Some may say that this is not the first time, and it will not be the last time. Yes, the US government has "shut down" 21 times in history, the last time was from December 2018 to January 2019 during the Trump administration, when disagreements between the two parties over the construction of the border wall led to a 35-day government shutdown, which is also the longest government "shutdown" in US history.
Still, markets breathed a sigh of relief late on Sept. 30 when President Joe Biden finally signed the stopgap spending bill passed by Congress. That means the U.S. government can operate at least through mid-November without the furlough of hundreds of thousands of federal employees, the shutdown of some public services and the curtailing of social benefits. Moody's, the rating agency, has also warned that it may downgrade its top AAA rating for the US government if there is another shutdown.
Although the short-term fiscal crisis has been temporarily resolved, the real problems lie ahead. In passing the temporary bill, the differences between the two parties and the contradictions within the Republican Party were laid bare.
In the next 45 days, will the U.S. government be able to successfully pass the full-year fiscal appropriations for 2024, and is there a deeper crisis? Can McCarthy, who bypasses party hardliners with the support of the Democratic Party, retain his position as speaker? The "National Business News" reporter interviewed Diao Daming, a professor at the School of International Relations of Renmin University of China and a well-known expert on American studies, and David Wessel, director of the Hutchins Center for Fiscal and Monetary Policy at the Brookings Institution, for an in-depth analysis.
Why the frequent government shutdown crisis?
Finally, at the last minute, the US Congress averted another government shutdown.
At 21:00 local time on September 30, only three hours before the US government opened the 2024 fiscal year, the US Senate voted 88-9 to pass a short-term spending bill to avoid a government shutdown. Then, in the final hour before the start of the new fiscal year, Biden signed the bill into law.
The bill, which extends funding through mid-November, includes $16 billion in disaster relief measures but does not include the most controversial aid to Ukraine or border security measures sought by Republicans.
The stopgap spending bill, introduced by Republican House Speaker Kevin McCarthy, achieved a 335-91 vote through a fast-track "motion to suspend the rules," more than the two-thirds majority needed to pass it. With this special filibuster, McCarthy used Democratic support to bypass his own party's hardliners.
This ultimate tug also reflects the growing partisanship in the United States and the rifts within the Republican Party.
Aid to Ukraine is the most important reason for the delay in passing the funding. Hard-liners in the House of Representatives, the roughly 20-member "Freedom Caucus" (also known as the "Freedom Caucus"), are demanding an additional 8 percent cut in federal government spending and oppose new aid to Ukraine. The Senate's stopgap spending bill, which included $6 billion in aid for Ukraine, was slammed by the Freedom Caucus.
"The last debt ceiling and this appropriations, it's all about the Freedom Caucus. They are extremely fiscally conservative and intransigent, wanting less spending on entitlements, less spending on climate change, and not wanting the United States to spend too much abroad. On the other hand, they are particularly interested in limiting immigration and building a wall along the U.S.-Mexico border, which is very different from the Democratic agenda." Diao Daming, a professor at the School of International Relations of Renmin University of China and deputy director of the Center for American Studies, analyzed and pointed out to the reporter of the Daily Economic News.
Although the temporary bill does not include aid money for Ukraine, support for Ukraine is a consensus among the Democratic and Republican establishment. Lawmakers from both parties have said that the Ukraine aid issue will be resolved separately. US President Joe Biden also said on the same day that he expected US House Speaker Kevin McCarthy to ensure the passage of support measures for Ukraine.
"I think that after the relevant legislation of the 2024 fiscal year comes out, the military aid to Ukraine may be limited to a certain extent, and the number will be adjusted." But to say a thorough, rapid and substantial reduction, I think it is very difficult, because aid is in line with the interests of the US military-industrial complex, and military interests are an important force within the Republican Party, "Diao Daming told reporters," In fact, the Freedom Caucus opposes aid, but does not oppose US involvement in the conflict." They want the United States to step in with more arms sales, more loans that are in the interest of the United States, that don't seem to be using taxpayer money, and that enrich the military-industrial complex."
McCarthy's position as Speaker is at stake?
"We should never have gotten to this point in the first place. A few months ago, Speaker McCarthy and I reached a budget deal to avoid this kind of manufactured crisis. Over the past few weeks, the extreme wing of the Republican House of Representatives has wanted to walk away from this deal, seeking deep spending cuts that would be disastrous for millions of Americans. They failed." Biden said after the Senate vote.
Three months ago, Republican lawmakers forced the Biden administration to sign the Fiscal Responsibility Act, which caps spending for fiscal years 2024 and 2025 and cuts a total of $1.5 trillion over the next decade, by threatening not to raise the debt ceiling or a possible default on the nation's national debt. It was widely assumed that the issue of funding had been resolved.
However, obstruction by the Freedom Caucus has delayed the funding package. Since the Republican Party's seats in the House of Representatives are only 221 to 212, as long as five party members do not cooperate, the Republican Party will lose its majority, so this group of hard-liners has achieved "four or two thousand kilograms" of discourse. At the beginning of this year, under their obstruction, Republican McCarthy was elected Speaker of the House after 15 rounds of voting, causing a "100-year embarrassment" situation. They had threatened to remove McCarthy from the Speaker's chair if he cooperated with the Democrats.
The temporary spending bill that McCarthy finally introduced and passed represented the views of the Republican establishment and had the support of many Democrats. People in the Freedom Caucus were naturally unhappy, and McCarthy faced a serious challenge to his speakership.
Diao Daming told the "Daily Economic News" reporter that McCarthy is likely to face great pressure in the party, but it does not mean that he will lose the speaker's position. "The situation is different from the speaker election at the beginning of the year, when the Republican establishment could change the speaker, but after nine months as speaker, McCarthy is relatively confident that there is no one in the establishment who can effectively challenge him." There's no way the Freedom Caucus is going to get enough support to put out its own person, and there's no point in filibustering without results, so I don't think his speakership is particularly problematic."
Of course, that doesn't mean things are going to be easy for McCarthy. Diao Daming further pointed out to every reporter that if the subsequent Republican Party wants to launch some policy agendas strongly opposed by the Democratic Party, it is also a big question whether McCarthy can get enough support in the party. In the 45 days that the stopgap funding bill takes effect, the Freedom Caucus is likely to bring in new recruits to spite McCarthy and the Republican establishment.
Moody's warned of a possible downgrade of its AAA rating in the event of a "government shutdown.
The final act of Congress averted a 22nd government shutdown, giving markets a sigh of relief. However, frequent party disputes and gridlock have continued to consume the credibility of the US government, making the long-term financial crisis faced by the US with ever-expanding deficits more severe.
Moody's, the rating agency, recently warned that it could cut its top AAA rating for the US government if there was another shutdown. Moody's is the only one of the big three rating agencies that has not downgraded the United States. Back in 2011, S&P downgraded the U.S. government's top rating by one notch because of the shutdown. After this year's debt ceiling drama, Fitch also downgraded the US government's rating from 3A to AA+ in August 2023, in addition to the worsening financial situation and rising debt, the decline in government governance is also an important factor.
A downgrade typically raises borrowing costs for issuers, which is bad news for a government that needs to roll over debt to finance its fiscal deficit.
As a reflection of the cost of US debt issuance, the 10-year US Treasury yield, regarded as the "anchor of global asset pricing", recently approached 4.58%, the highest since July 2007, and the 30-year US Treasury yield exceeded 4.7%, the highest since January 2010.
According to Xinhua, the fiscal deficit as a share of spending in fiscal 2022 has climbed to 22 percent, meaning that for every $5 the government spends in fiscal 2022, $1 is overdrawn. The latest figures from the US Treasury Department show that the US fiscal deficit has reached $1.5 trillion in the first 11 months of the 2023 fiscal year, a 61 percent increase from the same period last year.
The continuous accumulation of fiscal deficits has led to a rapid rise in the national debt of the United States, an increase of $1 trillion in three months, and the total exceeded $33 trillion on September 19, equivalent to $100,000 per capita debt in the United States, compared with $3.2 trillion in 1990, a tenfold increase.
"The increase in US debt is because the government borrowed a lot of money to deal with the coronavirus pandemic. The debt will continue to grow in the future because society is aging and the current tax structure does not generate enough revenue to fund the pension and healthcare systems." David Wessel, director of the Hutchins Center for Fiscal and Monetary Policy at the Brookings Institution, told the Daily Business News. "In addition, the U.S. government borrows so much that interest payments as a share of the federal budget have been growing and will continue to grow if current high interest rates continue."
According to the Congressional Budget Office, the national debt is now equal to U.S. GDP, well above the 50-year average of 47% of GDP. By 2053, that share will soar to 181 percent. Interest payments are the fastest growing part of the federal budget, outpacing Social Security and Medicare. Currently, the U.S. spends more than $1.8 billion a day on interest payments, and in the 10 years from 2023, the U.S. government will have to pay $10.6 trillion in interest payments.
Peter Peterson Foundation
Given the structural problems facing the US fiscal system, the US debt will continue to grow. According to several US institutions, the US national debt will exceed 50 trillion US dollars in 2030. The Peter Peterson Foundation released a forecast in June this year that the United States will add $127 trillion to its debt over the next 30 years. By 2053, interest costs will consume nearly 40 percent of federal revenue.
"While lawmakers manufacture one short-term fiscal crisis after another, our national debt grows by a trillion... We are paying more than $10 trillion in interest over the next decade, a fiscal cycle of compound interest that hurts the future of our children and grandchildren." "Said Michael Peterson, chief executive of the Peter Peterson Foundation.
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