SGOV - Why The U.S. Spending Debate May Not Be Over
2023-06-20 17:00:00 ET
Summary
- Pandemic fiscal stimulus in 2020 and 2021 created huge annual budget deficits in excess of 10% of GDP.
- While the debt ceiling compromise set caps on U.S. government spending in various categories, many of the details of how spending would be rearranged must await future legislation.
- On net, a government shutdown can start to slow down the economy if it lasts a month or more.
By Blu Putnam
At A Glance
- Pandemic fiscal stimulus in 2020 and 2021 created huge annual budget deficits in excess of 10% of GDP
- In the new era of higher rates, as low-rate debt matures, it is replaced by much higher-yielding debt, increasing the annual interest expense bill
A major global financial crisis has been averted with the U.S. debt ceiling compromise. Next up, coming this fall, are more spending debates and the very real possibility of a partial federal government shutdown near the end of 2023.
While the debt ceiling compromise set caps on U.S. government spending in various categories, many of the details of how spending would be rearranged must await future legislation. Specific appropriations for each government department must be passed by September 30 th , the end of the U.S. federal government’s fiscal year. If Congress fails to agree to budget legislation for each department, then a partial government shutdown could occur.
If the debt ceiling had not been raised, the U.S. government would have missed payments on Treasury debt securities, possibly also not paying veterans' benefits, social security, federal worker payrolls, etc. A U.S. government default on its obligations would most likely have triggered a global financial crisis.
Government shutdowns are different from debt defaults and not nearly as serious. Congress can pass what they call "continuing resolutions" for a temporary period while they extend the debate on the budget details. If Congress does not pass any legislation, then, as in past cases, non-essential government services might be shut down, such as closing national parks or not processing passports, etc. Up to a million workers might be furloughed without pay. The longer the shutdown continues, the more damage it does to the U.S. economy. Note, though, that once budgets are approved for all the departments, furloughed workers are typically provided with full back pay. On net, a government shutdown can start to slow down the economy if it lasts a month or more.
Get ready for another round of divisive U.S. budget debates in the fall, effectively a "do-over" of many items inside the debt ceiling compromise.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
For further details see:
Why The U.S. Spending Debate May Not Be Over