Typically gridlock in D.C. is bullish for the markets. Gridlock keeps any meaningful legislation from being passed and removes an uncertainty from the equation. However, if the House and Senate aren’t able to reach a deal on a government spending bill by September 30th, the federal government will shut down. At the time of this writing there had been no bill passed. The last time the Federal Government was shut down was at the end of 1995 and early 1996 when it was shut down twice for four weeks combined. The shutdown was the result of conflicts between Democratic President Bill Clinton and the Congress over funding Medicare, education, the environment and public health in the 1996 budget. The government shut down after Clinton vetoed the spending bill the Republican-controlled Congress sent him. The Federal Government put non-essential government workers on furlough and suspended non-essential services from November 14 through November 19, 1995 and from December 16, 1995 to January 6, 1996.
What Was Old is New Again
Back then, a majority of congress members and House Speaker Newt Gingrich, had promised to slow the rate of government spending, however, this conflicted with the President’s objectives for education, the environment, Medicare and public health. When President Clinton refused to cut the budget the way the Republicans wanted, Gingrich threatened to refuse to raise the debt limit (sound familiar?).
Today something very similar is happening except this time it’s mostly about “Obamacare.” Republicans want to defund the relatively recently passed healthcare legislation to keep it from ever being fully implemented. It is highly unlikely congress will allow a government shutdown, so the most likely scenario is republicans acquiesce and the government stays open. Read more »