Could Americans Feel Impact of Shutdown in Their Wallets?

Feb. 28, 2011— -- How would a government shutdown impact Americans far removed from the partisan wrangling in the nation's capital?

Most Americans are unlikely to feel a direct impact -- seniors will likely continue to get their Medicare and Social Security checks, as will veterans. But a government shutdown could hurt consumer confidence and further roil already volatile financial markets. Some experts say it could even set back economic recovery, especially if prolonged.

Democrats, Republicans and President Obama have until Friday to hash out a plan to keep federal government agencies -- everything from the military to the Department of Agriculture -- funded until October.

If the two sides aren't able to reach consensus, only "essential" staff at federal agencies would continue to work but "non-essential" federal employees will be furloughed. A federal employee is considered "essential" when they are "necessary to protect life and property" and are needed to perform an "orderly shutdown of emergency operations."

As for what Americans can expect, museums and national parks will shut down, the national zoo will close, government services such as toxic waste cleanup will cease, the release of census data may be jeopardized, passport applications will be delayed and federal services in general will slow.

However, the U.S. postal service will continue to operate as normal since that agency is self-funded. So will the military and critical security agencies such as the Transport Security Administration and Coast Guard.

Seniors can rest assured that they will likely continue to receive their Social Security and Medicare checks. Agencies can still disburse funds through past appropriations -- think savings account -- and maintain employees to process the payments.

But the White House has warned there could be possible delays, and if the last shutdown in 1996 is any indication -- seniors should be ready for them.

"Some recipients, new retirees, new applications might not receive their checks. If retirees have questions about their checks, if they didn't get their check in the mail, if they have a change of address, all those things could prevent them from getting their check," White House Press Secretary Jay Carney said on Thursday.

In 1996, the Social Security Administration, unable to keep employees because of lack of funding, had to delay processing and payment of new entitlement claims. There was no one to answer phones at Social Security offices and the agency had to eventually request money to bring back some of the furloughed employees.

The financial and economic impact is likely to be much greater. Stock markets could take a hit, and people are likely to tighten their pocketbooks even further amid increased anxiety.

A shutdown "would matter tremendously but not for the reason of people not getting back their checks issued," said Phillip Swagel, former assistant Treasury secretary and now a visiting scholar at the American Enterprise Institute. "It 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."

Consumer confidence is important because it shows how much faith Americans have in their government.

"It would just show Americans that our government isn't really equipped to come to agreements and really handle the challenges facing the country," Swagel added.

Neither side is likely to prolong the shutdown, if it happens, and will likely come together on an agreement sooner than later.

The partial government shutdown of 1996, the second in President Bill Clinton's administration, was hugely unpopular and sent Republicans toppling down in the polls.