Not even an hour after the House of Representatives voted to pass its third continuing resolution aimed at keeping the government funded past midnight Tuesday, the Senate sent back a counteroffer in hopes of striking a deal.
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The sticking point has been, and continues to be, a Republican-controlled House desire to include a provision to either repeal or modify portions of President Barack Obama’s signature health-care law, the Affordable Care Act. In the House’s most recent proposal, it included a provision to delay the ACA’s individual mandate – it’s key provision – for one year. It also included in the CR an amendment to subject certain lawmakers and administration officials to the Affordable Care Act’s provision the American public is subjected to.
Tensions were high and continued to climb as the legislative Ping-Pong continued late into the night. House Speaker John Boehner, on the House floor, explained his reasoning for backing so strongly a provision to repeal or modify the ACA, saying it’s what the American people want.
“The American people don’t want a shutdown and neither do I,” Boehner said. “…Here we find ourselves in this moment dealing with a aw that’s causing unknown consequences and unknown damage to the American people and our economy. And that issue is ObamaCare. Those who don’t recall, it was passed in the middle of the night. 2,300 pages that no one ever read and all types of consequences for the American people, our constituents.”
But Democrats didn’t buy it. Representative Stenny Hoyer refuted the speaker’s remarks, dismissing them as nothing but pure politics and rhetoric.
“Tonight is about the continuing destructive obsession that our Republican friends have and their refusal to recognize there was an election just some months ago…As a result, you are about to shut down the government. You an get up here and say over and over and over again, we don’t want to shut down the government. But your actions, Mr. Speaker, their actions belile their words.”
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Though the effort cleared the House around 9:00 p.m. ET, the legislation was dead on arrival in the Senate as déjà vu continued late into the night, as the U.S. hurtled toward its midnight deadline. Within 30 minutes, the Senate stripped the House-passed amendments from the bill, and kicked the CR back to the House for another try.
The bill is now, for a fourth time, in House Republican lawmakers hands, as Speaker John Boehner works to strike a deal amidst deeply divided government. Though the outcome, at this point, is uncertain, House sources tell FOX Business any action on a new CR would involve at least the following three steps:
-A briefing with House GOP to decide how to proceed with a new proposal
-A Rules Committee meeting to write the new rule to handle the new proposal on the floor
-New debate and a vote on the fourth CR of this fiscal battle
It remains to be seen whether the Senate will reconvene to again table the fourth round of House amendments later in the night.
Markets Worry About Shutdown Effects
Though the Senate and the president believe a government shutdown isn’t all but guaranteed at this point, market participants on Wall Street have a different idea.
In a note to clients Monday, the Potomac Research Group said it doesn’t see any signs of reconciliation on the horizon, and a government shutdown is highly likely for the first time in 17 years.
“We held out hope that a short-term continuing resolution would pass by midnight tonight, but that now looks far-fetched. None of the key players will blink anytime soon, so this could last for a while. For the markets, a state of exceptional uncertainty will persist for at least another month, possibly until late December,” the Washington-based consultancy wrote.
But Todd Schoenberger, managing partner at LandColt Capital in New York said a shutdown will not happen – but the fear is sending shock through the markets – with the Dow down about 100 points in mid-day action.
“We've been through too many of these end-of-world crises, only to hear about a resolution being delivered in the final hours. Sadly, Congress continues to discredit itself by playing these political games and negotiating via media interviews rather than face-to-face when it pushes the country to the brink,” Schoenberger said.
If the shutdown becomes reality, the consequences the U.S faces are somewhat uncertain.
“Much of the government spending that has a direct effect on the economy – such as entitlement programs like Social Security and Medicare, as well as existing government contracts for constructions projects and purchases of weapons systems – will not be affected by a shutdown. Government employees who are temporarily furloughed may cut back their spending, and business and consumer confidence may be adversely affected,” Nomura outlined in its note to clients.
In a note to clients Monday morning, Peter Boockvar, managing director and chief market analyst for The Lindsey Group said previous government shutdowns have had little impact on U.S. equity markets, using the most recent as an example. In that case, a temporary fix ended the shutdown, and markets ended little changed from the first day to the last.
“Of course the circumstances are much different today in many ways but markets should assume that a deal will come sooner rather than later because the negative consequences get too large the longer this all lasts, particularly with the debt ceiling,” he wrote.
The bigger concern is a hit to the nation’s economy if and how long a shutdown happens. Michael Block, Chief Strategist at Rhino Trading Partners said in a note to clients Monday, he expects a shutdown to shave up to 1.4 percentage points off fourth-quarter gross domestic product.
“Perhaps more important, failure to reach a compromise here will damage the credibility of the U.S. political system even more acutely than recent shenanigans have already,” he wrote.
Next Congressional Battle
September 30 is not the only deadline Investors and market participants are keeping their eyes focused on. A much bigger concern is the debt ceiling deadline on October 17 – on that day, the U.S. Treasury Department has said it will max out its “extraordinary measures” to fund the government’s financial obligations. At that point, conceivably, the United States will, for the first time in history, begin to default on its obligations, which could ignite massive backlash in financial markets and even spark ratings services to downgrade U.S sovereign debt. And that has market participants worried.
What’s making analysts nervous is the complete inability of Congressional leaders to work out a compromise on the CR. If lawmakers are unable to come together on even a funding proposal through the end of the year, does that bode well for the negotiations sure to come on increasing the nation’s debt ceiling?
“The consequences of the debt limit becoming binding are potentially much more severe. Arrears on some government obligations would probably be unavoidable, and Treasury officials have indicated that they see no clear way to avoid arrears on debt service obligations if the debt limit becomes truly binding,” Nomura wrote.
Block added, “Failure to pass (the debt ceiling resolution) would cause much bigger potential issues and not being able to resolve this issue first will not help investors’ confidence,” Block wrote. “Some pundits do think that a government shutdown will be good for markets because it will make Congress see how urgent and dire it is that they resolve the debt ceiling crisis.”