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?
"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?
Hey DawgStreet, I think you deserve a response...heck, everyone does. We're listening, sorry about the delay ...my best guess at places on WSO that could help:
Any pros willing to rescue this discussion? 7S bermy Wall Street Prep
If those topics were completely useless, don't blame me, blame my programmers...
Gov't Shutdowns (Originally Posted: 02/27/2011)
March 4th is the deadline for the budget to be agreed upon. If we have a shutdown of the govt as we did in 1995 under Clinton how does this affect the markets. Oil? SP? Currencies?
I'm wondering how it affects treasury rates myself. There might be a neat option play in there somewhere.
I see commodities going thru the roof!
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.
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.
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.
Government Shutdown (Originally Posted: 10/01/2013)
Is it like a symbolic thing? A few weeks tops of non-"necessary" jobs being out of operation does what? And isn't that largely what the Republicans want anyway?
And why the dramatic name? People probably think we're going into martial law or something. Call it the Negotiatory PMSing and Pissed-Off Military Period of Indefinite but Likely Short Duration or something.
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.
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
http://educationalinvestor.com/2013/10/01/understand-the-u-s-government…
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
I'm just going to leave this here... http://www.istheusgovernmentshutdown.com/
In other news, the government shut down. (Originally Posted: 10/01/2013)
I didn't see a post on it (or I might of missed it?) and I'm curious about WSO's thoughts on the government shutdown. From what I can tell, Congress has their panties in a bunch and the national parks are gonna take a few days off, but otherwise, business as usual in the private sector. Public sector, well, that's another story. Given that I'm no expert on politics or macroeconomics, I'd like to know what people think the short/long term effects will be.
I'm currently basing most of my opinions on this:
http://www.reuters.com/article/2013/10/01/us-markets-global-idUSBRE96S0…
http://www.cnn.com/2013/09/23/politics/government-shutdown-daily-life/i…
Quote of the article: "To watch elected lawmakers engage in a high-stakes staring contest with no one willing to blink is no way to do business."
Update: CNN had a better article. http://money.cnn.com/2013/09/30/news/economy/shutdown-economic-impact/i…
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.
You need a larger impact than Obama shouting the sky is falling for the 100th time this month?
Government shutdown doesn't scare me as much as what'll happen the day after Oct 17th.
What is going to happen then? Oh wait that's right non essential operations will be closed permanently. Whats wrong with that?
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
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.
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.
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.
Having a big government that can halt the country to a stop is so awesomeee.
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.
Well, looks like QE tapering will be delayed a bit longer
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.
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.
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.
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.
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.
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