Top Treasury Official: Government Shutdown May Be Unavoidable

March 11, 2011 5:11 a.m.

A senior Treasury department official told reporters Thursday that a brief government shutdown may be unavoidable as the only feasible way to de-escalate the confrontation over government spending dividing Democrats and Republicans on Capitol Hill. The official said the administration still hopes to avoid such a flashpoint because of the impact it would have on the economy, but added that President Obama will not sign short-term stop-gap government funding measures in perpetuity.

The comments were made in a briefing with reporters conducted on deep background, meaning no direct quotes could be attributed to the official.

The official’s remarks represent the most serious indication yet that the administration is willing to endure a short term shutdown despite the unknown political costs, to focus congressional leadership on brokering a long-term deal. But they also come at a time of ongoing negotiations between the White House and congressional Republicans, and are a signal that the administration isn’t resigned to getting rolled by the GOP. Whether that’s tough talk designed to move negotiations, a bluff, or an indication that the White House is prepared to go the brink on this remains to be seen.The government is currently operating on a pared-back two-week continuing resolution. House Republicans are now preparing another two-to-three week CR, to buy congressional leaders time to work out a longer-term funding bill. A veto of that, or a similar future measure, would trigger a government shutdown.

Economists warn that even a short government shutdown would have negative economic consequences — and that a long one could upend the recovery.

“If it is a short government shutdown on par with 1995, the fallout would probably be modest,” said Mark Zandi, chief economist at Moody’s Analytics, and an adviser to both parties. “There will be some economic impact, but it would be quickly made up down the road. But if it were more than a couple of weeks — if it dragged on for a month — that would be meaningful, especially in terms of sentiment. People are still very much on edge right now.”

A shutdown “impacts consumer spending, business investment. If there’s no confidence, people will stop spending, businesses will stop hiring. We have an economy that’s fine but it’s still pretty fragile. It would be a disruption that I think would set back our recovery,” according to Phillip Swagel, who was assistant Treasury secretary under President George W. Bush.

Funding for the government expires a week from today. Republicans are using short-term spending bills to clawback government spending across the board. That inches them toward their goal of cutting scores of billions of dollars from Obama’s budget, but, by not setting new spending levels for all government programs, creates waste and makes it difficult for the government to function in accordance with its current priorities.

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