On October 1st, the U.S. government closed down — that means the U.S. Treasury’s discretionary spending authority lapsed, and it can no longer fund non-essential government services. It is the upshot of a profound political divide and deeply entrenched partisanship in Washington D.C.
When Congress failed to authorize new spending before the end of the fiscal year, the government lost the necessary funding to operate at full capacity.
U.S. government shutdowns result in the furlough of federal workers as well as the closure of national parks, museums, passport offices and other government-run facilities. But when the standstill is protracted, it can impact federal loans, government research, food assistance, disaster response, and even airport security. And what is perhaps most vexing to investors is that without key government data, analysts are unable to provide critical forecasts, overviews and insights about the state of the economy.
The last time Congress could not pass legislation to fund federal agencies was back in 2018-2019 when the government was shuttered for 35 days, the longest shutdown in U.S. history. We have now surpassed 30 days.
The Congressional Purse Strings
Article I, section 8 of the U.S. Constitution states that “Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States.”[1]
So, the supreme law of the land expressly grants Congress control over government outlays — including how much money is spent and precisely where it is spent. Each year, Congress works on a budget for the next fiscal year addressing three key spending areas: Mandatory Spending (i.e. Social Security and Medicare), Discretionary Spending (i.e. various federal agencies) and interest on America’s sizable debt.
Congressional budget planning begins a year before the budget actually goes into effect and plays out as follows:
- Federal agencies create budget requests and submit them to the Office of Management and Budget (OMB).
- OMB refers to the agencies’ requests as it develops the budget proposal for the president.
- The president submits the budget proposal to Congress early the next year.
- Proposed funding is divided among 12 subcommittees, which hold hearings. Each is responsible for funding for different government functions such as defense spending or energy and water.
- The House and Senate create their own budget resolutions, which must be negotiated and merged. Both houses must pass a single version of each funding bill.
- Congress sends the approved funding bills to the president to sign or veto.[2]
The current shutdown took place because Congress failed to fund the government before the end of the fiscal year on September 30th. The Republican-controlled House of Representatives approved a CR (continuing resolution) that would fund the government through November 21 but it takes 60 votes in the Senate to approve a temporary spending bill. The Republicans only hold 53 seats—and the Democrats refuse to support the CR unless expiring subsidies for Affordable Care Act premiums are extended.[3]
The Danger of Prolonged Government Inactivity
The longer government shutdowns last, the more painful they become. While a lack of federal funding directly impacts federal workers and programs — it can also harm American businesses in terms of capital, trade, licenses, productivity, and take a big bite out of GDP.
According the CBO (Congressional Budget Office), the economic risks of the federal shutdown are increasing every day. In a recent letter to Jodey Arrington, the Chairman of the Committee on Budgets, the Director of the Congressional Budget Office, Phillip Swagel, stated the following:
“The agency estimates that the annualized quarterly growth rate of real GDP in the fourth quarter of 2025 would be lower by 1.0 percentage point in the four-week shutdown scenario, 1.5 percentage points in the six-week scenario, and 2.0 percentage points in the eight-week scenario (see Table 2).”[4]
Currently, there are deep disagreements between both major political parties on key spending and policy issues. Democrats want to extend expiring pandemic-era healthcare subsidies before they agree to reopen the government while Republicans want to end the shutdown first and have healthcare funding discussions only after things are back up and running. In addition, neither side wants to appear weak or as if they’re capitulating to the other, particularly in light of looming midterm elections.
A Recipe for Rising Uncertainty
All of this showcases the deep division, obstinance, and asymmetric political polarization that plagues Washington D.C. No one wins when no one talks — and the biggest victims of this latest impasse are the American people.
According to “The Hill,” the uncertainty, economic instability and pain of the prolonged federal shutdown will hit fever pitch this weekend.
“After four weeks in which the real-world impacts of the budget impasse have been relatively limited, a series of deadlines governing a range of programs will converge at the turn of the month to send the effects of the shutdown well beyond the Beltway. The D-Day moment, which hits this weekend, is poised to wallop groups as varied as military troops, patients on ObamaCare, kids in Head Start, and low-income families receiving nutrition assistance. The combination will affect tens of millions of people, sending shockwaves into every congressional district.”[5]
From furloughed workers and disrupted federal services — to limited government data and hampered economic growth — the impact of this federal work stoppage cannot be underestimated. The loss of confidence in Congress and the rising uncertainty about the direction of the economy has wise investors not only diversifying their financial portfolios but also giving safe havens like precious metals a much closer look.
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[1] https://constitution.congress.gov/browse/article-1/section-8/
[2] https://www.usa.gov/federal-budget-process
[3] https://www.brookings.edu/articles/what-is-a-government-shutdown-and-why-are-we-likely-to-have-another-one/
[4] https://www.cbo.gov/system/files/2025-10/61823-Shutdown.pdf
[5] https://thehill.com/homenews/senate/5577879-shutdown-pain-congress-pressure/
