The shutdown was triggered by the Republican majority in the House of Representatives on October 1 after their repeated attempts to de-fund the healthcare legislation of President Obama - a political strategy - were frustrated in the Senate by the Democrat majority. Of greater global concern was the threat of a US debt default, for the first time, if the debt ceiling of 16.7 trillion dollars had not been raised by October 17, when the Treasury would have run out of funds for meeting all obligations.

President Obama welcomed the bi-partisan effort and signed the legislation lifting the twin threats of prolonged shutdown and debt default. He won his point that he would not sign any spending bill with politically-motivated conditions, which he called “ransom”. Nor would he negotiate on raising of the debt limit which covered spending already voted by the Congress.

At stake over the shutdown fortnight was the status of dollar as the pre-eminent global reserve asset and the role of the United States as the world financial guardian. A possible threat of default from unperturbed Republicans swirled across the globe and alerted markets and nations to unpredictable developments.

Finally, a compromise worked out by the Senate majority leader Mr Harry Reid and Republican minority leader Mr Mitch McConnell helped to break the deadlock in Washington. This eleventh hour bipartisan deal stayed clear of political overtones and unconditionally lifted the threat of default.

In ending the shutdown, it set dates over the next six to eight weeks for bipartite negotiations for a longer-term budget plan. The deal provides for funding of Government, on the existing basis with ‘sequester’ on, till January 15 while the debt ceiling stands raised till February 7. Democrats hope to replace the sequester with more sensible cuts that are responsible for growing the economy.

Once the Senate deal emerged, the House Republicans could no longer keep up resisting any compromise without changes in the Healthcare Act, given an overwhelming disapproval of their role in the shutdown, in public opinion polls. On October 16, a few hours before the deadline for revision of debt ceiling, the Senate voted the compromise by 81 votes to 18 and the House later in the night approved it with a 285-144 vote. While the bill was unanimously backed by about 200 Democrats, the Republican support was confined to 87 members. Unreconciled Republicans would take the fight for another day.

At the end of it all, a frustrated House Speaker Mr John Boehner said Republicans were locked in a fight to bring government “down to size and trying to do our best to stop ‘Obamacare” (the President’s healthcare law). “We fought the good fight. We just didn’t win” he admitted. He could not carry Republicans with him for any moderate solution that might have provided a basis for Democrats to look at. Republicans gave up all efforts, leaving the Senate leaders to take the initiative.

The shutdown has certainly caused some damage to the slowly recovering economy, stripping consumer confidence with fewer dollars in the hands of Federal workers, while hundreds of thousands of them had been furloughed. It also slowed down mortgage lending and small business loans. But it averted the Republican threat of debt default which would have resurrected another global crisis of perhaps a larger dimension than the one in 2008.

President Obama said in a statement that the “manufactured crisis” had no economic rationale and had done “unnecessary damage” to a growing economy. Americans were “fed up” with ways of Washington and the people’s frustration had never been higher, he noted. Abroad, it had undermined America’s credibility and the Washington spectacle only “encouraged our enemies, emboldened our competitors, and depressed our friends, who look to us for steady leadership.”

Indirectly chiding Republicans for making budget issue a political platform, the President suggested if they do not like a policy or a particular President, “they can argue for their position and go out there and win an election” to push change. For the Republicans, the mid-term elections in 2014 provides the opportunity to test out support for hardline conservatism with policies designed to shrink the size of government and letting markets free with minimum of regulation.

Brinkmanship has characterized all bi-partite discussions so far on fiscal issues, an experience which weakens expectations of substantial and meaningful accords to emerge on long-term budget issues in the negotiations about to commence right now. The unquestioned faith and credit of the United States in the world’s financial system was also imperiled by the threat of default and a new ceiling for debt has to be determined in February.

The President laid out afresh on October 17 his three priorities for this year – a long-term budget accord, immigration reform and a new farm bill. He wanted the House to adopt the comprehensive bi-partisan immigration reform worked out in the Senate and sent to the House. The discussions on the budget, in his view, should, while focusing on getting the fiscal house in order for the long haul, help to grow the economy, create good jobs and strengthen the middle class.

Republicans and Democrats should together pursue a balanced approach for a sensible budget that is responsible, fair and helps hard-working people all across the country, according to the President. While budget deficits on downtrend have to shrink further, the negotiators would come up against the long-term obligations like Medicare and Social Security for future generations. The President has often advocated closure of corporate tax loopholes which, he feels, would free up resources for education and infrastructure and research.

Under the bi-partisan deal, the Congress has provided for a negotiating committee to try and come up with a longer-term budget plan for the next year. Its recommendations should be made by Dec.13. The Chairman of the Republican House Budget Committee, Mr Paul Ryan and his Democratic counterpart in the Senate, Patty Murray, have already met and said they would explore every avenue to reach a longer-term deal to reduce deficits and replace automatic “sequester” spending cuts.. Mr Ryan favours “smart deficit reduction” and said “we want to grow the economy”.

The IMF has welcomed the bi-partisan accord as an important and necessary step in ending the shutdown of federal government and lifting the debt ceiling, which enables the government to continue its operations without disruption for the next few months while budget negotiations continue to unfold. Looking forward, the Managing Director Christine Lagarde said, ‘it will be essential to reduce uncertainty surrounding the conduct of fiscal policy by raising the debt limit in a more durable manner.”

IMF has been critical of sequester as a “bad” way of spending cuts and Ms. Lagarde said they would encourage the U.S. to approve a budget for 2014 and replace the sequester with “gradually phased-in measures that would not harm the recovery, and to adopt a balanced and comprehensive medium-term fiscal plan.” (IPA Service)