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What Does It Mean When There's a 'Government Shut Down'?

In the past few years, the term "Government Shut Down" has become more and more common. But what does that actually mean, what causes this to happen and what does it mean for you? Let's get down to the nitty gritty.

What is a Government Shut Down?

A government shut down occurs when our elected official up in Congress fails to fund the government by creating an agreed upon budget. When this happens, all non-essential government functions will cease. Some of these include:

  • VA call centers and hotlines are closed

  • The Small Business Administration stops approving applications for small businesses

  • Federal Housing Administration stops approving applications for housing loans

  • The NIH shuts down most medical research

  • The CDC will reduce its capacity to function

  • The FDA will be unable to support its food safety activity

During this time, all non-essential government workers are not allowed to work and are not getting paid. These shut downs are usually temporary, but the effects can be devastating for those being affected. Imagine going weeks without receiving a pay check because your elected officials can not come to an agreement on how to fund the United States government. Crazy right?

Previous Government Shut Downs

A threat of a government shut down doesn't always result in an actual shut down. If there is no clear determinant of who (either Democrat or Republican party) has the majority in the Senate, then there may be a struggle to pass a budget that makes everyone happy so then nothing gets done and the result is a government shut down. Here are times of previous government shut downs

  • November 14, 199 - November 19, 1995

  • December 16, 1995 - January 6, 1996

  • October 1, 2013 - October 17, 2013

  • December 28, 2018 - January 25, 2019 (longest in US history)

What is the Debt Celing?

As defined by the U.S. Department of the Treasury, the Debt Limit is:

"the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments."

This debt covers previous legal obligations created by Congress and presidents but does not authorize any new spending.

You may see headlines about "raising the debt ceiling" because if the government has reached it's debt limit and congress does not act and raise the debt ceiling, then the results would be catestrophic. The United States would essential default on their legal obligations, which has never happened in American History. The results could be a national, or even international, financial crisis. According to the Department of Treasury, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit.

This gives us confidence that Congress will act to avoid defaulting on it's financial obligations BUT...can you imagine if they didn't raise the debt ceiling and the United States government, the largest government in the world, did not pay it's debt after the government was a willing participant in creating the debt?

Can you imagine how detrimental it would be if Seniors stopped receiving their Social Security checks? This is another strong reminder of how the next generation should not be using Social Security benefits as part of their retirement planning. Take charge of your own retirement planning and start investing early. Planning for retirement is one of the many topics that I cover in the Financial Literacy for Kids class, which is perfect for ages 10 and up. It's never too early to teach kids how to prepare for the future.

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