Nobody Wins When The Government Shuts Down

By Jonathan Berr | October 07, 2013 AAA
Nobody Wins When The Government Shuts Down

Democrats and Republicans are united in the belief that fiscal drama in Congress that’s transfixed both Wall Street and Main Street over the past few days is crazy. We are talking Charley Sheen in all his “tiger’s blood and Adonis DNA” glory. Someone walking down the street wearing a tinfoil hat to prevent his brain from being “probed.” Whatever Miley Cyrus was supposed to be doing at the recent VMA awards.

The government is on the verge of its first shutdown in 17 years because some Republican members in the House are insisting that President Obama either delay or repeal parts of Obamacare, his signature legislative achievement. Obama and his Democratic allies in Congress have vowed to quash any efforts to gut the law, technically called the Affordable Care Act.

If the federal government shuts down, CNN estimates that about 783,000 government workers will be furloughed as will thousands of contract employees that support them. People who need everything from a passport to a gun permit to a federal loan would have to wait as would paychecks to members of the Armed Forces. National parks would be shuttered as would the Smithsonian Museums, one of the most popular tourist attractions in Washington. Processing of oil and gas permits on federal lands would grind to a halt.

Of course, the longer it lasts, the worse a shutdown’s impact will have on the U.S. economy. Mark Zandi of Moody’s Economy.com estimates that U.S. Gross Domestic Product could be lowered by a whopping 1.4% in the quarter, which would be huge. Remember, the U.S. economy only grew by 2.5% in the second quarter A prolonged shutdown could send consumer confidence into a downward spiral that could last years.

"This is the most broken I have seen our decision-making process,” former Congressional Budget Office head Alice Rivlin is quoted by California Health Line as saying. “And all this is happening when the whole world is looking to us for stability and leadership. So you might wonder, 'Have they lost their minds?'

"The answer is yes," she added.

The trade publication said Rivlin’s audience burst into a round of applause.

According to the Office of Management and Budget, The shutdowns in 1996 cost U.S. taxpayers $1.4 billion. Adjusted for inflation this works out to more than $2 billion in today’s dollars, As Politico noted, federal workers who miss paychecks will get paid back eventually. It will certainly not be cheap to restart the parts of the governments that were shut down.

But as Congress plays a game of fiscal chicken with the government shutdown, Wall Street is becoming increasingly worried about the debt ceiling. The government is expected to hit its borrowing limit, which it needs to fund its activities sometime in October. Though some people have tried to compare the U.S. with cash-strapped countries such as Greece, there is a critical condition. Greece needed several bailouts because it couldn’t afford to pay its bills. The U.S. can afford to pay its creditors but sometimes threatens not to, a situation that in 2011 cost the US its AAA bond rating.

The situation in Washington is unnerving to Wall Street which abhors uncertainty of any sort, especially when it could potentially threaten the full faith and credit of the U.S. Unfortunately, the debate over the shutdown and debt ceiling will never end. Members of Congress can revisit the issues when the budgeting process starts again next year.

Politicians from both parties keep repeating the same mistakes over and over, never learning from them. That’s what makes the current debate in Congress more sad than anything else.

Follow Jonathan Berr on Twitter@jdberr and at Berr’s World.

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.

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