US government shutdown: What happens and who is affected?

Third fiscal battle has led Moody's to lower nation's credit outlook

Newly elected US House Speaker Mike Johnson this week will try to corral his Republican colleagues to pass a plan to avert a government shutdown, which is due to begin on Saturday.

The latest showdown in Congress is the third such fiscal battle to play out this year after the US narrowly avoided a default in May and a shutdown in September.

The brinkmanship has led Moody's to lower the US's credit outlook from stable to negative.

Mr Johnson has proposed a two-part stopgap bill that would fund parts of the government until mid-January and other parts until February. However, he would still have to convince some Republicans and most Democrats to support this.

“House Republicans need to stop wasting time on their own political divisions, do their jobs, and work in a bipartisan way to prevent a shutdown,” White House Press Secretary Karine Jean-Pierre said in a statement.

What happens if the US government shuts down?

Should Congress fail to fund the government, federal agencies will be required to halt all non-essential operations. Essential functions will continue, however.

This will affect a series of activities, from the national parks to passport applications.

Some federal employees will also be told to not report to work. More than 800,000 federal employees were furloughed during the 2013 shutdown, as explained by the Office of Management and Budget.

The furloughs would lead to prolonged wait times on passport applications and small business loans.

Most federal buildings and attractions – such as the Smithsonian museums in Washington – would be closed. National parks would be open, but travelling to one would come with an increased risk as the National Park Service would not be able to maintain visitor centres, restrooms and roads.

The White House also said a shutdown would put at risk nutritional assistance for 7 million people who rely on nutritional programmes.

“With less than one week before the end of the fiscal year, extreme House Republicans are playing partisan games with peoples’ lives and marching our country toward a government shutdown that would have damaging impacts across the country,” the White House said.

How would a shutdown affect the economy?

A shutdown could also affect the US economy and the nation's credit rating, which has already taken a hit following the debt ceiling stand-off earlier this year.

“A shutdown would be credit-negative for the US sovereign,” credit ratings agency Moody's wrote in a note to clients.

But the overall economic impact of a government shutdown is marginal compared to that of what Congress faced with the debt ceiling crisis.

“However, compared to the debt limit, the less severe economic effect of a shutdown also makes it more likely that Congress fails to act in time,” Goldman Sachs's chief US political economist Alec Phillips wrote in the firm's report on the issue.

A governmentwide shutdown would reduce economic growth by about 0.15 percentage point for each week it lasts, Goldman Sachs says.

How many times has the government shut down?

The federal government has shut down 21 times over the last five decades.

The most recent shutdown was also the longest. From December 2018 to January 2019, former president Donald Trump forced a government shutdown to receive funding for the US-Mexico border wall.

That ended after 35 days without any funding for the wall.

It was one of three shutdowns to have happened during Mr Trump's term. The first lasted for three days, and the second only for a few hours.

Mr Trump has pushed Republicans to force a shutdown this year so as to interfere with the work of two federal cases against him, although criminal prosecutions will continue even if the government shuts down.

Updated: November 13, 2023, 5:02 PM