Another government shutdown threat is here

Some Republicans want to defund Obamacare -- or they'll close the government or force a default on US debt. That means a far more volatile stock market.

By Charley Blaine Sep 16, 2013 8:31AM
tock market report © Corbis
Updated: 12:37 p.m. ET

Investors face a big week with the Federal Reserve meeting on Tuesday and Wednesday. Then the really big fights come next: how to fund the government through the end of the year and, after that, whether to raise the nation's debt ceiling -- or default on debt payments.

Financial markets are signaling that no one believes a shutdown will occur or that the nation will default on its debt. But both could occur, because many Republicans plan to use both fights as a tactic aimed at defunding the Affordable Care Act.

In fact, with the Dow Jones Industrials ($INDU) up by about 170 points Monday, the blue chips are only about 120 points below their peak closing high of 15,658.36, set on Aug. 2.

If the rally continues, it would be based on hopes that a real resolution of the sarin gas crisis in Syria is possible and because former Treasury Secretary Lawrence Summers has withdrawn as a candidate to succeed Ben Bernanke as Federal Reserve Board chairman.

It is possible -- maybe even probable -- that Congress won't approve a budget resolution for government spending after the fiscal year ends on Sept. 30. And a default -- which means the government doesn't make interest payments on time -- is possible in October or November.

And when those realities come into focus after Wednesday's Fed announcement, you can expect a lot of volatility in financial markets. And possibly a lot of selling.

How much selling? Let's go back to the summer of 2011 when an earlier battle exploded over this subject. The Republicans were threatening to shut down the government, refusing to raise the debt ceiling and willing to let a default happen.

Between the market peak in July 2011 and Oct. 3, 2011, the day before Fed Chairman Ben Bernanke promised to take whatever measures were needed to keep markets running, the Dow tumbled 16.3%, the S&P 500 ($INX) dropped 18.2% and the Nasdaq Composite ($COMPX) fell 18.7%.

The worst of the selling occurred between Aug. 2 and Aug. 18. Standard & Poor's downgrade of U.S. debt came after the market close on Aug. 5. The next two weeks felt like, well, 2008. Suddenly, the Dow was falling 400 points a day, 500 points and more. On Aug. 18, the Dow plummeted 618 points.

What makes the crisis this time more convulsive is, apparently, that some Republicans are betting they really can defund Obamacare. Senate Democrats won't approve it. And even it passed, most Washington watchers believe President Barack Obama would veto the legislation, which is what he's proudest of.

The battle now pits House Speaker John Boehner, Majority Leader Eric Cantor and their leadership team against the radical GOP rebels who believe President Obama's performance on Syria has weakened his already tenuous hand. The time to strike, they argue, is now.

But the risks are considerable. If they shut the government down and cause the U.S. to default, the political costs could be costly, perhaps threatening the GOP's chances of retaking control of the Senate.

Will financial markets really sell off as badly as they did in 2011? One body of thought says the pullback will be big but not like 2011's because markets have already lived through these possibilities.

We'll see.

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Sep 16, 2013 10:52AM
Sep 16, 2013 10:59AM
The time to strike?  Aren't all of these idiots supposed to working together to strengthen the country instead of tearing it apart and driving it deeper into despair???  It is time for the people of this country to strike and run every one of these morons out of Washington!  I will not vote for a single incumbent!
Sep 16, 2013 11:09AM
Shut it down and nobody should get paid.  No pay also for the days it is shut down.  This should apply from the president on down
Sep 16, 2013 10:54AM
Closed works for me.... They sure as hell are not working.
Sep 16, 2013 10:56AM

Republicans - I would love to see you shut it all down! 


Just remember, your own government issued CREDIT CARDS will no longer work! AND your own awesome top of the line HEALTH CARE plan will also be denied.


(added: you have got to read the replies)

Sep 16, 2013 10:54AM
How can shutting down this oppressive government, if only for a few days, be a bad thing?

If you have become so dependent on the government that you cant survive even one day you really need to re-evaluate your life, sad and pathetic.
Sep 16, 2013 10:02AM
Shut it down. We will save billions. F the libs.
Sep 16, 2013 10:51AM
Shut 'her" down.  Believe me, life for most will not be affected a bit.
Sep 16, 2013 10:56AM
If the Republican want shut the government down that means they don't get paid  for all days the government is down including all of their staff are layed off without pay and not there to help the over paid congress
Sep 16, 2013 11:03AM
Sep 16, 2013 10:59AM
Same old , same old, government shutdown headlines.  How many times can you cry wolf?  I'd like to see the government REALLY shutdown, then the high-end DC restaurants would lower prices.
Sep 16, 2013 11:04AM
 Opening quote said: "Some Republicans want to defund Obamacare -- or they'll close the government or force a default on US debt. That means a far more volatile stock market."   Just more of the SOS!  Why don't they just stamp their feet , and hold their breath................
Sep 16, 2013 10:59AM
shut it down.  make sure the politicians don't get  their pay. Republicans stick to this do not give in. stop obamacare.
Sep 16, 2013 10:54AM

Oh, calm down. The gub-nment is "shut down" every weekend and holiday.


Essential services will not be affected if this happens as a result of the continuing resolution battle. Govt shutdown was never an issue, except for the real radicals like the author Mr. Blaine and his cohorts at MSLSD making it one by attempting to frighten the citizenry through bad journalism. [with all due respect to journalism practiced elsewhere].


Mr. Blaine's so called radicals in the GOP seem to be the only ones with any brains. Bone-head Boehner, Cantor, Reid, Schumer, Pelosi and most of the others all belong Havana.

Sep 16, 2013 11:33AM

The vast majority of commentors in this forum are the one's who will suffer the most by a gov't shutdown. They don't realize that their social security, medicare and medicaid are all funded by the "evil empire" led by a "muslim terrorist". That's how racist and stupid these people are...


It's time for the elected offices of the congress to do their job and start working towards a reasonable budget and stop this infentile bickering.



Sep 16, 2013 11:13AM
*yawn* Both parties are horrible, and unfortunately we'll likely be stuck with more of the same as our country goes down the tubes.
I thought the way things worked is we voted on things and if the vote wins then it happens.  Didn't we vote on this already?  Were there not 40+ votes to repeal this that all failed?  Seems to me these folks do not care about democracy, they want there way or they will take this country down.
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