The government isn’t working.
If you were to make that statement on any given day, it would be accurate in a figurative sense, but on Saturday it’s accurate in a literal sense.
For Democrats, this is the #TrumpShutdown. For Republicans it’s the #SchumerShutdown. The fact that we’re now defining our political reality in social media hashtags itself says a lot about the state of civil discourse in America.
Blame-casting is pointless here. Mitch McConnell says this was “100% avoidable” and blames Democrats for what he calls a “cynical decision” to shut the government over “political games.”
Chuck Schumer says this was 100% avoidable and blames Trump, who Chuck says “walked away from two bipartisan deals, including one that included his border wall.”
They’re both right – about the 100% avoidable bit.
I mean think about the sheer absurdity in that for a minute. We’ve got the two people who could have stopped this telling America that it was “100% avoidable”. That’s like King Kong and Godzilla getting into a fight in the middle of a large city, destroying the city, and then holding a joint presser and both saying “look, this was 100% avoidable”. See what I’m saying? It’s fine for outside observers to analyze the situation and explain why they think it was avoidable, but for the two people who literally could have avoided it to say that is tautological and thus entirely ridiculous.
Meanwhile, Trump is of course tweeting about it and honestly, nobody cares. If anything, both Republicans and Democrats should have gotten together ahead of time and just factored him out of the equation. He’s not a reliable partner for Democrats for obvious reasons and if Republicans learned anything from the September experience when he folded to Schumer, it should have been that Trump is not a reliable partner for Republicans either. Additionally, Trump’s tweets over the past couple of weeks and the schizophrenic immigration meetings he invited the media to film earlier this month all clearly indicate he’s not a reliable “partner” to himself, because he doesn’t have a set of beliefs. He just has that wall which, by the way, he doesn’t really believe in either according to multiple reports – he’s just sticking with that because to give up on it would be to go back on one of his most bombastic campaign promises.
The point: Democrats and Republicans should have compromised with each other first and then once that was done, figured out together how to present that compromise to Trump in a way that would pacify him and make him feel like he “won”. I realize that’s a rather deplorable (pardon the pun) state of affairs, but it’s reality. He can’t be involved in anything. He needs to be sidelined from the process and then brought in later once the deal has already been sealed. Then you let him think he sealed it and pat him on the back and hold your tongue while he tweets about it. That’s the only way to get anything done. Recall what Lindsey Graham said earlier this week:
Lindsey’s being a bit disingenuous in the interest of giving everyone hope, because if you go back and listen to what Graham was saying while Trump was still campaigning it’s clear that Graham doesn’t think Trump belongs anywhere near the White House, but you get the point.
Anyway, it is what it is.
So at this point, the only question on your mind is undoubtedly this: “what does Wall Street think?” Or, more colloquially: “Where is Ja?”
Well thankfully, the Street isn’t going to leave you hangin’.
“Federal government ‘funding gaps’ or ‘shutdowns’ are relatively common. Since 1976, the federal government has experienced 18 funding gaps under the current budget process, although most did not result in a shutdown of operations or a furlough of non-essential employees,” Barclays writes adding that “this would be the first true shutdown under one-party rule.”
Based on Barclays’ analysis of previous shutdowns, every week the shutdown is in effect dents growth in the quarter by 0.1pp:
For their part, Credit Suisse reassures you that “there is minimal evidence that past shutdowns impacted equity markets, growth or employment so while this recent pattern of funding the federal government through short-term continuing resolutions makes it difficult for federal agencies to make spending plans, and makes it difficult for Congress to accomplish other tasks, a short-term shutdown doesn’t pose a major risk to GDP growth forecasts.” Here are a couple of visuals that might help you sleep better if you recently bought into the most overbought market in history:
“Government shutdowns are certainly disruptive to the economy, and can have a minor negative impact on GDP,” Credit Suisse continues, before implicitly telling you to calm down because after all, “the impact tends to be restricted to the time period when the shutdown takes place, and a relatively short government shutdown is unlikely to create a financial crisis or plunge the US economy into its next recession.”
As for Citi, the bank notes that “there is generally a risk-off move into the event but the moves are usually relatively small and subsequently reverse.” Well, if all we had to worry about was a “risk-off move into the event”, then we can just go ahead and pretend like this never happened because, well, because stocks hit records this week. For what it’s worth, here’s one table from Citi:
Finally, Goldman was out with another update on this and while it’s largely just a follow-up to their previous piece (excerpts here), there are some notable bullet points and for the time being, we’ll just bring you those and leave it at that.
- A shutdown would have a modest impact on markets and the economy, we believe. We estimate that each week of shutdown would reduce real GDP growth in Q1 by 0.2pp, qoq annualized. The effects would be reversed in Q2, assuming the shutdown has ended by then. Markets have also tended to react mildly to shutdowns. In shutdowns since 1981, the median change in the S&P 500 on the first day of a shutdown is -0.9%. Most shutdowns haven’t lasted longer than a day or two, but of the three longer shutdowns (Nov., 1995, Dec. 1995-Jan. 1996, and Oct. 2013) the average change in the S&P 500 from the day before the shutdown to the lowest point during the shutdown was -1.5%; the average change from the last day before the shutdown to the last day of the shutdown was +1.2% in those three experiences.
- A shutdown starting [today] would probably create less risk for financial markets than another extension of several weeks. The main risk around the funding deadline is that it could eventually interact with the debt limit, which will need to be raised in March, we estimate. By resolving the DACA issue in the near term, this would reduce the risk that the issue comes back into play around the much more important debt limit deadline. Unlike government shutdowns, which financial markets tend to shrug off, markets could have a stronger negative reaction if the upcoming debt limit increase became entangled in the current set of issues.
- Economic data releases could be delayed due to a shutdown. In the event of a shutdown, we would expect most economic data releases from federal agencies to be delayed. Next week, this would likely include the reports on the trade balance, wholesale inventories, and new home sales (Jan. 25), and durable goods and Q4 GDP (Jan. 26). In the prior shutdown, jobless claims data continued to be released as the data is reported by state agencies and simply consolidated at the federal level. The Richmond Fed manufacturing survey (Jan. 23), the FHFA House Price Index (Jan. 24), and the Kansas City Fed survey (Jan. 25) should be reported on schedule, as neither the FHFA nor the Fed rely on congressional appropriations. Private-sector surveys, such as the Markit PMI (Jan. 24) and NAR existing home sales (Jan. 24) would be unaffected.