Concerns over How 'US Budget Failure' Will Influence the Global Economy

While the U.S. Congress is in turmoil over the confrontation between majority and minority parties, serious effects could extend throughout America and the global economy. The U.S. fiscal year begins in October. The governing Democratic Party and the opposition Republican Party locked horns regarding the Obama administration’s medical insurance system (commonly called Obamacare) and, with Congress failing to establish a provisional budget for the 2014 fiscal year, several government agencies were forced to suspend operations.

This is the first time in 17 years that government agencies have shut down; the effects are beginning to appear in the tourism industry, such as with the closure of national parks. Agencies dealing directly with the day-to-day lives of the people, such as public order and defense, will continue; however, this may well lead to stagnation of economic activity.

What is most concerning is the question of raising the federal debt ceiling, which draws near to its deadline in the middle of this month. The upper limit to the amount of debt the U.S. government can incur, in the form of national bonds and so forth, is set by law at $16.7 trillion (about 1.636 trillion yen). If Congress does not approve an increase, they will incur financing difficulties. It is even possible that the U.S. national debt will fall into default.

Were a default to occur, the global financial market and economy would turn to utter chaos. On behalf of emerging nations that show signs of slowing down, the U.S. economy is reclaiming its bullishness. Even the fear alone of a default will become a cause for concern and will probably have an effect on the Japanese economy.

In January of this year, the U.S. Congress already faced the “fiscal cliff,” the overlapping of compulsory reductions to annual government expenditures and the discontinuation of tax cuts. At that time too, the world was concerned about these trends, but in the end the upper and lower houses finally passed a bipartisan evasion bill.

Obamacare — the source of the two-party dispute — is a nationalized medical insurance system that has never before existed in the U.S. Republicans historically stress the importance of individual self-reliance. They have long been opposed to a system which has compulsory participation, or in which you are penalized for not participating.

No doubt there is uneasiness regarding a system that requires such a sizable budget. But, to put it in a detached way, this is an American domestic problem. For the time being, if a conclusion about the budget or raising the national debt ceiling isn’t reached, what sort of situation will that invite? The members of Congress would like us to exercise our powers of imagination.

In this “twisted” condition in which the Republicans hold a House majority and the Democrats hold the Senate, it doesn’t appear that either party will compromise. The Republicans have appealed for a postponement in the actual implementation of the insurance system, but if the Democrats do not approve it, there are points that they have proposed to enact. Mr. Obama and the Democrats also show no sign of compromise.

A plan to break the deadlock, firmly clinched as it is, has not been found. What they really need to do is clear away this “defunct” Congress and quickly establish an opportunity to discuss things together openly. There isn’t much time left.