White House Tells Federal Agencies to Brace for Possible Government Shutdown
The White House Office of Management and Budget on Thursday advised federal agencies to brace for a possible partial government shutdown next week.
Democrats – with their razor-thin majorities in the House of Representatives and the United States Senate – are scrambling to keep the federal government open past September 30th, when current funding runs out.
As if that were not unthinkable enough, given that the COVID-19 pandemic is still raging, the nation is also staring down the barrel of its first-ever debt default if Congress fails to raise the debt ceiling by mid-October. Despite the economic calamity that would immediately follow, Republicans – led by Senate Minority Leader Mitch McConnell (R-KY) – have united in opposition to increasing the Treasury Department’s borrowing power.
The White House, however, remains cautiously optimistic that a last-minute, bipartisan deal can be struck.
“We fully expect Congress to work in a bipartisan fashion to keep our government open, get disaster relief to the Americans who need it, and avoid a catastrophic default, especially as we continue to confront the pandemic and power an economic recovery,” Abdullah Hasan, a White House Office of Management and Budget spokesman, said in a statement that was obtained by The Washington Post. “In the meantime, prudent management requires that the government plan for the possibility of a lapse in funding. Consistent with long-standing practice across multiple Administrations, OMB is preparing for any contingency, and determinations about specific programs are being actively reviewed by agencies.”
The economic fallout from a double-whammy shutdown and credit default cannot be overstated. On Tuesday, Moody’s Analytics warned in a sobering report that the consequences of the US being unable to fulfill its financial obligations would be absolutely catastrophic.
“This economic scenario is cataclysmic,” Moody’s chief economist Mark Zandi wrote in the report. “Based on simulations of the Moody’s Analytics model of the U.S. economy, the downturn would be comparable to that suffered during the financial crisis. That means real GDP would decline almost 4% peak to trough, nearly 6 million jobs would be lost, and the unemployment rate would surge back to close to 9% (see Table). Stock prices would be cut almost in one-third at the worst of the selloff, wiping out $15 trillion in household wealth. Treasury yields, mortgage rates, and other consumer and corporate borrowing rates spike, at least until the debt limit is resolved and Treasury payments resume. Even then, rates never fall back to where they were previously. Since U.S. Treasury securities no longer would be risk-free, future generations of Americans would pay a steep economic price.”