A federal government shutdown could begin later this week unless Democrats and Republicans strike a deal to raise the debt ceiling.
Iowa Superintendent of Banking Jeff Plagge says even if that happens, community bankers will adjust, especially after they successfully processed Paycheck Protection Program funding while handling other needs during Covid-19.
The House of Representatives voted last week to keep the government funded, suspend the federal debt limit and provide disaster and refugee aid, setting up a showdown with Republicans who oppose the proposal and say it would initiate a massive spending increase in the coming months. The package would provide stopgap money to keep the government funded to Dec. 3 and extend borrowing authority through the end of 2022. It includes $28.6 billion in disaster relief for the aftermath of Hurricane Ida and other extreme weather events, and $6.3 billion to support Afghanistan evacuees in the fallout from the end of the 20-year war. The Senate failed to pass a major procedural vote Monday to advance a short-term government funding bill. As reported by NBC News, Republicans were unanimously unwilling to support the debt limit increase.
The House Budget Committee advanced the Democrats’ $3.5 trillion social spending plan Saturday afternoon on a 20-17 vote as party leaders look to introduce the plan for a vote in the lower chamber this week despite intraparty division. The package would then head to the House Rules Committee, and leadership is expected to make further changes to the measure before it is brought to a vote in the lower chamber. Federal Deposit Insurance Commission funds are not authorized by Congress, so those funds will not be impacted.
Additionally, the United States could default on its accumulated debt load next month unless borrowing limits are waived or adjusted. As reported by the Associated Press, Mark Zandi, the chief economist at Moody’s Analytics, has said that if lawmakers allow a federal default, “this economic scenario is cataclysmic.” He projected that a potential downturn from government funding cutbacks would cost 6 million jobs and stock market losses would eliminate $15 trillion of household wealth. The Treasury Department has been using “extraordinary measures” to fund the government since the last debt limit suspension expired July 31, and projects that next month will run out of cash reserves. Then, it will have to rely on incoming receipts to pay its obligations, now at $28.4 trillion.
Plagge said Congress should find either a permanent or temporary solution to prevent any government shutdown, which he said could hamper rental assistance and ag payments. Plagge is optimistic that any shutdown would not last long, noting that in past shutdowns, including one lasting for more than a month during the administration of former President Donald Trump over funding for the proposed United States-Mexico border wall, have not eliminated bank examinations.
Iowa Bankers Association President & CEO John Sorensen noted that uncertainty tends to adversely impact asset valuations. To him, much of the current budget debate is political in nature and will likely work itself out.