Harvey Silver Lining: Odds Of Government Shutdown Fall To ‘Just’ 35%

Well, if you were looking for the silver lining in the catastrophic flooding that accompanied Hurricane Harvey, Goldman is happy to oblige.

As expected, analysts of all stripes have bent over backwards this week to try and quantify the impact of the storm on whatever sector or asset class they happen to cover although it goes without saying that’s an exercise in futility in the near-term.

Assessing the fallout from this will take months and probably years depending on what it is you’re trying to determine.

But when it comes to the effect it will have on the odds of a government shutdown, things are a little easier to measure by virtue of the fact that those odds are to a large extent subjective in the first place.

You might recall that over the past couple of weeks, Goldman has pegged the odds of a shutdown at roughly 50%. And that brings us to the silver lining of Hurricane Harvey: the odds might have fallen simply because no one will want to risk being the guy/gal that gets blamed for crippling the government’s capacity to provide aid in the aftermath of a horrific natural disaster.

“At this point, we peg the probability of a shutdown in early October at 35%, down from our prior view of 50% over the last couple of weeks [with] the main issue [being] Hurricane Harvey,” Goldman writes, in a note out Tuesday evening. The bank continues: “Allowing a partial government shutdown when federal relief efforts are underway would pose greater political risks than under normal circumstances, raising the probability that lawmakers will find a way to resolve disagreements.”

And it gets better, where “better” means there are knock-on effects for the debt ceiling debate as well. Here’s Goldman again:

In addition, the Federal Emergency Management Agency (FEMA) will soon need additional funding. The Disaster Relief Fund (DRF), which is the primary source of funding for FEMA’s efforts, has a balance of $3.3 billion and this is likely to be drawn down fairly quickly over the coming weeks. For example, DRF outlays in the month following Hurricane Katrina (occurred August 2005) were a bit less than $5 billion. Katrina-related flood insurance outlays did not start in earnest until October. Non-FEMA spending has typically accounted for around half of the total of federal funds spent on prior hurricane relief efforts, with the Departments of Housing and Urban Development, Defense, Transportation and the Army Corp of Engineers accounting for most of this, but we would expect these outlays to take longer to ramp up. We expect Congress to provide additional funds in September; over the last 30 years or so, Congress has passed legislation anywhere from a few days to a month following previous major hurricanes.

ReliefSpend

So same story: if Congress combines the emergency funds with the federal spending authority or the debt ceiling, no one is going to want to see their picture plastered all over the front page of every newspaper in the country with the headline “This Is The Dick That Voted Against Disaster Relief.”

There’s your silver lining.

Although I’m not sure it says anything good about the state of affairs in Washington when the only thing that can break the deadlock is a Noah-style flood.

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4 thoughts on “Harvey Silver Lining: Odds Of Government Shutdown Fall To ‘Just’ 35%

  1. Trump will raise Federal flood insurance premiuns based on the event to manufacture cash flow. He will also say climate change makes this necessary.

  2. The federal flood insurance program needs to revamped. As an example It might make more sense to make it affordable for those that would really need it, and increase the premiums on coastal properties with good views, thus encouraging development where it shouldn’t happen. Also, no reason to have taxpayers provide subsidised insurance for weekend homes and vacation properties.

  3. Okay, so now what happens if Trump ends up demanding that the wall be included into the debt ceiling allotments? Congress has already made it clear they won’t pass that. But now it would seem they would have to, otherwise look like no-Harvey-relief chumps.. Assuming Trump does include the wall. Which he might, realizing all of this now, since after all, it’s Trump. What a donnybrook this could become!

    1. Trump may well include far more than the wall just because he is pretty certain congress will have no choice. We could see his entire to do list wrapped up in it and just straight up dare congress to do anything about it.

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