The GOP—"Many will not listen"

The US government is in danger of thumping into the sea bed. Unless the deadlock in Congress can be dealt with and a federal budget agreed, the money required to run the country will not be forthcoming. For the first time since 1996, America could wake up tomorrow in a state of government shutdown.

At the core of this stand-off is the Republican inability to reconcile itself to the coming of the Affordable Healthcare Act, or “Obamacare,” as it is unaffectionately known. Having failed to stop the passage of the legislation, the Republican majority in the House of Representatives has sought to get rid of Obamacare by removing its funding. But the President has made it clear that he will not allow his greatest legislative achievement to be killed off in an ugly Congressional brawl. The decision now is either for Republicans to drop their opposition, or for the US government to shut down.

Is the party’s leadership capable of compromise? A shutdown would be a public relations catastrophe and would significantly weaken its position when it comes to the fight over the US debt ceiling, which is due to be breached in the middle of October.

The debt ceiling question is of huge significance—much greater even than that of the impending government shutdown. Certainly, if government funding is cut off, the consequences will be dire. Government employees will be told to stay at home with no indication of when they might return to work. Somewhat counter-intuitively, shutdowns like this cost money, the last one over £1bn.

But whereas government shutdown is a matter of the United States meeting its internal obligations, the debt ceiling bears upon its external obligations. If the debt ceiling is not increased by around the time of 17th October, then the United States, the world’s most powerful country with the largest economy, will not be able to cover its debts. In the second quarter of this year, there was $11.8 trillion-worth of US government debt flushing about in the global markets in the form of Treasuries. These debt contracts—bonds—between the US government and bondholders form the core of the global financial system, and are deemed to be so safe as to be almost risk free. All other assets in the global structure are intimately bound up with the well-being of Treasuries. If there were to be a default, the consequences would be terrifying.

Republican leaders will be aware that the polls are showing the public does not want a government shutdown. If there were to be a shutdown it would cause alarm in markets at the possibility of a debt-ceiling default in October—and the last thing Republicans want is to become branded as the party of economic instability.

The internal problem the Republican party faces is the gap between leadership and backbenchers. For many of this latter group, there is no real chance of losing out to a Democrat opponent—at the last election, 203 of the Republicans in the House of Representatives were elected with a margin greater than 10 per cent; 140 won with a margin greater than 20 per cent. The only threat to these congressmen and women is of being challenged by a fellow party member at the primary stage in next year's congressional elections—the chances of facing such a challenge from a populist Tea Party candidate would be greatly increased by going soft on Obamacare. This fear is helping to propel the Republicans towards ever greater levels of ideological purity.

One Congress-watcher who spoke to the Prospector was hopeful that: “there could be a compromise at dawn on Tuesday.” He was however no more than hopeful. “Wall Street will warn the Republicans they could create a financial crisis,” he said, “but many will not listen.”