Between A Rock & A Hard Place

To Shut Down the Government or Not

First and foremost, to those who organized our 50th reunion and those attending I can not begin to thank you and express to all what a great time was had by all. Between all of the laughter, smiles and tears, just rekindling the past and paving the mechanism to stay in touch in the future, last Saturday night was priceless. Thanks again, especially to those of you who expended countless hours of time to make this happen. OK, back to the real world; it’s not as much fun but someone has to do it.

Should Congress Shut Down The Government

It’s time again; should we shut government down or not? When I go to my “look back” machine I scratch my head and ask, why are we at this juncture once again? Can’t our elected representatives put their heads together and come up with a ‘budget solution” that’s longer than a couple months? Given elections are comming up in about a year, it’s more than likely they will not. Maybe they should selectively deal with term limits allowing those who can pass an Alzheimer’s test to vote. That would eliminate far too many in the Senate perhaps even the “big guy”; we know Kamala sitting in the “Oval” office would not be acceptable to anyone, so let’s table this one for now.

After months of struggling to find agreement on just about anything, lawmakers are returning to Capitol Hill to try to avert a government shutdown. A short-term funding measure to keep the government open dominates the current agenda, together with a few other issues like funding for Ukraine, federal disaster funds and the never ending probe into Hunter Biden’s “overseas business dealings”. If it walks like a duck, swims like a duck and quacks like a duck, it’s a duck.

Time is running short for Congress to act. The House is scheduled to meet for just 11 days before the government’s fiscal year ends on September 30th, leaving little room to maneuver. Biden, or whomever is actually running the executive branch, together with congressional leaders, have focused on passage of a continuing resolution, while they try to “iron out’ a budget. Here we are again, kicking the can down the road but with control of the House of Representatives, there’s a few “hardline” conservative Republicans who embrace the idea of a government shutdown.

When Biden and McCarthy struck a deal in June to suspend the nation’s debt ceiling it included provisions for only the “top line” spending numbers. Recent pressure from the House Freedom Caucus, have advanced spending bills that cut below that level. Republicans have loaded their spending packages with conservative policy wins like provisions blocking abortion coverage, transgender care and diversity initiatives to a July defense package, turning what should be a bipartisan effort into a contested bill.

But Democrats control the Senate and are certain to reject most of the conservative proposals. Senators are crafting their spending bills on a bipartisan basis with an eye toward avoiding unrelated policy fights. Lawmakers are turning to a stopgap funding package, a typical strategy to give them time to iron out a long-term agreement. We’ve seen this movie before; the story’s the same as is the ending; nothing changes. Again, it is “election time” and no one who wats to be elected again wants any shutdown that hurts our economy or undermines our disaster preparedness. If we shut ‘government” down, it all shuts down. No one wins and undoubtedly the markets would be unhappy.

Once again we’re between a rock and a hard place; we’ve been here before and it’s not likely anything is going to change this time around. The elections of 2024 are going to be the most critical we’ve ever had. Let’s quit “kicking the can down the road” and put those into office who understand what a budget is. If our Congress can’t put forth and abide by a budget why should you?

Economic Effects of a Government Shutdown

If it does happen, like so many others, it is unlikely to last long. As Goldman Sachs explains it:

“A government-wide shutdown would directly reduce growth by around 0.15 pp for each week it lasted; including modest private sector effects, the hit to growth could be around 0.2 pp per week. In the quarter following reopening, growth would rise by the same amount. Markets have not reacted strongly to prior shutdowns. At the end of the 3 prolonged shutdowns in the past (1995 -1996, 2013, and 2018 - 2019), equity markets finished flat or up, though in each instance equity prices were lower at some point in the days following the start of the shutdown than when it began. By contrast, the 10-year Treasury yield declined more consistently following the start of prior extended shutdowns.”

Indeed, the probable lack of economic impact and market reaction makes a shutdown more likely and the whole exercise becomes nothing more than “showtime'‘. If anyone really cares about the long-term trajectory of government start addressing entitlement reform, creating a revenue efficient tax code and reduce regulatory policies. Given the elections, these issues will not be raised now but by voting in those with the vision to perceive reality perhaps post 2024 they will be addressed.

OK, the first of a series of five books is being formatted and work is progressing on the associated Udemy course for those of you who have quit reading, for shame, for shame. Many of my high school classmates were not surprised by my efforts as they have not changed for over 50 years. Stay tuned, I’ll let you know when they’re ready.

Congress is now playing Emerson Lake & Palmer’s “Welcome Back My Friends” to the '“show that never ends”. At least in my mind, this “political” show needs to end. It is absolutely ridiculous that those who represent us don’t have the ability to construct then abide by a budget. It’s a practice that all successful businesses and households use, at least those that don’t have a “pipeline’ to a printing press. The money supply is decreasing worldwide and that’s a precursor to recession or even depression, so now is not the time to shut off the spigot. Besides, the way fiscal reforms are changed in today’s world, reactionary decisions temporarily solve problems only to create those that are far worse. Time to change the “show” and bring a new act to the stage.