The U.S. Capitol building is seen on Tuesday morning after the federal government was shut down on Oct. 1, 2013.JAMES LAWLER DUGGAN/Reuters
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On Oct. 16, the Conservative government will deliver a Throne Speech that aims to set the agenda for the next two years. The next day, the United States could default on its debt. Which do you think will get more attention?
The political crisis gripping America is bad news for Stephen Harper, in ways great and small.
Small: The turf war between Democrats and Republicans could eclipse the return of Parliament and the unveiling of the Tories' game plan for the second half of their mandate.
Great: A default on the United States debt could plunge both countries into recession.
The Canadian government is like a bystander caught in crossfire of a drive-by shooting. And there is nothing anyone here can do about it.
Although estimates vary, there is general agreement that the longer the shutdown of non-essential operations of the federal lasts, the more damage it will do to the American economy.
"If the shutdown lasts for a couple of weeks, you'll probably knock down economic growth in the quarter by maybe .3 percentage points," estimates Craig Alexander, chief economist at TD Bank Group. That would be enough to slow the U.S. recovery, but not reverse it.
It will, however, suppress the growth in demand for Canadian exports that is essential to this county's economic recovery. The weaker the recovery, the smaller the growth in government revenues and the more limited the options for Finance Minister Jim Flaherty.
But the shutdown is merely "a grenade," as former Republican presidential candidate Jon Huntsman put it Tuesday, compared to "the thermonuclear" danger of the United States defaulting on its debt, should Congress not raise the debt ceiling by Oct. 17.
Few expect a default, because the consequences – starting with a plunge back into recession for the United States – would be so severe. But with the government shut down, Congress paralyzed and both sides intransigent, the risk exists.
Remember, Congress initially rejected the deficit-fighting package known as TARP, back in 2008. The panic in the markets that followed forced the the House to reverse its decision within days, but not before great damage had already been done.
Even a temporary default on its debt could severely hurt the full faith and credit of the United States government. And the recession that would almost certainly follow would send Canada into recession as well.
Mr. Flaherty would have to abandon his plans to balance by budget the year after next. Instead, the Conservatives would be forced to roll out a new stimulus program to combat the worst effects of the recession.
Unemployment would go up, the debt would spiral, promised tax cuts would have to be abandoned – the Tory economic agenda would lie in ruins.
The more likely outcome is that Congress will raise the debt ceiling and fund the government for two or three more months, which will simply start the whole debate all over again, and entrench the conviction among businesses and consumers that the government in Washington is utterly dysfunctional.
So a drag rather than a plunge, but still a drag, dragging down Canada's recovery as well.
There are other consequences to this fight. The Republicans periodically demand that President Barack Obama approve construction of the Keystone XL pipeline, as part of their negotiating tactics.
Not only will the shutdown delay a decision on the pipeline, but it further risks identifying Keystone as a Republican wedge issue that Mr. Obama could reject for partisan political reasons.
John Ibbitson is the chief political writer in the Ottawa bureau.
John Ibbitson