US government officially shut down

By a staff reporter, with AAP and Dow Jones

The White House budget director has ordered federal United States agencies to begin closing down after Congress failed to pass a budget to avert a government shutdown.

"Agencies should now execute plans for an orderly shutdown due to the absence of appropriations," Sylvia Mathews Burwell, director of the White House Office of Management and Budget, said in a memo.

The order was issued 10 minutes before the US government officially ran out of money after a day of angry brinkmanship between the Republican-controlled House of Representatives and the Senate, where Democrats have the majority.

Ms Burwell said the Obama administration urged Congress to move quickly so critical government services could be restored. She said the shutdown will affect hundreds of thousands of workers who will be sent home and it will inconvenience millions who rely on federal services.

She said some critical functions, like the military and air traffic control, will remain open.

"We urge Congress to act quickly to pass a continuing resolution to provide a short-term bridge that ensures sufficient time to pass a budget for the remainder of the fiscal year, and to restore the operation of critical public services and programs that will be impacted by a lapse in appropriations."

Shutdown to hit budget

Analysts at Macroeconomic Advisors say a two-week shutdown will cut 0.3 percentage point off of gross domestic product growth, expected to run at a tepid pace of about 2.5 per cent in the third quarter.

"Because we expect any shutdown to be brief, induced effects on private production and repercussions in financial markets would be modest," they said.

"But output would rebound in first quarter of next year."

On the other hand, a protracted shutdown would more broadly disrupt private sector output and spark more market turbulence.

And if it ties into the concurrent fight over raising the US national debt ceiling - which many say would be a more dangerous development - the damage could be significant.

Back and forth between Senate, House to no avail

Earlier in the evening, the Senate killed the last House measure to delay President Barack Obama's health care law as part of a federal funding bill, bringing the government to the brink of shutdown.

The House passed another budget bill with amendments that would delay the 2010 reform of health insurance 228-201.

The Senate rejected the latest measure, as it did two similar measures sent to it by the House in the last week.

A second provision was added to the bill in the House, forcing members of Congress and their staff to pay the full amount of their health insurance.

Currently, the government pays part of that amount.

Failure to reach an agreement saw the government shut down at midnight US time (1400 AEST) andit will now scale down its operations to all but essential functions.

Mr Obama and Senate majority leader Harry Reid have vowed to reject any budget that would delay or defund Obamacare, as the 2010 health insurance reform is called.

Obama warns of economic consequences

Earlier, President Obama warned that the imminent shutdown of large parts of the federal government would have real and dramatic economic consequences for thousands of Americans.

Mr Obama blamed the "extreme right wing" of the Republican Party for holding the budget hostage in a bid to defund his trademark health reform.

He says a shutdown would hurt the economy and hundreds of thousands of government workers.

He says it would "throw a wrench into the gears" of a recovering economy.

He has urged the House to pass a short-term spending bill free of any conditions that would weaken the nation's three-year-old health care law.

Mr Obama spoke on Monday after the Senate rejected the House's proposal to delay implementation of the health care law. 

Read Alan Kohler's 'Shutdown: be afraid, but not very afraid' here.

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