Playing With Fire

Halloween is meant to be a scary night, but not as scary as the impending cessation of many social programs resulting from the government shutdown. Short government shutdowns are generally just a matter of political gamesmanship and last only a few days. Longer shutdowns create real problems, for real people, and we appear to be at the precipice of real problems.

In a few days, this will be the longest shutdown since they became a reality in 1980. (The US Attorney General ruled in 1980 that federal agencies must stop operating if they don’t get funding.) From 1980 through the mid 1990’s, shutdowns only lasted as long as five days. Since then, shutdowns have generally been longer, which is not surprising as this mirrors the increasing contentiousness between parties over the years. In other words, this political gamesmanship has morphed into a game of chicken, with the general population being the losers, no matter the outcome.

How did we get here?

The GOP has proposed a Continuing Resolution (CR), which is a temporary spending bill designed to continue funding federal government operations for a limited time when the standard annual appropriations bills have not been enacted by the start of the fiscal year, which is October 1.

The Democrats want ACA funding addressed up front, as we are currently in the open enrollment period. The GOP has promised to negotiate on ACA funding if the CR is passed, but that would reduce the Democrats leverage for concessions on the ACA. That means the CR is a ‘non-starter’ for the Democrats. This standoff continues as long as each side believes they can be successful in blaming the other side for the shutdown, and therefore win votes down the road.

What is at risk?

This Congressional ‘game’ is creating real pain for more people as each day passes. Millions of Americans rely on programs like SNAP (Supplemental Nutrition Assistance Program) which is set to expire this weekend, WIC (Supplemental Nutrition Program for Women, Infants and Children, and Head Start, the program for early childhood education, not to mention the potential loss of health benefits under the ACA due to large cost increases. ACA open enrollment begins November 1. (Note: Late Friday two judges ruled the Trump Administration must use emergency funds for food assistance. While certainly positive for those reliant on SNAP, the rulings could also serve ease the pressure on Congress to  resolve the situation quickly.)

Millions of government workers are being asked to work without pay during the shutdown, including air traffic controllers and TSA agents, which are complicating air travel. While they are likely to be reimbursed for that work when a deal is reached, there is no guarantee and it does nothing to pay the current bills each month. Many are simply choosing not to work if they are not getting paid (and probably taking on odd jobs for cash to help make ends meet).

As time drags on, the economic impacts will ripple through the economy in a myriad of ways, but the bottom line is that spending decreases and that reduces GDP. If this standoff continues for an extended period of time, we could be heading for a some very real weakness in consumer spending. That is not good for economic growth nor is it good for corporate profits. In turn that would likely not be good for the stock market either. It’s not time to raise the alarm bells on this front just yet, but it is definitely time for some compromise in Congress before the situation grows more dire.

As of Friday afternoon, the President is calling for the ‘nuclear option’ to end the filibuster and pass the CR with a simple majority. Congress understands that the ending the filibuster is something that could come back to bite them in the future and they are reticent to go that route. However, the filibuster issue appears to be opening some doors to negotiation.

Voices are now being raised by airline CEOs and the American Federation of Government Employees, the largest federal employee union to end the stand off. As the shutdown impacts more people and more voices are heard, it should serve to get Congress moving. This should be over soon.

Have a great week!

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The views expressed in this commentary are subject to change based on the market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

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By: Adam