Fiscal Policy Battle Looms Over U.S. Government Shutdown

U.S. CapitolU.S. equity futures are mostly flat for Wednesday as the market remains cautious over growing political gridlock on Capitol Hill over how to fund the U.S. government beyond the end of the 2013 fiscal year which ends on September 30th.

Unless U.S. lawmakers act more decisively before September 30th, the U.S. government officially runs out of money and the government will shutdown.

Political analysts are quick to compare today’s political gridlock on Capitol Hill to the debt ceiling debacle that occurred in late 2011 with U.S. lawmakers, resulting in heated political exchanges over how to implement fiscal reforms.

The political wrangling and last minute final agreement caused major equity declines along with an S & P credit downgrade of the United States’ stellar credit rating.

In 2011 the U.S. debt ceiling showdown on Capitol Hill arrived before the government shutdown issue, in reverse order of today’s fiscal stalemate.

U.S. lawmakers have until October 15th to raise the debt ceiling, a topic that is not expected to be addressed until after the government shutdown issue is resolved.

Back in 2011 the Euro-area was more unsettled and the threat of U.S. lawmakers not deciding to raise the national debt was a credible threat to the stability of global markets.

This week the Euro-area is less volatile than in 2011 but U.S. lawmakers on Capital Hill have been unsuccessful preventing a government shutdown and some of their new proposals are raising some eyebrows.

The Republican controlled House of Representatives recently approved a controversial new resolution, inspired by Texas Senator Ted Cruz, a shining star in the Tea Party movement, that essentially requires the Democrat-majority Senate and President Obama to approve the Republican resolution to not fund the U.S. government unless Obamacare (Affordable Care Act) is first defunded, even though it was already ratified and signed into law.

Although Obamacare still confuses many Americans and has received a mixed welcome across the U.S., the majority of Americans don’t want to see it being used as leverage by conservative Republicans in a looming fiscal battle over keeping the U.S. government funded.

The majority of Republicans in the Senate are wary of supporting Senator Cruz’s proposed resolution to defund Obamacare, despite his marathon speech yesterday before an empty Senate with his words resonating poorly with establishment Republicans who understand that Americans are not ready to embrace his unusual fiscal tactics to advance the Tea Party agenda.

“I intend to speak in support of defunding Obamacare until I am no longer able to stand,” Senator Cruz said defiantly on Tuesday.

The Senate’s two highest-ranking Republicans, Sen. Mitch McConnell and Sen. John Cornyn, already rejected Senator Cruz’s unorthodox approach to defund Obamacare.

Senator Harry Reid (D-Nevada) announced on Tuesday that  he has plans to get votes started on Wednesday.

If the U.S. government is prevented from shutting down before October 1st, the House of Representatives will  have to first approve an emergency Senate led budget bill to fund the government beyond September 30th.

But if House Speaker John Boehner (R-Ohio) refuses to bring the Senate bill to the floor for a vote, a shutdown would follow.

The other looming fiscal issue  that will soon emerge centers around the debate over how to raise the $16.7 trillion U.S. national debt.

United States Secretary of the Treasury Jack Lew said it needs to resolved before October 15th.

“We cannot afford for Congress to gamble with the full faith and credit of the United States of America,” Lew said before the Economic Club of Washington.

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