Will the two parties reach a spending agreement in the United States, causing the government to "shut down" or continue to plague the United States?

On the 7th local time, leaders of both parties in the US Congress announced a $1.66 trillion agreement to provide funding for key government projects in the 2024 fiscal year, which may help avoid the government's "shutdown" at the end of this month. It is reported that the maximum amount agreed upon by House Speaker Johnson and Senate Majority Leader Schumer includes a $1.59 trillion spending agreement for fiscal year 2024, as well as an additional $69 billion agreement to adjust non defense domestic spending. This brings the total amount of funds to $1.66 trillion. Although the agreement reduces the possibility of the government shutting down, Congress still faces a strict deadline for voting to pass the agreement, as previously passed budgets were only able to maintain some federal government agencies operating normally until January 19th and others until February 2nd.

Failed to fully pave the way for "avoiding government shutdown"

At present, this is only an agreement reached by the leaders of both parties, and does not represent an agreement reached by both parties. Because in the United States, any final budget agreement needs to receive sufficient support from both houses of Congress controlled by both parties, and be signed and approved by President Joe Biden in order to become a valid law.

Now, legislators face an urgent deadline to pass legislation to make this agreement effective and avoid a partial government shutdown in less than two weeks. If both sides cannot finalize a more detailed budget bill, approximately 20% of government funds will be depleted on January 19th, including some important projects such as veterans assistance and food and drug safety services; The remaining government funds will be depleted soon after on February 2nd.

The Republican conservatives are the biggest challenge, and this agreement will almost certainly face strong opposition from far right House Republicans, and some Republican hardliners have expressed doubts about whether this agreement can be passed in a timely manner. For example, Republican Congressman Chip Roy from Texas, a member of the far right liberal caucus, criticized the agreement as "very bad" and stated that it abandoned the leverage gained in the budget cap agreement.

There are profound differences within Congress regarding budget and expenditure priorities. On the one hand, extremely conservative individuals are concerned about excessive spending and an increase in national debt. They originally hoped to reduce government spending to maintain fiscal balance. On the other hand, despite the Republican Party's desire for significant budget cuts, congressional leaders remain committed to maintaining the operation of key government departments, especially those that have a direct impact on the daily lives of citizens. This agreement still retains funding for key domestic and social safety net projects.

The Republican Party may consider adopting a strategy of "temporary" sustained resolution to address the current budget crisis and delay decisions.

The budget agreement currently under discussion is separate from additional financial support for Israel and Ukraine. Some Republican members are increasingly expressing concerns or opposition towards these foreign aid, as this may affect their stance on broader budget or debt ceiling issues.

The US debt problem has been piling up

According to the latest data released by the US Treasury Department, by the end of December last year, the size of US treasury bond bonds had reached 34 trillion US dollars, which was the first time that this level has been exceeded in history. By contrast, in September last year, the size of the US treasury bond just exceeded 33 trillion US dollars; Forty years ago, the size of US treasury bond bonds was only about 907 billion US dollars. JPMorgan Chase stated in its 2024 outlook that the ancient metaphor of "boiling a frog in warm water" is well suited to the current debt situation in the United States. In fact, the debt problem in the United States has also been a concern for economists at JPMorgan Chase for many years, as the government continues to borrow on record scales and calls for change are growing. "Boiling frogs in warm water" refers to the situation where over time, people fail to take action on potential problems, leading to them becoming increasingly serious and eventually erupting. Chebalest believes that the United States is now like a frog in warm water. Although investors have no intuitive understanding of the impact of the worsening US debt, one day the frog will be cooked, and the huge impact of US debt will eventually overwhelm the US economy.

The Congressional Budget Office estimates that by the early 1930s, the net welfare expenditures, mandatory expenditures, and debt interest payments in the United States will exceed the total government revenue. The debt situation of the United States will only worsen in the coming years.

According to the budget outlook of the Congressional Budget Office, the size of the US treasury bond will nearly double in the next 30 years. As of the end of 2022, the national debt of the United States accounted for approximately 97% of its gross domestic product. This number is expected to soar to 181% by the end of 2053, and the debt burden will far exceed any previous level. "The problem with the United States lies in the starting point: every round of fiscal stimulus will bring the country closer to debt sustainability," said Michael Chebalist, strategist at JPMorgan. "However, we have become accustomed to the limited impact of the deterioration of the US government's fiscal situation on investors, but one day, this situation may change."

Suspension will have a significant impact

When the government shuts down, millions of federal workers will face wage delays, including approximately 2 million military personnel and over 2 million civilian personnel nationwide. Nearly 60% of government workers are stationed in the Ministry of National Defense, the Department of Veterans Affairs, and the Ministry of Homeland Security. Government workers are distributed in 50 states across the United States and have direct interaction with taxpayers, including special agents from the Traffic Safety Administration responsible for airport safety and postal staff delivering mail.

During the shutdown period, some government offices will have to close or shorten their operating hours. In addition to government workers, the shutdown may also have a widespread impact on government services. People applying for government services, such as clinical trials, gun permits, and passports, may face delays and delays. Enterprises closely related to the federal government, such as government contractors or national tourism service agencies, may experience confusion and losses. According to the American Tourism Association, if it were to shut down, the tourism industry could lose $140 million per day. Legislators also warn that the shutdown may shake financial markets. Goldman Sachs estimates that every continuous week of shutdown will result in a 0.2% decrease in economic growth rate. The interruption of government services has a profound impact as it shakes people's confidence in the government fulfilling its basic responsibilities. The American Chamber of Commerce warns, "A well functioning economy requires a functioning government."