Washington DC

As the clock ticks down to a looming government shutdown, the U.S. Senate and House of Representatives find themselves on duelling paths regarding funding measures, raising concerns about the stability of government operations. 

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In a move towards averting a shutdown, the Senate voted 77-19 to initiate debates on a bipartisan bill aimed at funding the government through November 17. This bill includes allocations of approximately $6 billion for domestic disaster responses and an additional roughly $6 billion in aid for Ukraine. 

Contrastingly, the Republican-controlled House of Representatives is advancing its own partisan approach that leans heavily on conservative priorities. However, this approach, according to reports, faces significant hurdles in the Democratic-majority Senate and is unlikely to become law. Even if enacted, these measures would fund only a portion of the government, insufficient to prevent a shutdown. 

This divide between the two chambers raises the spectre of the federal government experiencing its fourth shutdown in a decade come Sunday. The electoral deadlock tendencies have started to impact Wall Street's assessment of the credibility of the US government. 

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A cooperative short-term extension of federal funding at existing levels was passed with the help of Senate Majority Leader Chuck Schumer, a Democrat, and Senate Republican Leader Mitch McConnell in an effort to maintain the continuity of the government. 

Meanwhile, House Speaker Kevin McCarthy is pursuing a path that would temporarily fund the government but comes with stringent border and immigration restrictions that are unlikely to garner enough Democratic support in both chambers to become law. 

In an effort to prevent a shutdown, President Joe Biden and McCarthy had previously reached an agreement in May, which outlined discretionary spending of $1.59 trillion for the fiscal year commencing on October 1.  

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According to Reuters, the White House now urged Republicans to honour this deal, with Press Secretary Karine Jean-Pierre stating, "House Republicans should join the Senate in doing their job, stop playing political games with peoples' lives, and abide by the bipartisan deal two-thirds of them voted for in May." 

However, Republicans have rejected this deal, demanding an additional $120 billion in cuts. McCarthy's proposed legislation not only seeks to restart the construction of the U.S.-Mexico border wall, a hallmark policy of former President Donald Trump, but also aims to control immigration policies, a move criticised for potentially limiting U.S. asylum for immigrants. 

What does the shutdown mean? 

A government shutdown could have far-reaching effects, including the dismissal of hundreds of thousands of federal employees and the suspension of a number of services, from the release of economic data to nutrition support, beginning on Sunday if an agreement cannot be reached. 

While credit rating agency Moody's has expressed concerns, the impact on U.S. creditworthiness remains uncertain, as past shutdowns have had limited effects on the world's largest economy. 

Against this backdrop, former President Donald Trump, the front-runner for the 2024 Republican nomination, has publicly supported the notion of a shutdown. 

The cuts advocated by the Republicans represent only a fraction of the total U.S. budget, projected to reach $6.4 trillion for this fiscal year. Notably, popular benefit programs like Social Security and Medicare are not under consideration for cuts. 

Historically, Congress has resorted to government shutdowns 14 times since 1981, though most of these funding gaps have been short-lived, lasting only a day or two. 

(With inputs from Reuters) 

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