likely experience a delay in assistance from the Special Nutrition Supplement Program for Women, Infants, and Children, according to the White House. The program, known as WIC, provides federal funding to low-income women, infants, and children up to age 5 who are considered nutritionally vulnerable.

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Food assistance through dietary supplements. The Nutrition Assistance Program (SNAP) is “in a better position” than WIC, which would likely be affected within days of the shutdown, Sprick said. But SNAP benefits would also be at risk if the shutdown lasts a few weeks, he said.

Section 8 Housing vouchers used by families Low-income seniors and people with hips disabilities would be at risk, Sprick said.

Some benefits for veterans, such as. B. Disability compensation and transitional assistance may be delayed. as well as some loans for farmers.

Loans guaranteed by the Small Business Administration may be delayed for entrepreneurs, Zandi said. Closing on a home that requires federal flood insurance also likely will be delayed, he said.

Loan processing, taxes and travel will be affected

Customer service would suffer in all functions due to the reduction of staff, experts said.

If past experience is any lesson, absenteeism could also become a key problem among workers if the closure were to continue because they won't get their paychecks, they said.

It's important to note that 90 percent of the staff at the U.S. Department of Education alone could be laid off when the Federal student loan payments will resume on October 1. Borrowers who call the Education Department to ask questions about their accounts will have "a lot of difficulty getting those answers," Sprick said.

Service problems vary by agency and depend on emergency plans. For example, taxpayers may experience delays in IRS services, as may people trying to get assistance from the Social Security Administration.

Travelers may also experience delays. interrupted. Staff such as air traffic controllers and Transportation Security Administration employees are generally considered essential but may stop working after a few weeks, making it difficult, for example, to get through airport security, Zandi said. This happened during the last lockdown in 2018-19.

National parks and some museums may also be closed or limit their services, Zandi added.

Inflation and the US economy

These shocks can have important impacts on the US economy over time.

For example, if the United States stops purchasing typical goods and services (such as computer equipment, paper clips, office furniture), less money will be pumped into the economy. Federal employees who forgo wages can also reduce their expenses. Consumers in general could become anxious and reduce spending if they lose confidence, while investors could become nervous and stock market volatility could increase.

This could coincide with other economic headwinds, such as the end of student loan forgiveness, the United Auto Workers strikes and rising oil and gas prices. essence, Zandi said.

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"I think if If it's a two- or three-week closure, for some it will be an inconvenience, but for most it's not a significant problem,” he said. “If this lasts more than a month or so, it could be a headwind blowing hard enough to stimulate the economy.”

And everyone is d 'agreement. It has entered a recession, he said.

Also, federal agencies that publish economic report data (for example, on inflation and the job market) they won't. "Don't do this during a shutdown. The Federal Reserve relies on this data to determine how to continue its interest rate policy, increasing the likelihood of making a mistake," Zandi said.< 

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