(Bloomberg with Elizabeth Galentine (EBA) The partial shutdown of the U.S. government showed no signs of ending quickly, as lawmakers stiffened their positions and sought to shift blame to the other side.

Day one of the first shutdown since 1996 wrapped up with no talks scheduled between the White House and Congress, making it more likely the standoff would merge with the fight over raising the U.S. debt limit later this month to make sure the government can pay all its bills.

The shutdown is just the latest hit for federal contractors, many of whom have already seen their contracts delayed or reduced due to sequestration, points out Kim Hennessy, senior vice president at Equity Risk Partners, a San Francisco-based brokerage specializing in the market. Because the shutdown puts into jeopardy any budget surpluses that are typically allocated at the end of the year, “our clients will be impacted by further disruption and delays and may miss the opportunity to get the uncommitted budgetary spend at year end,” says Hennessy.

The last government shutdown 17 years ago “had a significant adverse impact on federal contractors and their employees, with roughly $3.7 billion in federal contracts in the D.C. area alone put on hold during the shutdown and employees of federal contractors furloughed without pay,” she says.  “The impact would be even more pronounced today given the number of federal contract workers has grown over the past two decades.” 

Meanwhile, House Republicans sought a way out of the impasse, flinging proposals at the Democrats and seeking to engage the Senate and President Barack Obama in direct talks.

“The president isn’t telling the whole story when it comes to the government shutdown,” House Speaker John Boehner, an Ohio Republican, wrote in USA Today. “Washington Democrats have slammed the door on reopening the government by refusing to engage in bipartisan talks.”

‘Doomed’ Effort

Republican Representative Peter King of New York said his party had allowed 30 or 40 lawmakers “to hijack” this issue.

“This was doomed from the start,” King said on MSNBC today, adding that a number of people will hold meetings in the House today. He urged Obama to step in and resolve the crisis.

“Forget whose fault it is, he’s the president of the United States,” King said.

White House officials announced today that Obama is shortening his planned trip for meetings with leaders in Asia, canceling stops in Malaysia and the Philippines because of the shutdown.

Senator Kirsten Gillibrand, a New York Democrat, said it’s up to House Republicans to consider the Senate’s stopgap measure, which is free of add-ons.

“If John Boehner held a vote today, he would have bipartisan support, Democrats and Republicans, to vote for allowing the government to stay open,” Gillibrand said on MSNBC today. “That’s what they should do.”

Political Theater

Senate Democrats have kept sending back the House’s plans, rejecting the ideas as political theater and insisting that Republicans fund the whole government temporarily and stop demanding major changes in Obama’s Affordable Care Act. Obama had harsh words for the Republicans, saying they had “demanded ransom just for doing their job” of passing a budget.

The shutdown coincided with the first day of enrollment for the health-care law, as new exchanges tried to handle of flood of consumer interest. Republicans called computer glitches a sign the measure, passed in 2010, isn’t workable. Obama said the demand shows the law -- which House Republicans have sought to defund or delay -- is important and popular.

On the House floor, Republicans offered three bills yesterday that would reopen parks and the Department of Veterans Affairs and allow Washington’s city government to spend its money. The move was designed to blunt some of the most visible effects of the shutdown and force Democrats to choose between popular programs and their insistence on a full resumption of government funding.

‘More Options’

After all three failed under an expedited procedure that required bipartisan support, Republicans said they would keep pressing similar efforts that Obama and the Democratic-controlled Senate have consistently rejected.

“We’re going to stay here and keep working, putting more options on the table to continue funding government, while also ending the sweetheart deals in Obamacare,” said Rep. Steve Scalise, a Louisiana Republican.

A bill to exempt the National Institutes of Health from the shutdown will be proposed today, according to House Majority Leader Eric Cantor, a Virginia Republican. “I would like to guarantee that the people who are suffering, not getting treatment at the NIH” can do so, Cantor said last night on CNN.

Market Swings

The furlough of about 800,000 federal employees and the closing of offices, parks and museums may cost the U.S. at least $300 million a day in lost economic output at the start, according to IHS Inc. (IHS)

Though that’s a fraction of the country’s $15.7 trillion annual economy, the effects may multiply over time as consumers and businesses defer purchases and other spending plans.

Political Jockeying

Both sides jockeyed yesterday for the political high ground in the standoff. Democrats said the nation was being taken hostage by the Republicans’ Tea Party faction, while the Republicans faulted Senate Democrats and Obama for being unwilling to negotiate over any proposal to delay or curtail the health-care act.

Unlike past fiscal feuds, this dispute is more about the health law than the overall amount of government spending. Democrats say they have already made a concession by accepting spending levels set under the across-the-board cuts known as sequestration, which first went into effect earlier this year and were part of the deal to avoid a 2011 default.

The U.S. budget deficit in June was 4.3 percent of gross domestic product, down from 10.1 percent in February 2010 and the narrowest since November 2008, when Obama was elected to his first term, according to data compiled by Bloomberg from the Treasury Department and the Bureau of Economic Analysis.

Republican Divide

House Republicans are divided between the hard-liners insisting on confrontation over the health-care law and at least 10 others who say they would support the Senate Democrats’ spending bill, which would end the shutdown without conditions attached.

Democrats are counting on the split to force Boehner to allow a vote on that short-term spending bill, which probably would pass with the support of most Democrats and some Republicans.

“Most people view this as irresponsible and reckless with a lot of victims, including America’s economy,” said Senator Richard Durbin, an Illinois Democrat. “The moderate Republicans are starting to feel the heat. If they’ll step up, we might bring this to an end.”

Financial markets are overconfident that the stalemate will be resolved in time to avoid major economic damage, White House economic adviser Gene Sperling said yesterday.

“There is a false sense of complacency among some in the market that somehow things will be always solved at midnight,” Sperling, the director of Obama’s National Economic Council, told Bloomberg News reporters and editors.

‘Sensible People’

“Unless sensible people in the Republican Party are willing to take back control of their party,” he said, “there is a much more serious risk of a negative economic and financial event.”

The start of enrollment in the health-insurance exchanges mandated under Obama’s health-care law wasn’t stymied by the shutdown because it is financed by mandatory funding unaffected by the budget impasse.

“This shutdown is about rolling back our efforts to provide health insurance to folks who don’t have it,” Obama said at the White House yesterday. “I know it’s strange that one party would make keeping people uninsured the centerpiece of their agenda, but that apparently is what it is.”

The effects of the partial government include the closure of Internal Revenue Service call centers. Also, more than 90 percent of Environmental Protection Agency workers are off work.

Octogenarian veterans ignored barricades around the World War II memorial on Washington’s Mall yesterday to view the outdoor site. National parks and museums, though, will stay shuttered.

Head Start

Head Start programs covering almost 19,000 children across the country lost funding, according to Sally Aman, a spokeswoman for the Alexandria, Virginia-based National Head Start Association.

The U.S. military academies suspended intercollegiate athletics and the Bureau of Labor Statistics said it wouldn’t release on Oct. 4 the latest unemployment report if the shutdown continues. The Centers for Disease Control and NIH were among the agencies sending home many of their workers.

Other services will continue uninterrupted. Social Security and Medicare benefits will be paid. U.S. troops will remain at their posts around the world and will be paid under a bill Obama signed on Sept. 30. Air-traffic controllers and airport security screeners will keep working.

 

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