The U.S. Government Shutdown is Difficult Because Both Parties Have Already Calculated the Costs
- Core Viewpoint: The analysis in the article suggests that the likelihood of another U.S. government shutdown by the end of January is decreasing. This is because the current funding impasse is essentially a political game played by both parties ahead of the year-end midterm elections. To avoid leaving political stains and affecting election prospects, both sides have strong incentives to resolve the crisis through compromise (such as a temporary funding bill).
- Key Elements:
- Prediction market data shows that the probability of betting on a U.S. government shutdown by the end of January has dropped from a high of 80% to 42%, reflecting a shift toward optimistic market expectations.
- The focal point of the shutdown dispute lies in funding for the Department of Homeland Security (DHS). Democrats are leveraging controversies over ICE enforcement to put Republicans in a politically passive position.
- The core concern for both sides is the year-end midterm elections. The economic and livelihood issues potentially caused by a shutdown could become political ammunition to attack the opposing party.
- Democrats have proposed a compromise plan to separate the DHS funding bill from the other five bills for review, providing a pathway to resolve the crisis.
- Media reports indicate that the White House and Senate Democratic leaders are brewing an agreement, leaning toward passing a temporary funding bill to avoid a government shutdown.
Original | Odaily (@OdailyChina)
Author｜Golem (@web3_golem)
A major macro event this month is whether the U.S. government will shut down at the end of January. Last October, the U.S. government shut down for 43 days, and it only resumed operations after a temporary funding bill was passed. January 30th is the expiration date of that temporary funding bill. If Congress fails to pass a formal appropriations bill or a new temporary bill, the U.S. government will shut down again.
The current dispute between the two major U.S. political parties primarily revolves around funding for the Department of Homeland Security (DHS). Democrats argue that ICE (Immigration and Customs Enforcement) had problematic enforcement actions in Minnesota, resulting in two deaths, and they seek strict limitations on funding and related operations. Republicans disagree, viewing ICE as a crucial force against illegal immigration and welfare fraud, leading to a stalemate. (For details on the partisan dispute, read: 《U.S. Government Shutdown Storm Brews Again, Will Crypto Replay the Crash Script?》)
It is precisely this confrontational state and the approaching deadline that have sharply increased the probability of a U.S. government shutdown by the end of January in prediction markets. However, this morning, data from Polymarket shows that the probability of a U.S. government shutdown by the end of January has continued to decline, now falling to 42%, down from a previous high of 80%.
Price changes in prediction markets reflect the outcome of collective wisdom. The rising probability of the government *not* shutting down indicates that people believe the previously high certainty of a shutdown, as suggested by the market, no longer exists given the current U.S. political situation.
Midterm Elections Are the Key Focus for U.S. Parties
On January 28th, regarding the risk of another U.S. government shutdown, Treasury Secretary Bessent stated that the situation remains unclear but emphasized that President Trump has urged Democrats to avoid this outcome.
This shutdown crisis is essentially because Republicans have given Democrats a political counterattack opportunity. The January 24th shooting of a U.S. citizen by ICE agents in Minnesota was a result of the Trump administration's intensified immigration enforcement, leading to large-scale public protests. Democrats seized this moment, using it as an excuse in the Senate to block the appropriations bill. Because this reflects voter sentiment, Democrats have gained political initiative in this counterattack.
Republicans are thus in a passive position. If a government shutdown does occur, Democrats could blame subsequent economic and social issues (delayed economic data releases, widespread airport delays, etc.) on Republican incompetence.
This series of potential chain reactions would also impact the issue both parties truly care about this year: the U.S. midterm elections.
The U.S. "midterm elections" occur in the second year of a presidential term. All 435 seats in the House of Representatives are up for election, and approximately one-third of Senate seats are typically contested. Currently, Republicans hold a majority in both the House (218 seats) and the Senate (53 seats). For Republicans to maintain their majority after the year-end elections and ease governance, they must avoid accumulating too many political "blemishes" this year.
Furthermore, although midterm elections do not involve the presidency, they are seen as a "midterm referendum" on the incumbent president, influencing policy direction for the latter two years of the term and reshaping intra-party power structures and the candidate landscape for the next presidential election. Therefore, it is also extremely important for Trump.
From the above analysis, it's clear this potential shutdown is not merely a funding issue but a political battleground laid out in advance by both parties for the year-end midterm elections. The passive Republicans have a high probability of compromising to resolve the crisis and conflict.
For Democrats, Republican compromise would itself constitute a political victory.
Compromise is Already Underway
This potential U.S. government shutdown crisis is unlikely to be a "full shutdown" like last October's (when all 12 appropriations bills expired). The scale would likely be much smaller. Funding for the Commerce Department (responsible for releasing GDP data) and the Agriculture Department (responsible for food benefits) is already secured. However, about 78% of federal government functions—involving the remaining 6 appropriations bills—could face funding lapses.
Democrats have already offered Republicans a way out. Senate Minority Leader Chuck Schumer (D-N.Y.) stated on January 28th that Senate Democrats are "prepared to move quickly on five appropriations bills before the January 30th deadline, separate from the Department of Homeland Security appropriations bill," which could be a path to avoid a large-scale shutdown. However, Senate Republicans have not yet agreed to separate the DHS bill from the overall package.
On the other hand, demanding amendments to DHS funding before January 30th is unrealistic, as any changes to the remaining six bills would have to go back to the House for approval, and the House is not scheduled to reconvene until February 2nd.
For Democrats, forcing a shutdown by being overly rigid on amending the bills offers little benefit and could even reverse the political dynamics with Republicans. Therefore, the current consensus between the parties may be to pass another temporary funding bill, first solving the immediate shutdown threat and postponing their deeper conflicts.
As Odaily was writing this article speculating on potential compromise to avoid a shutdown, The New York Times also reported that Trump and Chuck Schumer are working on a potential deal to avert a government shutdown.
According to two officials familiar with the matter, under the developing plan, the Senate would separate one bill from the six spending bills—the one funding the Department of Homeland Security—to keep funding for the military, healthcare programs, and other federal agencies for the remainder of the fiscal year. The Senate would pass these bills before the Friday midnight deadline, and Congress would also consider a short-term extension for Homeland Security operations to prevent service disruptions at the TSA, Coast Guard, and FEMA.
It remains unclear how this potential deal will affect this week's appropriations bill votes, but it at least indicates that both the White House and the Senate are working towards resolving the crisis.
