The Impending Government Shutdown

By Chandrashekar (Chandra) Tamirisa, (On Twitter) @c_tamirisa

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After reading our subscribers are welcome to provide well argued comments on this post.

Comments on this post will be closed when a superseding article on the same issue is posted.

Issue

If the United States Congress does not pass a continuing resolution through September 30, 2011 (the end of Fiscal Year 2011 which began on October 1, 2010), the government will shut down because no appropriations will have been made for the various government agencies to function. The cause of the issue is the budget debate. A similar shut down had occurred in 1996 during the presidency of Bill Clinton.

Relevance to the People 

All government expenditures or outlays by the United States Treasury will cease to occur, including payments of salaries to government workers and contractors.

Is the shutdown necessary if no agreement is reached on government spending and reform?

Yes.

Then, can the government continue to remain open?

Yes.

How?

(a) The Federal Reserve takes over funding the government deficit at FY 2010 appropriations beginning March 01 as approved by the Congress; (b) The Congress and WH will continue to negotiate through the remainder of this FY, through September 30th, the course of government reform; (c) US debt ceiling and new debt issuances by the Treasury will be frozen until the negotiations are complete and most likely for the foreseeable future, legislating the FY2012 nominal budget as the budget constraint for the next decade, subject to revisions once a decade; (d) The Fed will make industrial policy for the US through US debt buybacks and Term Asset-Backed Lending Facility (TALF) over the next decade and the Congress will overhaul taxation to a consumption tax structure to be mutually consistent; (e) Obamacare will be revised as a part of government reform of consolidation and streamlining to a government health safety net only and to encourage the expansion of private health care supply; (f) Financial regulatory reform will be revisited.

What must the government communicate to the public?

If the government must shut down, the WH, the Congress and the Fed must issue a joint statement before the shut down that, as the United States deliberates government reform through 09/30/2011, the Fed will standby to calm the global markets as US debt issuances are frozen for the foreseeable future.

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3 thoughts on “The Impending Government Shutdown

  1. Chandra says:

    Trimming spending by making government more efficient is a good idea, whatever the size of government.

    $100B in cuts, however, does not put a dent in government expenditures to be consistent with the standard economic argument that domestic investment is reduced because rising government expenditures crowd out domestic investment. Therefore, the $100B in GOP budget cuts will only be as effective or ineffective as the ARRA for the purpose of creating jobs.

    The GOP and the WH must think big to significantly increase domestic real investment now, similar to FDR in the 1930s, but through the markets, given all the cheap money, similar to Vanderbilt and J.P. Morgan to prepare the United States for the rest of this century while consolidating and streamlining government overtime to make government spending as a percentage of GDP time consistent.

    http://ctamirisa.wordpress.com/2011/02/19/the-emerging-budget-gambit/

    Neither the Fed nor the markets can be let off the hook on this until domestic real investment rises (along with the potential growth).

  2. If POTUS presents a credible plan for government consolidation and streamlining, public-private cooperation could initially spike government hiring to lower unemployment immediately but to reduce government spending over time, as a percentage of GDP, with government reform consummating through 2031 as boomer government workers leave the workforce. However, the legislative commitments to do so must be made now. The GOP must be open to this possibility in the budget negotiations.

  3. Ben Bernanke, on behalf of the Fed, effectively told the Congress recently that the economic recovery is not yet self-sustaining which is why the Republican spending cuts could be harmful. The balance of risks outlook is such that spending could be just as risky for recovery as, according to the Fed’s reasoning, the Republican cuts. Meaning, the economy needs higher levels of domestic investment from the private sector, especially given the Fed’s monetary easing, and not the mother’s milk of government spending, while increasing the effectiveness of the existing budget without having to raise the debt ceiling. The Fed needs to think about how to make that happen which is its job.

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