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Obama said on Monday a government shutdown was entirely preventable and accused Republicans in the House of Representatives of manufacturing a crisis that would hurt the economy and citizens across the country. (LARRY DOWNING/Reuters)
Obama said on Monday a government shutdown was entirely preventable and accused Republicans in the House of Representatives of manufacturing a crisis that would hurt the economy and citizens across the country. (LARRY DOWNING/Reuters)

U.S. Congress remains divided in budget showdown Add to ...

The troubling thing about the U.S.’s latest budget showdown is that it is only the dress rehearsal.

A divided Congress and President Barack Obama struggled Monday over how – and whether – to pass a budget that would keep the United States government operating past midnight.

Republicans – in particular members of the GOP’s restive Tea Party wing – have insisted on using negotiations over short-term budget measures to land a blow against President Barack Obama’s 2010 health-care overhaul, even though the Obamacare law’s most important provisions will take effect Tuesday regardless of what happens in Congress.

At stake was the ability of the government to function, pay employees and provide services. A shutdown would leave some essential functions like national security intact, but sharply cut many regulatory agencies, furloughing hundreds of thousands of federal workers.

But this battle, however it ends, is only the dress rehearsal for a potentially more catastrophic showdown.

In less than three weeks, the struggle to keep the U.S. government from shutting down will repeat itself as Democratic and Republican lawmakers confront the debt ceiling, a deadline that carries far higher stakes than keeping the lights on in Washington.

Wall Street analysts, among others, are beginning to worry anew about whether a Congress that finds it so difficult to renew the government’s spending authority can be counted on to pay the country’s bills.

“You don’t get to extract a ransom for doing your job,” a defiant President Obama said Monday as he called on Congress to avoid the first shutdown of non-essential services in almost two decades.

“One faction of one party, in one house of Congress, in one branch of government doesn’t get to shut down the entire government just to refight the results of an election,” Mr. Obama said, referring to the Tea Party, which last month forced House Speaker John Boehner to drop a compromise that would have kept the government open.

Lawmakers worked late into the night on Monday to avoid a government shutdown, recalling the last-ditch attempts to resolve fiscal crises that have characterized Mr. Obama’s presidency.

With only a couple of hours to go before a midnight deadline, politicians still were waiting on a miracle – while blaming each other for the stalemate. Most everyone else in Washington had already given up on Congress, shifting to the assumption that hundreds of thousands of government workers would be on unpaid furlough come Tuesday morning.

“I expect a shutdown, and I expect it to be measured in weeks, not days,” said Tony Fratto, a partner at Washington-based consultancy Hamilton Place Strategies and a spokesman in former president George W. Bush’s White House.

Earlier on Monday, the Senate swiftly rejected a House proposal that would have funded the government through December, while delaying the implementation of Mr. Obama’s health initiatives for a year.

“We are not changing Obamacare,” Harry Reid, the Democratic majority leader in the Senate, told reporters.

Mr. Boehner responded by mustering his majority to pass a spending bill that included new amendments to the health law: a delay of the requirement that all Americans buy medical insurance and the cancellation of a health-insurance subsidy for elected and appointed officials in Washington and congressional staffers.

The Democratic response in the Senate was as promised. “Stop standing in the way,” Mr. Reid said on the Senate floor before rejecting the latest House proposal.

All of this is a bad omen for the looming debt-ceiling fight. Financial markets were lower Monday, but not worryingly so. That’s because the economy would shrug off a government shutdown, so long as it lasted only a matter of days.

Missing the debt-ceiling deadline of Oct. 17 would be different. The Treasury would be unable to pay the government’s bills, constituting a default. The U.S.’s borrowing costs could rise and the uncertainty could crush stock markets. It would be a body blow to the economy just as it’s finding its feet.

“You want to create disruption? This is a good way to do it,” David Cote, chief executive officer of Honeywell International Inc., said on Bloomberg Television Monday. “This is going to put us backward, not forward.”

 

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