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.
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real resolution of the sarin gas crisis in Syria is possible and because former Treasury Secretary Lawrence Summers has withdrawn as a candidate to succeed Ben Bernanke as Federal Reserve Board chairman.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.
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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)
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 together.....in Havana.
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.
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Traders might want to bite on BABA, but long-term investors have reasons to wait.
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