What exactly is going on?
The government’s fiscal year runs from October 1 to September 30. Every year – Congress has to pass the spending bills that fund the government. If they don’t pass those spending bills – the government can’t spend any dough. Who says Congress has to approve these spending bills before the government spends money? The Constitution.
It’s a big scrap over the new health care law.
About 2.5 million government employees will be considered “essential.” Those people will keep on working. Air traffic controllers and military folks are in that category. But, about 800,000 employees will be considered “non-essential.” They get furloughed. (PS – Congress keeps getting paid, even if the spending bill doesn’t pass. I’m so very pleased for them, cough, cough)
Will this affect the economy?
It depends. If it only lasts a week or so – probably not. If it goes on longer, it could definitely have an effect on the economy – especially because we’re in a pretty fragile recovery.
In the short run – not much. In the longer run (beyond 10 days) it will start to have a more serious effect, in terms of buyers’ ability to secure a new loan.
Government-Insured Loans: Lenders will still be able to write FHA loans and will still be able to get an FHA Case Number from FHA. Lenders will still be able to write VA loans and will still be able to obtain Certificates of Eligibility online. Conventional loans will not be affected.
Sounds like there’s no real problem – why be concerned?
Some things won’t work if Congress doesn’t pass the spending bill. The IRS will still collect our taxes, BUT, they won’t be processing any forms – like the 4506 tax return verification form. It’s possible that without the tax transcripts, some processing could be delayed. The Social Security Administration is often relied upon by lenders to verify social security numbers. This function could be delayed. FEMA (Flood Insurance) could have delays in issuing new policies. This could affect purchases if the shutdown goes on for a while. Again, it will have very little effect if it only occurs for a few days.
If the government stops paying some of its bills – won’t interest rates go way up?
Probably not, at least in the short term, because nobody believes the US Government won’t ultimately pay back bond holders (that fight is coming when the borrowing limit needs to be raised on October 17th.