Author: Golem
Original title: A US government shutdown is difficult because both parties have already calculated the costs.
One major macro event this month is whether the US government will shut down at the end of January. Last October, the US government shut down for 43 days, and only after the passage of a temporary funding bill was the government able to continue operating until now. January 30 is the expiration date of the temporary funding bill. If Congress fails to pass a formal funding bill or if no new temporary bill is passed to continue the shutdown, the US government will shut down again.
The current partisan dispute in the US primarily revolves around funding for the Department of Homeland Security (DHS). Democrats argue that ICE (Immigration and Customs Enforcement) has been problematic in its operations in Minnesota, resulting in two deaths, and demand strict restrictions on funding and related operations. Republicans disagree, arguing that ICE is crucial in combating illegal immigration and welfare fraud, leading to a stalemate. (For more details on the partisan dispute, please read: " The US Government Shutdown Storm Resurfaces, Will the Crypto Repeat Its Crash? ")
It is precisely this tit-for-tat stance between the two sides and the approaching expiration date of the temporary funding bill that has caused a sharp increase in market predictions regarding the probability of a US government shutdown at the end of January. However, this morning, Polymarket data showed that the probability of a US government shutdown at the end of January has continued to decline, currently falling to 42%, after previously reaching a high of 80%.
The price changes in the prediction market reflect the results of a collective wisdom game. The increased bets that the US government will not shut down at the end of January indicate that people believe that under the current political situation in the United States, the high certainty of a government shutdown as revealed by the prediction market probability no longer exists.
The midterm elections are the key focus for both parties in the United States.
On January 28, regarding the risk of another US government shutdown, US Treasury Secretary Bessenter stated that the situation was still unclear, but emphasized that President Trump had urged Democrats to avoid this scenario.
The essence of this government shutdown crisis lies in the fact that the Democrats seized upon a pretext for a political counterattack against the Republicans. The shooting death of an American citizen by ICE officers in Minnesota on January 24 was essentially a result of the Trump administration's increased enforcement of immigration laws, leading to large-scale protests and expressions of dissatisfaction with the Trump administration. The Democrats cleverly capitalized on this opportunity, using it as a pretext to block the passage of the appropriations bill in the Senate. Because it reflected the demands of the voters, the Democrats gained the political upper hand in this counterattack.
The Republican Party has thus been put on the defensive. If the US government does shut down as a result, the Democrats can easily blame the Republican government's incompetence for the series of economic and livelihood problems caused by the shutdown (such as delayed release of economic data and widespread flight delays at airports).
This series of potential chain reactions will also affect the issues that both parties in the United States are truly concerned about this year: the US midterm elections.
The U.S. midterm elections are held in the second year of a president's term. All 435 seats in the House of Representatives are up for election, and about one-third of the seats in the Senate are usually up for election. Currently, the Republican Party holds a majority in both the House of Representatives (218 seats) and the Senate (53 seats). If the Republican Party wants to maintain its majority after the midterm elections at the end of the year and reduce the difficulty of governing, it cannot afford to have too many "blemishes" on its political record this year.
At the same time, although the midterm elections are not part of the US presidential election, they are considered a "midterm referendum" on the incumbent president, influencing the president's policy direction for the next two years and reshaping the party's power structure and the candidate landscape for the next presidential election. Therefore, they are extremely important for Trump.
The above analysis shows that this government shutdown is not simply a funding issue, but a political battleground set up by both parties in preparation for the midterm elections at the end of the year. The Republican Party, in a passive position, is highly likely to compromise in order to resolve the crisis and conflicts.
For the Democrats, if the Republicans compromise, it would be a political victory.
Compromise has been made
This US government shutdown crisis will not be a "full shutdown" like last October; the scale of the shutdown may be much smaller (when all 12 appropriations bills expired). Currently, the Department of Commerce (responsible for publishing GDP and other data) and the Department of Agriculture (responsible for food welfare) are secured in terms of funding, but approximately 78% of federal government functions—involving the remaining 6 appropriations bills—may face funding shortages.
Democrats have effectively given Republicans a way out. Senate Minority Leader Chuck Schumer (a Democrat from New York) stated on January 28 that Senate Democrats are "prepared to quickly move forward with five appropriations bills before the January 30 deadline, separating them from the Department of Homeland Security appropriations bill for consideration," which could be a way to avoid a large-scale government shutdown. However, Senate Republicans have not yet responded to agreeing to separate the Department of Homeland Security bill from the overall appropriations package.
On the other hand, it is unrealistic to demand changes to the Department of Homeland Security's funding before January 30, because any changes to the remaining six funding bills must be submitted to the House of Representatives for approval, and the House will not reconvene until February 2.
For the Democrats, dragging the US government into a shutdown by taking a hard line in order to amend the appropriations bill would not benefit them much, and might even reverse the balance of power with the Republicans. Therefore, the current consensus between the two parties in the US is likely to pass a temporary appropriations bill to first resolve the potential government shutdown, and then postpone the conflict between the two parties.
Just as Odaily was writing this article speculating that the two parties might compromise to avoid a government shutdown, The New York Times also published an article stating that Trump was reaching a possible agreement with Chuck Schumer to avoid a US government shutdown.
According to two officials familiar with the matter, under a proposed plan, the Senate will split one of six spending bills to fund the Department of Homeland Security to maintain funding for the military, medical programs, and other federal agencies for the remainder of the fiscal year. The Senate is expected to pass these bills by Friday's midnight deadline. Congress will also consider short-term extensions to Homeland Security operations to prevent disruptions to services from the Transportation Security Administration, Coast Guard, and Federal Emergency Management Agency.
It remains unclear how this potential agreement will affect this week's appropriations bill vote, but it at least indicates that both the White House and the Senate are working toward resolving the crisis.
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