US government shutdown: Is history repeating itself? - CNBC Africa

US government shutdown: Is history repeating itself?

Special Report

by admin 0

Capitol Building in Washington DC.

“Their experience at the 1996 event, the republicans lost quite a lot of ground in the polls that followed shortly after,” George Glynos, Managing Director and chief economist at the market analysis company, ETM analytics, told CNBC Africa on Tuesday.

This follows after the United States (US) government announced the partial shutdown of public bodies on Tuesday after the two houses of congress failed to agree on a new budget. This potentially puts 1 million workers on unpaid leave, closes national parks and stalls medical research projects.

The Republican Party are said to be using the shutdown as an attempt to delay the passing of US president Barack Obama’s affordable health care act, officially dubbed Obamacare, which they feel will create a single player in the national health insurance programme.  

“I think the Republicans' attempt is opportunistic, almost mercenary if you like,” said Glynos.

He explained that the healthcare act has already crossed several hurdles in order to get passed therefore the issue should have been debated and solved a long time ago.

“The affordable healthcare act has been promulgated, implemented and money has been spent on it. It’s almost as if the Republicans are trying to stop a horse after it has bolted and that’s the point that the democrats are making,” said Glynos.

This may result in the Republicans losing support at the 2014 US government elections however, Glynos believes that if the party doesn’t turn the shutdown into a long drawn out process, they could possibly use it as a means to gain ground.

“If they stop it now, they can always hang their hats at the next elections and say it was a bad policy and they did their best to stop it but they weren’t prepared to shut the American economy down, therefore they backed off,” he explained.

“They can still come out of this in the next few days in a positive way if they manage it correctly but if they let this drag on as it did in 1996 for 3 weeks, then it’s a different story.”


The political dysfunction has also raised concern about whether the US congress can meet a vital mid-October deadline to raise the government’s 16.7 trillion US dollar debt ceiling.

“The bigger issue though is the debt ceiling and the US is running out of capacity to borrow,” added Glynos.

He explained that a lengthy shutdown would mean the age of a new sovereign debt crisis by government choice. Glynos is certain that the US will not allow this to happen as it would cause a knock on effect within the global market.

Since the US economy is the cornerstone of the global debt market, a sovereign debt crisis would cause global interest rates to spike. The effects therefore would be catastrophic.

“It would make the financial crisis of 2008 look like a walk in the park to be quite frank.  It is that big, which is why I believe we won’t get there, “concluded Glynos.