When will the shutdown begin? How long might it last? How significant is the market impact?……. Understand the U.S. government shutdown in one article

Is the U.S. government going to shut down again?

On Thursday local time, the short-term spending bill (i.e., Continuing Resolution (CR)) proposed by House Republicans failed, with dozens of Republicans voting against the Trump-backed agreement, which would provide funding for the government for three months and suspend the debt ceiling for two years.

As there is no bill to fund the federal government, Congress has no solution, and unless Congress quickly proposes and passes a plan, the U.S. government will begin a partial shutdown on Friday evening and a full shutdown at 12:01 AM on Saturday, with impacts expected to be felt on Monday, threatening the paychecks of millions of federal employees and the government services that the public relies on.

It is currently unclear how long this shutdown will last.

1. How did Congress get to this point?

According to institutional design, the spending process of the U.S. federal government is that the appropriations committees of both the House and Senate should pass 12 spending bills covering different federal agencies each year, which must then be voted on by both chambers and sent to the president for signature to become law.

However, this process is rarely fully realized in modern Congress. As in the past, Congress failed to complete the process in time this September, thus passing a short-term funding extension bill.

Although Congress has known since the fall that December 20 is the deadline, an agreement to avoid a shutdown was only announced this week:

On Tuesday evening, House Speaker Mike Johnson announced that congressional Republicans and Democratic leaders had reached an agreement to extend government funding until March 14 of next year, provide economic assistance to farmers, and relief for hurricane-affected areas. Additionally, the agreement included a small pay raise for members of Congress (up to 3.8%), marking the first increase in 10 years.

However, before the House even scheduled a vote, Elon Musk criticized the bill on social media platform X to over 200 million followers, and subsequently, Trump and a series of far-right members of Congress also announced their opposition to the plan, calling it a compromise with the Democrats and criticizing some of its policy provisions, such as the pay raise for Congress members.

At the last minute, Trump also urged Congress to pass legislation to resolve the debt ceiling issue—even though the U.S. may not hit the borrowing limit until next year, Trump stated on Thursday that he wanted Congress to eliminate the debt ceiling altogether.

On Thursday, Republicans on Capitol Hill reworked a new plan without Democratic participation. The new version is only 116 pages long, compared to the original version's 1,547 pages. After the new bill was released, Trump immediately called it a "success" and "a very good deal."

However, House Minority Leader Hakeem Jeffries called the proposal "not serious" and "ridiculous," ultimately, the bill received 174 votes in favor and 235 votes against, failing to meet the two-thirds majority required for expedited procedures.

Senate Majority Leader Chuck Schumer praised the failure of the vote, stating, "Now is the time to return to bipartisan agreements."

White House Press Secretary Karine Jean-Pierre issued a statement saying that Biden "supports a bipartisan agreement to keep the government open, help disaster-affected communities, and lower costs—not the wealthy benefit plan proposed by Republicans at the last minute."Currently, Congress is racing against time to avoid a government shutdown, but the bill needs approval from the Democrat-controlled Senate, and the White House has stated that President Biden will not sign the bill. Trump has stated, "If the government is going to shut down, then let it start now."

Johnson is not so relaxed; he told reporters early Friday that they "expect to vote this morning, so stay tuned—we have a plan."

In fact, this is also Johnson's self-rescue—he has faced much criticism, including from within the Republican Party, due to the current chaotic situation. The new Congress will hold a full meeting to elect a Speaker on January 3, and Republican Congressman Thomas Massie has already stated he will no longer support Johnson.

Trump has also hinted that his support for Johnson depends on his subsequent actions; if Johnson "takes decisive action" and eliminates "all the traps set by the Democrats," he will "easily remain as Speaker."

2. When will the shutdown start? How long might it last?

If Congress fails to take effective action by the end of local time on Friday, the government will completely shut down at 12:01 AM on Saturday, but its effects will not be felt until Monday.

It is difficult to predict how long the shutdown might last, but considering the divisions within Congress and the upcoming holidays, once the government shuts down completely, it could last for a while.

Currently, the Republicans hold a slim majority in the House of Representatives, while the Democrats control the Senate—this situation will change on January 3, when the Republicans will take over both chambers of Congress, and Trump will officially be sworn in on January 20, which could change the situation.

Congresswoman Marjorie Taylor Greene posted on X platform that she supports the government shutdown until Trump's inauguration day.

A source from Trump's transition team stated:

"The problem Congress faces is that Musk now has an army reviewing every word of every bill—he will also amplify the absurdities within them. So unless they can propose a bill without absurd content, the government will continue to shut down."

3. What are the impacts of a government shutdown?

During a government shutdown, the federal government will be unable to pay the salaries of its millions of employees, including military personnel and reservists, which could put immense pressure on government employees forced to work without pay and those who are furloughed, and most government employees will have to wait until funding is restored to receive their paychecks.

During the more than month-long shutdown in 2019, food banks in the Washington area saw long lines of federal workers waiting to receive food. Currently, the U.S. Office of Personnel Management (OPM) has issued a shutdown guide for federal employees.

However, some key government services will continue, such as Social Security and Medicare benefits remaining unaffected, the National Institutes of Health (NIH) Clinical Center will continue to provide care for "medically necessary" new patients, and over 150,000 Department of Homeland Security employees will also continue to workA spokesperson for the Transportation Security Administration (TSA), Carter Langston, stated yesterday that among the agency's 62,000 employees, 59,000 are classified as "essential personnel," meaning they will continue to work without pay during the shutdown. Langston said:

"While our personnel are prepared to handle peak passenger volumes and ensure safe travel, if the shutdown extends, travelers may experience longer wait times at airports."

If the shutdown extends, low-income Americans relying on food stamps or WIC (Women, Infants, and Children Special Supplemental Nutrition Program) may lose assistance.

Economically, Paul Eitelman, North America Senior Director and Chief Investment Strategist, stated that the impact on the U.S. markets and economy may be limited:

"Historically, U.S. government shutdowns have not been a significant source of risk for financial markets. The transmission mechanism of the shutdown to the economy is temporary, and since there have been six shutdowns in the past 34 years, the related impacts are well understood by the market."

Eitelman added that although government salaries will be halted during the shutdown, Congress typically provides full back pay for employees once the shutdown ends:

"From a macroeconomic perspective, this disruption can lead to a short-term decline in economic growth—each week of shutdown results in a GDP growth rate decrease of about 0.1 to 0.2 percentage points, but it will fully recover afterward. This impact does not leave a lasting mark on the economic fundamentals, so the market usually does not exhibit sustained reactions."

4. What is a government shutdown? What are its effects?

The Constitution grants the U.S. Congress the "power of the purse." When Congress fails to pass appropriations legislation signed into law by the President, federal agencies must cease all non-essential work, and no salaries will be paid during the government closure.

Each year, Congress must pass spending bills before October 1 (the start of the new fiscal year), or the government will run out of operating funds. If Congress fails to act in time, the House and Senate can pass legislation known as a "continuing resolution" to maintain full government operations temporarily.

5. Has this situation happened before?

Before the 1980s, funding shortages did not lead to significant government business shutdowns. However, then-Attorney General Benjamin Civiletti argued in a series of legal opinions in 1980 and 1981 that government agencies could not legally operate during funding gaps.

Since 1976, there have been 22 budget shortfalls in the U.S. government, 10 of which resulted in workers being forced to take leave. Most significant shutdowns have occurred since Bill Clinton's presidency, when then-House Speaker Newt Gingrich and his conservative House majority demanded budget cuts.

The longest government shutdown occurred from 2018 to 2019, when President Trump and congressional Democrats were at an impasse over funding for the construction of a border wall. This shutdown lasted 35 days, spanning the entire holiday season, but it was only a partial government shutdown, as Congress had already passed some appropriations bills to fund certain government departments