The US Government Shutdown Made Simples (Until the end bit, then it gets a touch complicated..)

Imagine for a moment that you are a US citizen. Now, picture that you are a cleaner and you work for the US government. You there? OK.

You are not a cleaner at the White House. You do not sweep the floor of the President’s office. You’ve never even been to Washington D.C. You are a cleaner of the café, gift shop and mini-museum at a government-run national park in Colorado.

ESSENTIAL IS AS NON-ESSENTIAL DOES

And now – due to the US government shutdown – you are one of 800,000 “non-essential” staff who have been sent home with little idea of when you may be returning to work, or being paid. You optimistically hope you’ll still receive your paycheck. After all, that’s what happened following previous federal shutdowns. But you also know that by law you are not entitled to be compensated and so must simply keep your fingers and toes crossed that Congress will opt to reimburse losses once the shutdown ends.

But you also recognize that for the more than 2 million “essential” federal workers who currently remain on the clock, things are no simpler. While by law these staffers are entitled to their salary, the law does not stipulate when that payment will be made. Should the shutdown last beyond the two-week pay cycle, then we enter into unpaid labor territory.

So that’s around 3 million people with limited ability to make mortgage payments, purchase fuel and buy clothes. And as such, approximately 3 million people making a significantly reduced contribution to the US economy.

FLU-SEASON

OK. We’re sticking with the cleaner analogy. Only now you’re a cleaner in Europe or in the UK. What does the US government shutdown mean for you?

In my office we have a one liner a guest used once-upon-a-time that ‘when the US sneezes, Europe catches a cold.’

The US is the largest economy in the world. The global financial markets are regularly sent into a meltdown/hold their breath/cower behind their calculator over buzzwords such as ‘Operation Twist’, ‘Fiscal Cliff’ and the more recent ‘tapering’. All of which relate to US-exclusive policy.

To provide an example: The latest concerns over the scaling down of the US Federal Reserve’s bond-buying program have contributed to significant outflows in the currency and stock markets of Emerging Market countries such as India and Turkey – Not the richest countries to begin with and not exactly local to the US!

While most of us this side of the pond have naturally had a “WTF” moment, European markets themselves have responded to the shutdown with relative calm. As mentioned above, ‘uncertainty’ has been top of the financial community’s vocab most of the summer. To some, this is simply more of the same. The fear however lies in how long the shutdown could last and the impending damage.

And that’s where you – the cleaner – start to worry.

THE COMPLICATED BIT

A one-week shutdown should have a less than 0.1% impact on US growth. A shutdown of at least one month could take 1-2% off fourth quarter growth according to market insiders who spoke to Bloomberg. US weakness could lead to a slowdown in export trade and also end up hurting oil-exporting nations.

Big D Cameron (The ‘D’ can stand for whatever your political/personal persuasion desires..)  has commented that the shutdown is a warning to other countries:

It’s “a reminder to all of us that we need to have properly planned public-expenditure systems, properly planned tax, properly planned arrangements for getting our deficit down.”

But it’s also a reminder of just exactly how far this whole mess could go.

Anyone familiar with 2009? What started off as a US problem with the Lehman Brothers bankruptcy in 2008 stripped economies this side of the Atlantic in a manner similar to how my puppy deals with chew-toys. Not pretty. The green shoots of European recovery are just beginning to sprout through and a still-fragile European economy could end up feeling the shock waves of a US slowdown.

Finance bods scare easy. And according to some if they sense that the US and Europe are on the downhill slope they’ll take their pennies out of sovereign debt and invest them into gold, cash, stuff them under the mattress, put them anywhere but in sovereign debt. And boom, we’re back in the Euro crisis.

I told you, it’s the sneeze/cold ratio. Who’d have thought a political deadlock over who’s going to top up the White House ‘leccy meter could have such impact huh?!

Final thought? The US government are currently bickering over spending priorities. The cleaners of the US, Europe and the UK do not have that same luxury.