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US

SHUTDOWN

the United States federal government entered a shutdown and curtailed most routine operations after Congress failed to enact legislation appropriating funds for fiscal year 2014. history . The most recent previous U. Only those employees and services deemed "excepted" under the Anti-deficiency Act continued government operations.S. Approximately 800.S. The 16-day duration of the October 2013 shutdown was the thirdlongest government shutdown in U. and another 1. 2013. federal government shutdown was in 1995–96.000 federal employees were indefinitely furloughed.How it all Triggered ?? • From October 1 to 17. or a continuing resolution for the interim authorization of appropriations for fiscal year 2014.3 million were required to report to work without known payment dates.

Political fights over this and other issues between the House on one side and President Barack Obama and the Senate on the other led to the US Shutdown. The Republican-led House of Representatives.• A "funding gap" was created when the two chambers of Congress failed to agree to an appropriations continuing resolution. . The Democratic-led Senate passed several amended continuing resolutions for maintaining funding at current sequester levels with no additional conditions. in part pressured and offered several continuing resolutions delaying or defunding the Patient Protection and Affordable Care Act (commonly known as "Obamacare").

The plan would allow the U. 2013 (2013-10-09) – President Obama invites the entire Congress to meet with him about the government shutdown and upcoming debt ceiling. House begins passing "mini" appropriations bills. The Senate passed the bill by a vote of 81 to 18. House of Representatives Speaker John Boehner said he would allow the deeply divided House to vote on the Senate plan to move the debt limit and a government reopening. The House leadership responded that they would send 18 members to meet with Obama. effectively ending the shutdown and debt ceiling crisis. 285 for and 144 against. House Republicans. but no agreement is reached.Timeline of events • October 1. . 2013 (2013-10-16) – Congress plans last-minute votes to avert default. President Obama signed the bill into law at 12:30am on October 17. 2013 (2013-10-01) – Government shuts down • October 2. Senate Majority Leader refuses to bring "mini" bills to vote • October 9. Separate meetings for House Democrats. and Senate Republicans were suggested. 2013 (2013-10-02) – Obama meets with Republican and Democratic leaders. It passed in the House a few hours later. Senate Democrats. • October 16.S to continue borrowing until February 7.

2 MAIN PEOPLE INVOLVED .

We view the on-going political stand-off leading to the US government shutdown more as a false alarm rather than anything else as indicated by the evolution of the S&P 500 in the below graph from CITI's recent Global Macro Strategy note from the 3rd of October entitled: "Complacency justified?" .

Effects of Shutdown on ROW • Following are the federal government agencies that were affected by the shutdown- .

NASA 11. Department of Health and Human Services 7. Centers for Disease Control and Prevention 8. Department of Education 5.The White House and others as well . Food and Drug Administration(FDA) 9. Military Academies 4. Department of Commerce 2. Department of Homeland Security 10. Department of Energy 6. Department of Defense 3.1.

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Effect on Businesses Defense contractors and some manufacturers has experienced disruptions as the shutdown prevented those companies from delivering goods and receiving payments for work already done. Sikorsky Aircraft. One alternative source of credit.000 employees at a military helicopter manufacturing subsidiary. Small businesses are facing delays in receiving loans from the Small Business Administration. charge interest rates of between 40% and 100%. Airbus was unable to deliver new airplanes to the airlines JetBlue and US Airways because Federal Aviation Administration personnel who certify airplanes were furloughed . it would furlough 2. merchant cash advances.000 employees on October 7. Similarly. Many of these companies may need to turn to alternative funding sources that charge much higher interest rates. United Technologies announced that if the shutdown was not resolved by October 7. Lockheed Martin announced plans to furlough 3.

DEBT CEILING • On October 11. Democratic senators wanted to negotiate an end to sequestration before then . Senator Susan Collins (R-ME) developed a proposal to lift the debt ceiling and end the shutdown. Democrats in the Senate rejected this proposal because it would have locked sequestration budget cuts into law for the next six months.

Following the debate over the debt ceiling in May 2013. the Treasury Department was forced to engage in extraordinary measures to fund the government.Analysts were concerned that the political gridlock would extend into mid-October. when Congress and the President must agree to raise the debt ceiling to avoid the prospect of defaulting on the public debt. that the U. the Treasury informed Congress that the extraordinary measures would be insufficient starting in mid-October and further specified. In August 2013.S. . in late September. would begin to default on its debts if a new debt ceiling was not approved by October 17.

would risk a default on its public debt. the Moody's bond credit rating agency released a memo stating that it was unlikely the U. stating that he would not reopen budget negotiations until Republicans agreed to passage of a bill raising the debt limit. Medicare and Social Security payments. However. • On October 7. and that the nation instead "would continue to pay interest and principal on its debt". likely including a wide array of business contracts.• On October 2. such prioritizing of debt payments over all other needs would require that the government default on many other payment obligations. The memo further stated that the financial situation was more serious in 2011 than the 2013 problem. The Council on Foreign Relations said that among the payments implicated were military wages.S. and unemployment support. employee salaries. President Obama explicitly linked the government shutdown to the debt ceiling issue. and other programs. social insurance benefits. .

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. On October 15. AAA ratings on "rating watch negative" as talks to increase the debt limit reached an impasse fueling concerns of congressional dysfunction and impending default. 2013. blow up borrowing costs for billions of people and companies. the credit rating agency. a key driver of growth in the world's third-largest economy. Fitch. ravage the dollar and throw the U. and world economies into a recession that probably would become a depression". noting that a government default would be 23 times larger than the Lehman Brothers bankruptcy during the Great Recession.S. because it erodes their repatriated profits.Potential effects • Yalman Onaran of Bloomberg News wrote that the government's failure to raise the debt ceiling and pay its debt would "halt a $5 trillion lending mechanism for investors who rely on Treasuries. he said "I think this could likely result in a situation where the dollar will be sold and the yen will be bought.S. placed the U. • Japanese Finance Minister Taro Aso said that the debt limit would have an "internationally significant impact"." The falling dollar is bad news for Japan's exporters. On how the US situation could affect Japan.

the official press agency of the country. Malaysia. It also called it a "bizarre" development and warned that the damage will multiply "if the drama drags on”. the White House announced that President Obama's upcoming trip to Brunei. would be cancelled due to the government shutdown . otherwise.On October 4. said The United States .Global Effect of Shutdown • United Kingdom — Prime Minister David Cameron stated the USA shutdown should serve as a reminder on how public expenditure should be prudently controlled. the Philippines. and Indonesia. a deficit is inevitable • People's Republic of China — An editorial in the state-run Xinhua news service. • Asia Pacific.the world’s sole superpower is bearing the consequences of engaging in irresponsible spending for years. where he was scheduled to attend the 2013 AsiaPacific Economic Cooperation meeting in Bali.

S. .the press secretary of Putin said “there is a severe need of continued dialogue on issues like [Syria and Edward Snowden]”.• Europe. • Japan. • Russia.Regarding the cancellation of meeting between Obama and Putin . Trade Representative Michael Froman announced that a scheduled meeting with European Union diplomats regarding the proposed Trans Atlantic Free Trade Area (TAFTA) would be postponed as U. U.S.Finance Minister said “ I think this could likely result in a situation where the dollar will be sold and yen will be bought but falling dollar is a bad news for Japan’s exporters”. officials could not travel to Brussels.On October 4.

000 D. Goldman Sachs estimated that a three-week shutdown would reduce the Gross Domestic Product of the United States by 0. Lost wages of Federal employees will amount to about $1 billion a week. metropolitan area.4 percentage points. By comparison. Approximately 700. a two-week shutdown would reduce GDP growth in the fourth quarter by 0.3 to 0. the GDP has grown by less than 2% in 2013 The negative economic effect of the shutdown will be particularly severe in the Washington D. area jobs could be affected at a cost of $200 million a day  .C.Economic Effect of Shutdown    In this section of the presentation we will try to look at all those adverse effects that the economy faced due to Shutdown and these are as followsMoody's Analytics estimated that a shutdown of three to four weeks would cost the economy about $55 billion. According to the Los Angeles Times.C.9%.

 During the month of October. .  The State of Maryland predicted that it would lose approximately $5 million a day in tax revenue. tourists spend about $2. but during the government shutdown the National Park Service website was unavailable.7 million a day at the Grand Canyon National Park and other National Parks in Arizona. A press release from the National Park Service said the shutdown of national parks would result in losses of $76 million a day in tourism-related sales among local communities.

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Like –in India the key driving sector of the economy i.Now. . Infosys and Mahindra Satyam making new “lows” in every intraday trade session. the Dow Jones Industrial Average fell below the level of 15000 to end at 14936. lets look at how the stock market was moving during the shutdown periodOn 7th October .Similar situation was prevailing in other stock exchanges of US like.e.NYSE etc and not only US but the share markets around the world were affected by this shutdown . especially those businesses that were connected with federal organisations. Similarly many other businesses were either directly or indirectly affected this event and were experiencing heavy losses because of this 16 day long shutdown . IT Sector was experiencing a downfall everyday with major companies like TCS .