Government Shutdown?
Apr 7, 2011
Posted by Jody Eisenman | Filed under Uncategorized
Once again, we are nearing a shutdown of the US government if a budget compromise is not reached by midnight Friday. Many political view this conflict as inevitable, with this past Novembers’ election of Tea Party Republicans battling Democrats loyal to President Obama. Simply put, the Democrats wish to keep as many social programs in place as possible. The Republicans look at spiraling deficits, are insisting on hefty cuts in order to approve the budget. It is believed that both sides have agreed to about 30-33 billion dollars in cuts thus far.
Should no compromise be reached, the government would be forced to shutdown. This has not happened in 15 years. What does this mean? First of all, hundreds of thousands of federal workers who are deemed “non-essential” would be furloughed. This would not include the President and members of congress. As this is tax season, it is quite likely that tax refunds would not be processed. In the last shutdown in December 1995, National parks and museums closed as well. In the past furloughed workers were eventually paid for their time off, but in todays’ environment, that may not happen. The Federal Reserve, with QE2, would remain intact.
The effect on the stock market is unclear. On the one hand, a shutdown would slow down a fragile recovery. On the other hand, the stock market seems to rise no matter what happens around it. Year to date, the S & P 500 is up a bit over 6%. In my next post, I hope to focus on the Chinese accounting scandals.
