First U.S. Shutdown in 17 Years at Midnight Seen Probable

The U.S. government stands poised for its first partial shutdown in 17 years at midnight tonight, after a weekend with no signs of negotiations or compromise from either the House or Senate to avert it.
Republicans and Democrats in Congress say they don’t want a shutdown, though neither side is budging from their positions to avoid one. House Republicans want to delay President Barack Obama’s Affordable Care Act for a year and make other changes to the health law. The Democrats vow not to let that happen.

Hanging in the balance are 800,000 federal workers who would be sent home tomorrow if Congress fails to pass a stopgap spending bill before funding expires tonight. Standard & Poor’s 500 Index futures slid and Asian stocks retreated on concern of a shutdown, while Treasuries advanced.
Asked yesterday if he thought the government would shut down, Illinois Senator Richard Durbin, the chamber’s No. 2 Democrat, said, “I’m afraid I do.”
“We know what is going to happen,” Durbin said on CBS’s “Face the Nation” program. “We are going to face the prospect of the government shutting down.”
The fallout would be far-reaching: national parks and Internal Revenue Service call centers probably would close. Those wanting to renew passports would have to wait and the backlog of veterans’ disability claims could increase.

Political Blame

The political implications are much less clear. Democrats are painting Republicans as obstructionists who are trying to undo a law passed by Congress and upheld by the Supreme Court. Republicans say they are trying to save Americans from the effects of Obamacare and that Democrats won’t negotiate.
A Bloomberg National poll conducted Sept. 20-23 shows Americans narrowly blame Republicans for what’s gone wrong in Washington, just as they did when the government closed in 1995 and 1996 -- two of the 17 times U.S. funding stopped since 1977.
The Senate convenes at 2 p.m. today and is set to reject the House’s latest plan to delay Obamacare and repeal a tax on medical devices, and send back a temporary spending measure.
House Republicans said they’ll respond by again asking for changes to Obamacare and spent yesterday trying to shift blame for a shutdown to the Democrats.
Representative Kevin McCarthy of California, the No. 3 House Republican, didn’t rule out the possibility of passing a spending measure that lasts a few days to give the parties time to negotiate -- if Democrats are prepared to go along with some Republican efforts to trim back Obamacare.

‘Little Longer’

“We will not shut the government down,” McCarthy said on the “Fox News Sunday” program. “If we have to negotiate a little longer, we will continue to negotiate.”
Even that option seemed unlikely, as Democrats have said they aren’t interested in changes to Obamacare, first passed by Congress in 2010.
House Republican leaders don’t expect to have enough Republicans who support a measure that only extends federal spending, according to a leadership aide who spoke on condition of anonymity to discuss party strategy.
If that’s what the Senate passes today, a likely option for House Republicans to attach to the spending measure is a provision ending the government’s contribution to health insurance for members of Congress and their staffs, the aide said.

Political Points

Trying to push Senate Democrats into action, about 20 House Republicans gathered yesterday in front of the Senate side of the U.S. Capitol and accused Democrats of wanting a shutdown to score political points.
“This is the old football strategy,” Representative Tim Griffin, an Arkansas Republican, said holding a football. “When you get to where you want to be in a football game, you run out the clock.”
In a government shutdown, essential operations and programs with dedicated funding would continue. That includes mail delivery, air-traffic control and Social Security payments.
A shutdown could reduce fourth-quarter economic growth by as much as 1.4 percentage points, depending on its duration, according to economists. The biggest effect would come from the output lost from furloughed workers.

Debt Limit

A brief government shutdown won’t lead to any significant change of the Treasury Department’s forecast for when the U.S. will breach the debt limit, a Treasury spokeswoman said yesterday in an e-mail. The Treasury has said measures to avoid breaching the debt ceiling will be exhausted on Oct. 17.
U.S. government securities rallied in Asian trading, with yields on benchmark 10-year notes slipping to 2.598 percent as of 2:34 p.m. in Tokyo, from 2.625 percent late last week. The MSCI Asia Pacific Index lost 1.1 percent, and S&P 500 futures sank 0.7 percent.
“Concern about the effect on the global economy is being taken up by the markets,” Japanese Chief Cabinet Secretary Yoshihide Suga told reporters in Tokyo today. Suga said that while there was no immediate effect on the economy from the shutdown 17 years ago, he hoped “there will be a swift resolution to the problem.”
The White House yesterday released a photo of Obama meeting with his top staff, including Treasury Secretary Jacob J. Lew and budget director Sylvia Mathews Burwell. A cabinet meeting was scheduled for today. While there was no public statement yesterday, Obama plans to make public statements this week calling on the Republicans to pass legislation he’ll sign, according to a senior administration official who asked for anonymity.

Latest Plan

The latest House plan, which passed after midnight yesterday, would authorize 10 weeks of spending starting Oct. 1 only if much of the Obama health law is delayed for a year.
The proposal opened the second round of volleys with the Senate. While House Republicans have moved slightly off their position, from defunding Obamacare to delaying most of its provisions, Democrats haven’t budged in their support for the health law.
Texas Republican Senators John Cornyn and Ted Cruz criticized Senate Majority Leader Harry Reid, a Democrat, for not calling the Senate into session yesterday to consider the latest House proposal.

Cruz Criticism

“There’s no reason the Senate should be home on vacation,” Cruz, who last week spoke on the Senate floor for more than 21 hours to protest the health-care law, said yesterday on NBC’s “Meet the Press.”
The Senate can act quickly to pass legislation, if all 100 members agree. If a single member objects, it would block legislation from being passed for four days or more.
When the Senate amends the proposal, House Speaker John Boehner will have four main choices -- two of which avert a shutdown. He could pass the Senate bill with mostly Democratic votes or attempt a short-term funding extension to keep the government open past Oct. 1, when fiscal year 2014 begins.
The other two options lead to a shutdown. Boehner could add health-law provisions to the spending bill and ask the Senate to go along, which Senate Democratic leaders have said they’d reject, or do nothing and wait for the political fallout.
The U.S. has had 17 funding gaps from 1977 to 1996, based on a Congressional Research Service analysis. In 1995 and 1996, interruptions lasted from Nov. 14 to Nov. 19 and from Dec. 16 to Jan. 6, as Republicans led by House Speaker Newt Gingrich clashed over the budget with President Bill Clinton.

Health Law

The latest House plan leaves intact some parts of the health-care law already in effect, such as requirements that insurers cover pre-existing conditions and that family plans cover children to age 26. The bill would let insurers deny abortion coverage based on religious or moral objections.
The House measure would delay a requirement for people to purchase coverage or face a penalty, and postpone the creation of marketplaces -- which are supposed to start functioning Oct. 1 -- where people could shop for coverage from private insurers. Further, it would repeal the 2.3 percent medical device tax, which would increase the U.S. deficit by about $29 billion during the next decade.
Republicans and Democrats began bracing for a shutdown by attempting to affix blame on the other side. It’s at least the fourth time in the past three years that lawmakers have taken a budget battle to the brink of a fiscal crisis, each time averting the worst-case scenario just before or after the deadline.
“This has been the Congress of chronic chaos since day one, and this is just another episode,” said Representative Steve Israel, a New York Democrat.

Shutdown looms as House votes to delay health law

 

WASHINGTON (MarketWatch) — The federal government moved closer to its first shutdown in 17 years after the Republican-led House voted early Sunday to delay President Barack Obama’s health-care law by one year as part of legislation to keep the government running.

The House voted 248-174 to attach a repeal of the tax on medical devices that was to help pay for the Affordable Care Act, otherwise known as Obamacare, and then voted 231-192 to attach a delay of the implementation of the law by a year. The latter also included a provision that would allow employers and health care providers to opt out of mandatory contraception coverage. 

White House spokesman Jay Carney said that Republicans who voted to attach the Obamacare measures to the government spending bill were voting to shut down the government. (Read the White House’s statement..)

The measure is widely seen as dead-on-arrival in the Senate.

Before the House vote, Senate Majority Leader Harry Reid said he will not accept changes to the health-care law in exchange for temporary government funding. President Obama promised to veto the measure in the unlikely event it reached his desk.

If House Republicans and Senate Democrats cannot agree by the Tuesday-morning deadline, thousands of government employees will be unable to work.

There will be one more round of votes until a government shutdown is certain.

First, Reid and his fellow Democrats in the Senate are likely to vote on Monday afternoon to table the House measure. Aides said they only need 51 votes to block the bills. Democrats control 54 votes in the chamber. This will sideline conservative Republicans in the Senate led by Sen. Ted Cruz of Texas.

House Speaker John Boehner tried to turn up the heat on Senate Democrats. In a statement, he urged them to vote on the House bill later Sunday and not wait until Monday.

“If the Senate stalls until Monday afternoon instead of working today, it would be an act of breathtaking arrogance by the Senate Democratic leadership,” he said.

House Republicans had a rally outside the Capitol late on Sunday criticizing the Senate for taking Sunday off. They said it showed that Democrats wanted to shut down the government. 

After the Senate acts, the House would then have to pass another measure to fund the government. House Republicans would again have to decide what measures to attach to the bill.

Rep. Kevin McCarthy of California, the Republican whip, said in an interview on ‘Fox News Sunday’ that the House would send another provision to keep the government open but would likely include a “few other options” aimed at Obamacare.

Experts said the end game of this stand-off was still unclear. The two sides are not talking.

A government shutdown would mean the U.S. jobs report for September won’t be released on Friday. The employment data would be the last major labor-market release before the Federal Reserve meets in October to decide whether to slow monetary stimulus.

Another budget deadline, over the federal debt limit, is looming over the horizon. Market experts say the debt ceiling debate is one with more potential to roil markets than a shutdown.

Treasury Secretary Jacob Lew said Congress must act to increase the $16.7 trillion debt limit by Oct. 17.

Obama on Friday urged Congress to raise the debt limit before Oct. 17 and act to avert the shutdown.

 

Global Stocks Tumble as Shutdown Looms; Treasuries Rise

Global stocks fell, extending their retreat from a five-year high, while U.S. Treasuries and the Japanese yen advanced before a potential U.S. government shutdown. Crude oil and emerging-market currencies declined.
The MSCI All Country World Index lost 0.6 percent as of 8:23 a.m. in London as the Stoxx Europe 600 Index slid 0.7 percent and Asia’s benchmark gauge tumbled 1.5 percent. Standard & Poor’s 500 Index futures sank 0.7 percent. Treasuries and Australian bonds climbed. The yen strengthened against all 16 major peers and reached a three-week high against the euro, while the Malaysian ringgit dropped 1.2 percent against the dollar. West Texas Intermediate oil slumped 1.1 percent.

Congress has just one day to end a stalemate that raises the risk of the first government shutdown in 17 years and threatens talks to increase the debt limit. Italy’s government is on the verge of collapse after allies of former leader Silvio Berlusconi said they would quit the cabinet. China’s manufacturing rose less than economists estimated in September.
“There’s been more posturing over the weekend from all sides and to the extent this is a work in progress it’s putting pressure on the market,” Walter “Bucky” Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama, said by phone. “This process is messy. It may be coloring expectations for when they do address the debt ceiling in the next few weeks.”

Debt Ceiling

All 10 groups in the Asian equity gauge fell. Japan’s Topix Index (TPX) slumped 1.9 percent, trimming its first monthly gain since April to 8 percent. The Kospi Index in Seoul fell 0.7 percent and Australia’s S&P/ASX 200 Index slid 1.7 percent, halting a three-day gain. The Hang Seng China Enterprises Index in Hong Kong lost 1.7 percent and Thailand’s SET index fell 2.1 percent.
The House of Representatives voted 231-192 yesterday to stop many of the Affordable Care Act’s central provisions for one year, tying it to an extension of U.S. government funding through Dec. 15. Should the Senate reject the bill today the government could be shut down from tomorrow. Even if the budget fight is resolved, lawmakers would immediately move to the next fiscal dispute over raising the $16.7 trillion debt ceiling.
“While a shutdown itself would not be very impactful in the short term, the lack of cooperation across the aisle doesn’t make me feel confident that a resolution on the debt ceiling will be reached in time,” Paul Zemsky, New York-based head of asset allocation at ING Investment Management LLC, which oversees $180 billion, said by e-mail. “That would be much more disruptive to the economy and the markets.”

Ringgit, Aussie

Failure to approve funding to keep the government open and to raise the debt ceiling would have a destabilizing effect on the economy, President Barack Obama said in a televised statement Sept. 27. Closing the government would cut fourth-quarter economic growth by as much as 1.4 percentage points depending on its length, according to economists from Moody’s Analytics Inc. to Economic Outlook Group LLC.
The ringgit headed for the weakest close since Sept. 13, while the Indonesian rupiah dropped 0.9 percent. While Australia’s currency, known as the Aussie, slipped for a fifth day, losing 0.2 percent, it was set for a 4.5 percent advance in September, the first monthly gain since March.
The yen climbed 0.4 percent to 97.84 per dollar and touched a one-month high of 97.53. The currency rose as much as 1.1 percent to 131.38 per euro before trading at 131.98 on demand for safety after Italy’s leaders stopped short yesterday of dissolving Prime Minister Enrico Letta’s five-month old administration. Berlusconi said he will push for snap elections, while Letta said he plans a confidence vote in parliament Oct. 2 to seek a new majority.

Chinese Manufacturing

HSBC Holdings Plc and Markit Economics said today that their manufacturing purchasing managers’ index for China delivered a reading of 50.2 for September, falling short of an estimate of 51.2 in Bloomberg survey. Fifty is the threshold between contraction and expansion. A report in Japan showed industrial production unexpectedly fell 0.2 percent in August from a year ago, after rising 1.8 percent in July. Analysts surveyed by Bloomberg called for a 0.5 percent gain.
Ten-year Treasury yields fell three basis points to 2.60 percent today, after slipping 11 basis points in the five days ended Sept. 27. Australian government bonds due in a decade yielded 3.81 percent, down five basis points, or 0.05 percentage point, in a second day of declines.
WTI crude oil slid to $101.74 a barrel, headed for the lowest close since July 3. Brent futures lost 0.9 percent to $107.65 a barrel, while contracts on gasoline slipped 1 percent. Gold rose 0.4 percent, paring its monthly loss to 3.8 percent. Copper for three-month delivery on the London Metal Exchange rose 0.3 percent, and nickel gained 0.5 percent.