GOVERNMENT SHUTDOWN - WHAT IT MEANS

What does it mean?
This refers to an impasse between the two pillars of US democratic system - the two pillars are the Senate and the Congress leading to a situation where the government fails to provide those services which can be categorized as non essential items.

Analogy: When two room-mates cannot agree who would clean the utensils once the food is cooked, next day no food is cooked as there are no utensils.

 What is the impact of the impasse?

The US government needs to pass all the bills for the fiscal year which begins on 1^st October  on or before 31 st September so that the funds can be released. However, this year the two houses could not reach to a consensus on how to fund the programs before 1^st October Hence, there is no way the programs could be implemented as source for the same is not clear.

Analogy: The roommates had whole night to decide who would clean the utensil however the night has passed but the utensils cannot be used so the hired cook goes away without cooking.  

Why are they not able to decide on how to fund the expenditure assuming that this is their primary job?

The Congress is dominated by the Republicans who do not want to provide funds for Obama’s pet project The Patient Protection and Affordable Care Act (PPACA) which is called Obamacare by the print media. On the other hand the democrats who dominate the senate do not agree with the congress on not providing fund to their leader's pet project.

Analogy:

 The two roommates do not wash the utensils because the other roommate did not wash it. So it is more of a ego issue which cannot be solved.

Could you demystify the PPACA bill?

This pet project of the President of United States aims at providing healthcare to every American. Under this act the insurers are compelled to insure every American. Those who cannot afford are provided financial support and those who can afford and do not insure themselves are forced to pay a fees on their taxes.

Analogy:

The government will decide what will be cooked today in my house because the government is concerned about my health.

Is there any reason for the republicans opposing?

They believe and rightly so that in a democratic set up the government cannot force people to decide how to spend their own hard earned money  

Analogy: None needed here I presume

Give me some example of non–essential services?

Non essential services include maintenance of zoos, passport services, homeland securities etc

What would happen to the salary of the people engaged in non essential services?

They will not be paid any salary till the uncertainty prevails.

 Million Dollar Question – will the congress members be paid during the period?

Yes the congress members will be paid hence they do not lose anything for being the cause of the problem and causing the exchequer a loss estimated at $500 million per week.

Author: Abhishek Sinha

Abhishek Sinha has approximately 8 year of experience in equity research, business research and consultancy. He has also had the privilege of managing a small portfolio of INR 3 million. However, his interest lies in teaching and "demystifying concepts." He has taught students right from the age of 3 years at PP1, to 40 years at executive courses and believes teaching is not about knowing the concepts; it is about relating the concepts to the audience. At present he is "gainfully employed" at Vignana Jyothi Institute of Management, Hyderabad; where he loves to teach finance to an enthusiastic bunch of management students. His hobbies include analyzing income statement, balance sheet and cash flow.> Google +