The other day, I was having lunch with a friend who works for the federal government. Jim was a bit concerned over the potential for a government shutdown later this year. Even though he will not actually be out of work, the last time this happened, he was not paid for some time—an inconvenience no one wants. He has begun saving extra money to help him make due in case this happens again.
Of course, I gave him my advice. Any time you can save money and put it aside for a “rainy day,” I told him, this is a good thing. Just because people are working for the government does not mean they are nearly as secure as they think...there is still a lot that can go wrong.
I also pointed out the fact that as a nation, we are in debt to our eyeballs (or higher), and eventually the government is going to have to deal with this. Shutdowns to one extent or another are likely to play a major role in this process.
Why Everyone is Gearing Up for a Shutdown
There are several reasons why you should indeed be worried about a government shutdown later this year. First of all, the government is running out of money.
I suppose that this is not quite accurate. The government is running out of the money Congress authorized it to use for funding its operations. This is the basis of all the talk you hear regarding the need for Congress to agree on authorization of a short-term funding bill.
If a short-term funding bill, or “deal,” is not reached by October 1st, the government will be out of money to conduct its operations. This will lead to a significant reduction in the number of services offered by the government—otherwise known as a shutdown.
While this short-term funding issue is at the root of the immediate concern, there is also something looming on the horizon. As you already know, our government will also reach its authorized debt limit later this year.
In other words, Congress has allowed the U.S. government to borrow a total amount of money, and this amount will be reached sometime in the middle of October, according to government sources. This debt limit currently sits at $16.7 trillion. If Congress does not raise the debt ceiling once again, the government will not be able to borrow more money. This also effectively shuts her down.
Opposing Viewpoints on the Government Shutdown
There are two sides for you to explore when evaluating how likely we are to see some sort of government shutdown. On one side of the coin, some members of Congress are willing to use the funding authorization as way to force the president and other politicians into making some changes.
One of these is Obamacare. A number of the more conservative members of Congress are considering using this opportunity to defund or delay the implementation of Obamacare, as CNNMoney points out.
The idea is that they will shutdown the government until Obama and the Congressional Democrats agree to their terms and either defund or delay the implementation of the health care law. This could be quite an interesting fight. Certainly, if it comes to this, there is a much greater risk of a government shutdown.
The basic problem is that the Republican party has members that are committed to both fighting Obamacare and to reducing not only the budget deficit, but the overall debt levels of this country as well.
On the other hand, there are a number of others who believe such a battle is less likely to occur, as the National Journal expresses. You may remember that the last time the government was shut down over a similar political battle, it was much more damaging to the GOP—whom the American people considered to be responsible—than the Democrats.
This has not changed, and the Republican leadership clearly understands that fighting vigorously in order to defund or delay Obamacare may end up hurting the party more in the end. Therefore, the Republicans are much more likely to come to a reasonable plan, which should lead to an agreement.
What Will Happen if the Government Shuts Down?
If the government were to endure an actual shutdown, it will likely have some serious repercussions. The two shutdowns that occurred about a decade ago cost about $1.4 billion, CNNMoney reports. While it is difficult to say exactly what will be closed and what will remain open, there are a number of likely scenarios.
For starters, most of the federal government offices, programs, museums, and parks will be closed. It is also likely that paperwork for contractor projects will be delayed. While critical services like air traffic control, food inspections, national security functions, and disaster assistance will still operate, it is likely that these employees will not receive their pay during the shutdown.
And, yes, in case you are asking, taxes will still be collected, bonds will be issued, and Social Security checks are likely to go out on time—although no guarantees...it depends on who the White House deems is “essential” personnel.
Many government workers who are not considered “essential” will be furloughed without pay. Interestingly enough, during the last two government shutdowns, this pay was actually restored once a deal was reached and people came back to work. Of course, it can take some time for everyone to be paid even once things do begin to return to normal.
Preparing for a Shutdown
The best thing you can do is begin preparing right now. If you are a federal employee, there is a high chance you might not see any income for a while, so start saving right now. While the banking system should still be functioning, you never know when some extra cash on hand could come in handy, so maybe have a few extra dollars in a safe and easily accessible place.
Although it is getting a little close to the deadline, there are other things you could do to prepare, as listed by Daily Paul. For example, get yourself on a budget and stick to it. Cut as many of your expenses as possible. Of course, hold off on any major purchases until things return to normal.
You may even want to start looking into lines of credit or other ways you can access cash, just in case the shutdown lasts longer than anticipated and resources are further strained.
If you liked this article, you may also enjoy:
Greedy bankers, manipulated markets, and outrageous fees have left most of us unable to save or get ahead.
It's imperative you know how to manage your own money and investments, and keep them out of the hands of Wall Street and Washington.
Become an Outsider Club member today to receive your free report!
You'll immediately receive Kicking Wall Street to the Curb by Nick Hodge for free!
Learn more about the Outsider Club.