Looming Government Shutdown
Submitted by Bond & Devick Wealth Partners on September 29th, 2023Looming over the country this weekend is a potential government shutdown. We have been here before, but the circumstances and obstacles are unique. The Senate passed a bill to keep the government running and the House has only until midnight this Saturday to approve a spending bill. If an agreement is not made, the federal government will shut down on Oct. 1st.
There have been 14 shutdowns since 1980, according to the Bipartisan Policy Center. The most recent was a partial shutdown in 2018-19; it was also the longest, lasting 34 days, according to the Congressional Research Service. A shutdown affects “discretionary” spending which accounts for about 27% of the federal budget.
What does a government shutdown mean?
Direct and Immediate: More than 2 million civilian federal employees will either be furloughed or keep working without pay until the shutdown is over. Nonessential workers would be furloughed, essential workers would keep working. In addition, military personnel on active duty, about 1.3 million people, would stay on the job without pay.
Federal Benefits: Millions may also lose certain food and housing assistance, which could have a big impact, depending on how long the shutdown lasts, experts said. Some veteran’s benefits might be delayed as well as certain loans for farmers.
Social Security and Medicare: Good news, these programs will mostly be unaffected because they are considered mandatory spending and do not require annual congressional approval. “Checks will continue to go out,” Bill Sweeney, senior vice president of government affairs at AARP, said of Social Security benefits. “The people whose job it is to get those checks out will be continuing to come to work.”
Travelers: Because they are considered essential workers, TSA personnel and air traffic controllers will not be sent home. But all hiring and training would pause, hampering the travel industry’s pandemic recovery and we could see longer lines at the airport. National parks and museums may close or remain open with limited services.
Government contractor: Most federal employees usually receive back pay when the government starts up again, but millions of federal contractors likely won’t recover the estimated $1.9 billion they stand to lose every day the government is closed, according to the president of the trade association that represents government contract workers.
Other: The IRS will most likely be unaffected due to a funding boost from the Inflation Reduction Act, and the postal service will still deliver your mail.
Big picture: The longer a shutdown lasts, the more losses spread. During the last shutdown, which went five weeks, the US economy lost $3 billion, according to the Congressional Budget Office.
Market Impact: Although there can be increased market volatility during a shutdown, history shows no clear relationship between shutdowns and market returns. A government shutdown is only one of many factors that affect markets. Because there are so many variables, the effects cannot be accurately predicted.
Political divisions in Washington have made the threat of government shutdowns more common in recent years. Although a government shutdown is not ideal, what’s most important is that investors remain disciplined, diversified, and patient during such an event.
We feel it is wise to tune out the noise and remain focused on your long-term goals. As always, please feel welcome to call or email us with any questions.
Sources:
https://www.cnbc.com/2023/09/27/government-shutdown-looms-personal-finance-impact.html
