The US Government officially shut down at 12:01 today (Oct 1) after highly partisan political opponents were unable to agree on a new funding package for federal social programmes.
Shutdowns of this type occur when Congress fail to pass Appropriation Bills or a Continuing Resolution (CR), which enable funding to be allocated to non-essential operations.
Agreements could not be reached by House Democrats and Republicans notably on the structural nature of federal spending with the White House’s Office of Management and Budget (OMB) telling agencies to prepare for a “reduction in force”, indicating that there may be a substantial loss of government jobs.
Back to furlough we go
In the meantime, federal employees will be temporarily furloughed without pay until the House agrees on a new spending package. However, they have protections under the Government Employee Fair Treatment Act (2019), which means they will be back-paid fully if and when they return to work.
An estimated 900,000 workers will be furloughed during this period. Infrastructure including healthcare, education, travel and national parks/cultural institutions will be among the areas affected.
USD struggling as global reserve currency
The longer the shutdown goes on, the deeper and longer-lasting the damage has the potential to be, as confidence is lost in the ability of the House to govern effectively.
In the current climate, when many politicians are so polarised, it is difficult to see where they will end up finding some common ground.
The US economy is currently carries close to $38 trillion of national debt, adding another trillion every 100 days or so. Global confidence in US dollar is collapsing rapidly.
BRICS nations are looking to come to an agreement on a rival to it as the world reserve currency. The outlook may be signalling the death knell for the over-inflated, highly leveraged fiat currency.
Republican calls it as it is
House Republican Thomas Massie, obviously frustrated with the lack of cooperation in the House posted on X: “Both parties are ridiculous! Republicans passed a line-by-line continuation of Biden’s last budget, including Doge-identified waste, BUT, Democrats refused to vote for Biden’s last budget, thereby shutting down the government. I voted Nay when it was for Biden and I’m Nay now.”
Are we due a new dominant global currency?
It will certainly be interesting to see how this unfolds over the next few days and weeks given the febrile nature of the global backdrop and many world leaders sabre-rattling ahead of potentially going to war.
The US dollar has had about 80 years of dominance as the world reserve currency, which is about the standard lifecycle, and when a world reserve currency changes hands, it is has historically not been a peaceful event.
