Government Shutdown: how it will affect the economy/capital markets

Rank: Orangutan | 326

As many of you might be aware of, the threat of a government shutdown this weekend still looms large. As of right now, there is no agreement on an extension and so the shutdown is a real possibility.

How will it affect the economy/capital markets?

According to Bloomberg:

"Both bond markets and equity markets right now are telling you that this is a nonevent, at least so far .... If you go back and look at 2013, when we had the last government shutdown, it was pretty much a nonevent. You did get about a 5 percent correction in equities, but it started well in advance. The markets have a tendency of telling you whether this is potentially meaningful or not"

While equities seem to be unaffected by fears of the shutdown (in fact the DOW and S&P are both up), the dollar is weakening against other currencies:

"The Bloomberg Dollar Spot Index hit a three-year low and headed for its longest weekly losing streak in almost a year, amid concerns over a potential U.S. government shutdown that outweighed any benefit the greenback normally gets from higher yields."

But does this even matter? Will the shutdown be inconsequential if it were to happen?

An article on CNBC brings up the possibility that the shutdown might necessitate a raise in the debt ceiling, which might face a lot of debate among politicians.:

"The debt ceiling has remained a nettlesome problem between Democrats and Republicans for years. Failing to raise the borrowing limit ultimately could cause the U.S. to default on debt payments, a move that would cascade through the economy. Government bond yields would surge and cause the cost of borrowing to soar as government debt loses its sterling credit rating."

What do you think? Is the possibility of a shutdown unimportant in the big scheme of things?

Any thoughts?

Comments (35)

 
Jan 31,2018

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Jan 31,2018

I'm wondering how it affects treasury rates myself. There might be a neat option play in there somewhere.

 
Jan 31,2018

I see commodities going thru the roof!

 
Jan 31,2018

I cannot imagine how this has not already been priced in, but if the government does shut down, that would send a signal that the GOP is serious about obstructing the WH and we probably will not see any future stimulus bill up to 2012, which will be good for the dollar, which would be bad for stocks, oil and FX, ceteris paribus.

But I doubt that our fiscal problems are even going to be the dominant issue over the next 3 weeks so ceteris is no paribus. Al Qaeda just hit the largest oil refinery in Iraq, NK is threatening to attack again, there's a Saudi day of rage planned, Pakistan might explode if our ex-CIA cowboy slips their justice system, etc.

With all this shit going down, I'm not sure if the fiscal CRA issues are going to be the major thing.

 
Jan 31,2018

Budget will pass. Boehner is already signalling how he doesn't want to see it happen.

Long story short, Republicans will push through some modest cuts which will be good stumping issues. They are talking about more cuts or tackling major issues, but they will come with time (or never come). Geopolitical issues are at the forefront and with gas prices spiking, the govt needs to focus on keeping the economy going and not allowing another double dip to happen.

Obama really needs to take the reigns. He needs to be thinking about 2012.

Masters in Finance HQ - The #1 site for everything related to the MSF degree!
MSFHQ

 
Jan 31,2018

Good points...I def. do not see this overshadowing the Middle East Issues, but something to keep in mind if the middle east kisses and makes up this week.

 
 
Jan 31,2018

The problem isn't a temporary shut down. The problem is a political impasse as the US closes in on the debt ceiling, which makes a default more likely.

The left won the WH so they believe they have the mandate of the people, and even more critically, they can't be seen to back down: it would be a horrific precedent if one side was able to legislate while holding one half of a bicameral legislature (which the right is attempting to do).

The right has a combination of those who genuinely want to shut the government down, and those afraid of losing right wing legitimacy and facing a more conservative primary challenger.

Self-interest on behalf of individual politicians combined with pride and arrogance have combined disastrously for the country as a whole. If the infrastructure (for lack of a better word) US political system is not sophisticated enough to prevent a shut down, then it makes the perceived risk of a default more likely. A default would be disastrous, so events leading up to a default get dramatic names.

 
Jan 31,2018

this will work about as well as the whole "don't buy gas on tuesdays" thing with oil companies..... Everyone still drives so they are using gas... you just fill up on a different day... Same goes for government... Money is still getting spent and things are still accruing... Its all just a publicity stunt to make it seem like they are taking shit seriously...

They all just sit in Washington and facebook old girlfriends anyways...

Cam Brady '012

 
Jan 31,2018

If the debt ceiling isn't raise we will not default on our debt. We will simply choose not to pay things with a lesser priority. Kind of like if you get a pay cut at work. You can choose to continue to pay for cable and default or you can cut cable.

The fact that this debt "ceiling" continually needs to be breached and increased means we have a spending problem. Stop spending so much and we won't need to forever increase it. And honestly, maybe we need some tough medicine. We've managed to double our national debt in 8 years. Luckily interest rates are at all time lows. This wont last.

Masters in Finance HQ - The #1 site for everything related to the MSF degree!
MSFHQ

 
Jan 31,2018
TNA:

If the debt ceiling isn't raise we will not default on our debt. We will simply choose not to pay things with a lesser priority. Kind of like if you get a pay cut at work. You can choose to continue to pay for cable and default or you can cut cable.

The fact that this debt "ceiling" continually needs to be breached and increased means we have a spending problem. Stop spending so much and we won't need to forever increase it. And honestly, maybe we need some tough medicine. We've managed to double our national debt in 8 years. Luckily interest rates are at all time lows. This wont last.

What is the symbology here?

I personally would cut out my health insurance before I lose cable.... Walking Dead FTW

 
 
Jan 31,2018

Update: CNN had a better article.
http://money.cnn.com/2013/09/30/news/economy/shutd...

Still unclear on private sector impact. Sure, parks shutting down is no good for tourism and federal employees on furlough isn't good for consumer spending, but I feel like there needs to be a larger economic impact to warrant this much hype.

 
Jan 31,2018

You need a larger impact than Obama shouting the sky is falling for the 100th time this month?

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

 
Jan 31,2018

Government shutdown doesn't scare me as much as what'll happen the day after Oct 17th.

Give me a kid whose smart, poor, and hungry...............

 
Jan 31,2018

What is going to happen then? Oh wait that's right non essential operations will be closed permanently. Whats wrong with that?

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

 
Jan 31,2018

Unless I'm off on what I've read that's the point the Lew says the Treasury runs out of cash and the United States defaults on its debt payments for the first time ever

Give me a kid whose smart, poor, and hungry...............

 
Jan 31,2018

This is the ultimate "well, it doesn't affect me immediately and 100% directly, so there's no problem" anecdotal crap.

Here's a few examples of government shutdown impacts that are directly related to the finance community:

--The IRS is currently operating with less than 10% of its total workforce. While the shutdown is in effect, any company looking to do something like a spin-off or a REIT conversion is shit out of luck because there's no one there to give the necessary sign-off.

--Or, how about the fact that the FCC is running on empty? What do you think that does to any big mergers in the media / telecom space? Oh yeah, it puts them on indefinite hold.

--Doing a big merger that has to undergo an HSR review? Well, I hope you like a drawn out process because the FTC doesn't have the staff around to get your review done in a timely manner.

"durrr who cares about national parks, I don't have to pay taxes anymore, right?"

Use your brains, folks.

 
Jan 31,2018

This is an extremist view. So you have to wait another week on your merger big freaking deal. Its not like you can never do it. People, especially hyper liberals, tend to take insanely unlikely scenarios and making them out to be common occurrences.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

 
Best Response
Jan 31,2018
heister:

This is an extremist view. So you have to wait another week on your merger big freaking deal. Its not like you can never do it. People, especially hyper liberals, tend to take insanely unlikely scenarios and making them out to be common occurrences.

I'm giving practical examples of how the government shutdown directly affects the finance and business community at large and you're calling me extreme?

Actually, I'm pretty sure the extremist view is to refuse to fund the government because a law was passed that you don't like, even though you just lost an election where repealing said law was one of your chief platform planks.

 
Jan 31,2018
TheKing:

This is the ultimate "well, it doesn't affect me immediately and 100% directly, so there's no problem" anecdotal crap.

Here's a few examples of government shutdown impacts that are directly related to the finance community:

--The IRS is currently operating with less than 10% of its total workforce. While the shutdown is in effect, any company looking to do something like a spin-off or a REIT conversion is shit out of luck because there's no one there to give the necessary sign-off.

--Or, how about the fact that the FCC is running on empty? What do you think that does to any big mergers in the media / telecom space? Oh yeah, it puts them on indefinite hold.

--Doing a big merger that has to undergo an HSR review? Well, I hope you like a drawn out process because the FTC doesn't have the staff around to get your review done in a timely manner.

"durrr who cares about national parks, I don't have to pay taxes anymore, right?"

Use your brains, folks.

We have an education deal that is supposed to close in the next week that is getting put on hold due to the fact we can't get Dept. of Ed change of control approval on account of the shutdown.

"For I am a sinner in the hands of an angry God. Bloody Mary full of vodka, blessed are you among cocktails. Pray for me now and at the hour of my death, which I hope is soon. Amen."

 
Jan 31,2018

1. IRS is so bloated and inefficient it should be running at 10% of its workforce everyday.
2. Why do we need the FCC at all, really?
3. FTC never does shit in a timely manner...

Having a big government that can halt the country to a stop is so awesomeee.

Under my tutelage, you will grow from boys to men. From men into gladiators. And from gladiators into SWANSONS.

 
Jan 31,2018

God forbid we don't have 7 levels of overhead to tell someone that they did something illegal while working for the IRS to tell the person that did it to take the 5th.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

 
Jan 31,2018

Well, looks like QE tapering will be delayed a bit longer

Get busy living

 
Jan 31,2018

I'm a little confused myself about this retarded political impasse. Wasn't the whole point of GOP resisting to reset debt ceiling in revolt over Obamacare, which actually started enrollment today?

Also, did anyone else see that Ted Cruz speech? Absolutely hilarious.

People demand freedom of speech as a compensation for freedom of thought which they seldom use.

 
Jan 31,2018
Anihilist:

I'm a little confused myself about this retarded political impasse. Wasn't the whole point of GOP resisting to reset debt ceiling in revolt over Obamacare, which actually started enrollment today?

Also, did anyone else see that Ted Cruz speech? Absolutely hilarious.

^ that's what i was wondering. from what i understand, obamacare's launch money was already allocated, and therefore unaffected by the shutdown. i could be wrong, but i don't see anything being accomplished on that front. mind you, healthcare is a whole political beast of its own.

as far as the debt ceiling goes, i feel like the u.s. government will still make its payments, shutdown or not, so i don't think we'll get downgraded.

 
Jan 31,2018

Read an article (didn't read the articles posted above, not sure if they mention it) that had an interesting point- if military spending was halted, government would probably get it's ass into gear a whole lot more quickly. Although obvious (and obvious why it wasn't halted) I thought that was interesting to read.

 
Jan 31,2018

Is there anybody who worked in banking 17 years ago during the last shutdown that can shed light on how it affected business? Something tells me that it really isn't going to be that big of a deal in the long run. I talked to a guy at an i-bank yesterday that covered an industry that received lots of government support and he wasn't even aware of what was going on.

"Yes. Money has been a little bit tight lately, but at the end of my life, when I'm sitting on my yacht, am I gonna be thinking about how much money I have? No. I'm gonna be thinking about how many friends I have and my children and my comedy albums."

 
Jan 31,2018

In the near term government will shut down stuff to explicitly punish people. They could easily can and shutter truly non-essential agencies.

And the only way we default on the debt is if we choose to miss a payment.

Masters in Finance HQ - The #1 site for everything related to the MSF degree!
MSFHQ

 
Jan 31,2018

Personally, I didn't think the Republicans had it in them to shut this monster down. They should add further shut down provisions to increasing the debt ceiling. I want the Dept of Education to be totally defunded.

Masters in Finance HQ - The #1 site for everything related to the MSF degree!
MSFHQ

 
Jan 31,2018

If the glove don't fit, you must acquit!