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The Key Takeaways
- It is becoming more likely that the shutdown of government will occur this weekend, after Donald Trump, President-elect, vetoed a funding measure negotiated by lawmakers.
- Although a shutdown of the government could cause disruption, its economic impact is expected to be relatively small, according to economists.
- The costliest government shutdown in history set the economy back $3 billion, equivalent to the yearly sales of Pennsylvania's state-run wine and spirits stores.
According to experts, a shutdown of the government as early as this weekend may disrupt critical services. However, it would have little impact on overall economic growth.
Late this week, the odds of a federal government shutdown skyrocketed after Elon Musk and President-elect Donald Trump urged Republican lawmakers to ditch a last minute budget that they had agreed on with Democrats. The goal was to extend an expiring funding deadline. The House of Representatives failed to approve a compromise bill that Trump had endorsed on Thursday evening.
On the Polymarket betting site, gamblers were predicting a 61% probability of a shut down on Friday morning. This is up from 7% on Tuesday. Economists see less of a chance, with Moody's Analytics' forecasters estimating a 30% chance of a shutdown.
Some government services may cease to exist if Congress fails to act before the deadline. As usual, Social Security payments will be made, military operations will go on, and the interest due on the National Debt will continue. Some government offices, national parks and other services will close.
What would be the impact on the economy?
However, economists said the overall financial impact would be small, relative to the economy's size.
Government shutdowns are costlier the longer they last, and Goldman's chief economist, Jan Hatzius, along with other economists at the investment bank, predicted this one would probably be short if it happened at all. The economists project the economic growth to be reduced each week by.15 percent and then increase the same amount once the shutdown ends.
"While the latest developments raise the odds of a government shutdown, a protracted shutdown looks unlikely in our view," they wrote.
The Congressional Budget Office estimates that the shutdown lasted five weeks and cost $3 billion to the economy. In the context of the U.S. economic system, this amount is nothing. It's equal to the sales of Pennsylvania's state-run liquor stores last year or General Motors' profit in the third quarter.
Shutdown Threat
Legislators are working hard to get legislation passed that will fund the government through the next year. This task was meant to be completed in September. However, as has typically happened in recent years, lawmakers passed temporary measures extending the deadline to Dec. 20 instead.
Even though this deadline is rapidly approaching, it was unlikely that the government would shut down until last week. In the November election, Republicans won control of both the White House as well as the chambers of Congress. Shutdowns are common when one side controls the White House while the other party controls either the Senate or House of Representatives.
As long as Democrats remain in charge of both the White House and Senate, they are likely to agree on a solution. The leaders of Congress announced on Tuesday that they have agreed to continue funding the government through March.
Musk, an important economic adviser to Trump, posted more than 100 comments on his social networking platform X criticizing the bill.
Trump then posted a message on Truth Social, a social media platform he uses, urging Republicans to oppose the bill. Musk and Trump both criticized the provisions included in order to win Democratic support. Trump supported a second piece of legislation, but the House failed to approve it on Thursday. This left lawmakers less than one day to take action.
Washington Post reports that Republican lawmakers plan to introduce a bill on Friday which will keep the federal government operating through the month of March without including the extension Trump demanded for the debt ceiling.
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