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Republicans and Democrats in Congress are locked in a dispute over how to fund the federal government. In the House, Republicans have passed legislation to extend funding for the federal government for another four weeks. However, there is an impasse in the Senate where Democrats want to see the funding deal tied to legislation to help protect about 800,000 individuals who were brought to the US illegally as children. That impasse is continuing, and if a deal isn't reached, then the federal government could shut down.
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There have been shutdowns throughout recent history. The most recent one happened in 2013. Under a shutdown, certain functions of the federal government will have to cease, and staff will have to go home rather than staying at work. However, many vital functions and security-related, public safety-related aspects of the government's work will continue.
A shutdown does, however, entail economic costs and also impair some areas of public service. The government has been trying to prepare for the possibility of a shutdown with contingency plans to reduce the impact on public services around the US.
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Well, financial markets have more or less taken the idea of a shutdown in their stride. This is based on historical experience which suggests that, generally, shutdowns, although politically embarrassing and highly contentious in Washington, do tend to have a relatively constrained or contained economic impact overall.
Certainly, that was the experience in a shutdown in 2013 under Barack Obama when there was some economic impact briefly, but overall growth in the final quarter of the year was a relatively robust 4% annualised. So the outcome tends to be more significant in terms of politics than economics.
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