US government shutdown looms as Republicans go to the edge

The clock is ticking: and there is no sign of compromise. In the House, Republicans have passed a bill to delay Barack Obama’s affordable care act, known as Obamacare – for a year, and repeal a tax that helps to pay for it.

They insist these amendments are an essencial part of any deal to keep federal government agencies open beyond the start of the new financial year: midnight on Monday.

The Democratic leadership in the Senate say there is no chance they will approve it, while the White House has pledged to veto any change in the law. Without any agreement, the US government will be forced to shut down for the first time since 1996.

Leaders from both parties say a shutdown is something they are keen to avoid, although they spent the weekend pinning the blame on each other for the impasse. House speaker John Boehner could ask the House to pass a Senate plan extending government funding until mid-November, without affecting the health care law.

If we’re going to fight, we need to fight now. Michele Bachmann, Rep, Minnesota

But that all depends on the relative power of the conservatives within his ranks. Tea party activists like Michele Bachmann see this as their one and only chance to scupper Obamacare. “This is historic, and it’s a historic shift that’s about to happen, and if we’re going to fight, we need to fight now”, she said.

Leading conservative Ted Cruz, who has been spearheading the fight against the healthcare reform, claims it is the Democrat senate leader who is standing in the way of reason. “If we have a shutdown, it will only be because when the Senate comes back, Harry Reid says, ‘I refuse even to talk'”.

Welcome to the new normal. Politics by brinkmanship, and to hell with the consequences. It is not even in Republican party interests, according to many pundits, who say the GOP will get the blame for holding the nation’s finances to ransom.

President Obama appealed to his political rivals on Friday: “Think about who you’re hurting”, he said, saying a federal closure would “throw a wrench into the gears of our economy at a time when those geats have gained some traction”.

And there are plenty of Republicans who fear it could mean a serious backlash for their party from a public wearied by the partisan squabbling on Capitol Hill, and who fear real damage to the economy could result from this strategy of political hostage-taking.

Political hostage-taking

House majority whip Kevin McCarthy told Fox News on Sunday the party would not force a shutdown: “If we have to negotiate a little longer, we will continue to negotiate”. But others worried the conservatives were in no mood for talks.

The Wall Street Journal quotes California Rep Devin Nunes: “We’re pretty much out of options at this point. They’re all giddy about it”. And, he warned, the party to benefit most? “The Democrats benefit most, and they know that.”

So what happens if there is no agreement by midnight? Most federal government offices would close, along with museums, parks, passport and visa offices, and many federal programmes.

Hundreds of thousands of government workers would not get paid, along with contractors, although social security benefits will continue to go out and essential services will stay working, like air traffic control, border security, and active duty military personnel.

Shutting the government down, and re-opening it – is not without financial cost, either: the last time this happened, back in the mid-90s, it cost almost $1.5bn.

Debt disaster?

And Federal Reserve chairman Ben Bernanke has warned that “a government shutdown, and perhaps even more so, a failure to raise the debt limit could have very serious consequences for the financial markets and for the economy”.

A deal to raise the debt limit is due by the middle of October – and failure to agree that would have far more dire consequences than a federal shutdown – and could trigger a real shock to the economy.

Already the uncertainty has led to falling share prices around the world. In this game of political chicken – there might not be serious panic yet, but the economic damage is already being done.

Felicity Spector writes about US affairs for Channel 4 News