What the Government Shutdown Means

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October 3, 2013 — 957 views  

The recent news about the government of the United States opting for a shutdown has hit the news all over the world. Many people around the world, as well as US citizens who have read the news, are still unclear as to what a government shutdown actually means. A government shutdown is a rare situation in U.S. politics wherein the Congress does not pass an authorization for sufficient funds towards the government operations in time. This situation will result in many of the government related services being shut-down for an indefinite period of time until Congress authorizes the release of funds.

Federal Employees Lose their Jobs

The government shutdown has led to many federal employees losing their jobs with no expectation of back-pay. This change will affect more than 800,000 federal employees spread all over the country. One of the biggest facilities that will be greatly affected by the shutdown is NASA (National Aeronautics and Space Administration). Already 18,000 employees (97% of total strength) have already been let off and all projects that are ongoing will come to a halt, said the United States President earlier in the week. One of NASA's most promising projects, the MAVEN spacecraft launch (Mars Atmosphere and Volatile Evolution), will be delayed open-endedly according to NASA's senior Public Affairs Officer.

The Effect of the Shutdown on the Global Economy

The government shutdown in the U.S. will also have an effect on the global economy. If the shutdown is to continue further, it will definitely hit the consumer spending of the U.S. as there are thousands of public sector workers who are furloughed. This will lower the demand for imports by the US from the rest of the world. One of the main financial impacts of the shutdown on the US economy has been reduced investor confidence and the depreciation of the dollar. This will slow the flow of capital in the United States as this was one of the popular trends in the International Market during the summer. As there was a switch from the riskier markets to the American markets, bond yields and exchange rates in the most of the emerging economies such as India and Brazil had increased leading their government to opt for emergency action.

China is one of the countries that has one eye on the U.S. government shutdown as the country holds a large amount of US assets such as Treasury bonds. The Chinese government has made moves towards making the Yuan highly convertible on the International Market which will reduce the need to stock on such US debts. In the long run, China would most likely be removed as one of the biggest buyers of US debts which will make it more costly for the US to borrow.

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