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Is the Federal Government Going to Shut Down?

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Will the US federal government shut down this month? It could if Congress doesn’t act before April 28. Federal government funding will run out on that date, and without a new spending bill, a partial shutdown will commence the following day. The last time this happened was 2013.

Practically speaking, a partial federal shutdown doesn’t mean much in the short-term. The feds would close national parks and generally try to annoy you into missing them. The media would probably get hysterical. But by and large, the good ole USA would keep right on plugging along. The mail would continue to run. The FBI would keep investigating crimes. The NSA would continue collecting your phone calls and electronic data.

A MarketWatch article describes some possible scenarios:

“In addition to not being able to get in to Yellowstone or the National Zoo, callers should not expect to get a quick answer if they dial a federal agency. During the 2013 shutdown, about 850,000 federal employees were furloughed immediately after funding ran out. However, most civilian employees at the Pentagon went back to work after a week, and more than 8,000 workers at the Social Security Administration were also recalled.”

While it wouldn’t completely halt D.C., a shutdown would have psychological effects. It would certainly further erode faith in the Trump presidency, and it could add yet another layer of uncertainty to these uncertain times.

Analysts have generally downplayed the possibility of a government shutdown, believing that with Republicans controlling both houses of Congress and the Oval Office, they shouldn’t have any problem coming to an agreement. But the failure of Rep. Paul Ryan’s repeal and replace plan proves Republican control doesn’t mean much. The GOP appears fractured, and the cracks may widen when Congress starts debating spending. Hardline conservatives will almost certainly balk at piling on more debt. Neoconservatives have their own agenda. Comments by Sen. John McCain reveal some of the schisms in the party. He said he would not vote for a funding bill that did not increase defense spending, even if it meant a government shutdown.

And, of course, Democrats will almost certainly fight elements of any Republican plan. In other words, an agreement by April 28 is far from guaranteed. Congress won’t have a lot of time to figure it all out. The Senate is in recess and won’t reconvene until April 21.

While Paul Ryan gave assurances the House would make things easy by avoiding debates on controversial provisions such as Planned Parenthood funding and paying for a border wall, Senate Majority Leader Mitch McConnell indicated those things would be on the table during a recent interview on Fox News Sunday. “We’re going to negotiate all of those items in the context of this funding bill,” the Senator said.

There is also the issue of the debt ceiling. The federal government bumped up against the ceiling on March 16. This means Uncle Sam can’t borrow more money until Congress lifts the borrowing limit. The feds can limp along until October relying on “extraordinary measures” to keep things running, but that’s a temporary fix.

There’s a good possibility the debt ceiling debate will get tied into the debate on the spending bill. That complicates matters even further. The debt ceiling debate led to a downgrade of US debt in 2011, contributed to the 2013 government shutdown, and nearly shuttered D.C. in 2015. Nevertheless, McConnell said he was “very confident” Congress will get the job done and avoid a shutdown.

Forgive us if we don’t share your optimism, Sen. McConnell. Getting the job done isn’t exactly your modus operandi. The fact Obamacare remains in place testifies to that fact.

While you may find the thought of the federal government closing its doors and going home appealing, markets don’t like it. If the spending bill leads to a big fight, it will further tarnish Pres. Trump’s reputation as a dealmaker and solidify the impression that Washington remains as dysfunctional as it ever was.

At the least, it means more uncertainty and market instability. Beyond that, one has to think a nasty debate could prick the “Trump Trade” stock market bubble.

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