This shutdown would be different

History may not be of use in predicting the effects of the impending shut down.

By Jim Cramer Sep 30, 2013 8:54AM

US Capitol © Donovan Reese/Getty ImagesNot all government shutdowns are created equal. If you go back to the 1995-96TheStreet logo shutdown, you see a rather remarkable development: It had almost no impact on the stock market.

Remember, there were two shutdowns back then -- one from Nov. 14 to Nov. 19 and one from Dec. 15 to Jan. 6.


During the first shutdown, the Dow ($INDU) actually gained 2%. It then proceeded to rally 3% between the shutdowns. It then it was unchanged during the second shutdown.


After that, it embarked on a remarkable 40% run over the next year.


So you could argue that the government shutdown actually had a positive impact on the stock market. Looking back, you could certainly draw that conclusion.


But it wasn't like this back then. We had a lot of confusion in Washington, D.C., but we really didn't bother to think much about it. We were very earnings-centric back then and totally separated the two. What went on in Washington was a total sideshow.


Now, on the 10-year U.S. Treasury, interest rates did go from 7.78% in January 1995 to 5.65% in January 1996, which is a significant and positive move. The Dow jumped about 30% in the same period. One could argue that rates went down because Congress grew disciplined in spending and therefore the showdown had a positive impact on the budget, which resulted in lower rates.

But rates then went back to 6.58% a year later, so I am even suspicious of that linkage.


I know this sounds naive in retrospect, but we really didn't think back then the way we do now. We were embarrassed by our government, for certain. We knew that we looked bad to the rest of the world. But it didn't change the economic landscape all that much. We were in the midst of an economic expansion, we were riding the wave of new technologies, and jobs were fairly plentiful, with the unemployment rate having fallen from 5.6% to 5.4% from 1995 through 1996.


What mattered were the actual pieces of paper we traded. Not the S&P 500 ($INX) and not the ETFs -- just individual stocks -- and stocks of all shapes and sizes were having a very good run.


When you consider this period we are in now, you recognize something. The companies themselves -- except when they are taken over or do something dramatic or are selling into emerging markets that are turning -- they are almost all hostage to the dynamic in Washington. Everything from banks to healthcare to defense to oil and gas to utilities to autos to retailers can be traced back to Washington in some form, either through legislation or because of the Federal Reserve. It's not so much "intrusion" as it is total immersion.


So my takeaway from looking back is that history teaches us nothing and we are stuck with the current day, which is distinctly a "government gridlock, sell the futures and buy them back later" era. It's pretty much the opposite, frankly, of what we had back then. The Clinton-Gingrich fracas, in this light, seems almost quaint -- a political power struggle, not a fight to the death about government vs. no government. It wasn't existential back then, though it sure is now. Which is why it is so darned hard to figure out when this will all end.

Jim Cramer headshot

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the securities mentioned.


More from

Sep 30, 2013 9:41AM
It's time to vote out every politician in Washington. Start fresh, with people who actually want to serve the voters that elected them.
Sep 30, 2013 9:41AM

Media HYPE....To keep us glued to what a bunch of School Yard bullies are doing..

Nothing more nothing less...


Term limits for all....They waste Government monies, and the time of all Americans..

Sep 30, 2013 12:45PM
vote them out.....but whom do you vote in?  the ones in control give you only 2 choices...and you fall for it every election by voting in more puppets of the ones really in think you are in a democracy but no matter which party you choose you will get the same lousy results
Sep 30, 2013 10:26AM
I know this sounds odd but I believe we will as citizens benefit from this hand ringing excercise. As bad as the word corruption sounds it in time I believe will become our friend.  When the paper pushing extractors fight amongst themselves for money and power we can see more clearly our mission.  Business is the star and always should be.  We have an entire world constructed on the basis the other guy's money is so plentiful they who have the power to control will prosper.  Well guess what? Now is a good time to reorient ourselves to what is real and what isn't.  And what isn't is anything that doesn't involve creating a value. We need value in America, value in words and value in deeds.  Forget the FED, forget DC, forget the other guy, and concern ourselves with our own little individual industry where we create value.  This was what made us great and what will again.  As we allow these guberment cats to prove themselves fools we will turn to each other to find our leaders and stars.  Don't allow yourself to sit in the stands and continue this charade. Forget Washington as they have done little to promote anything American. Forget being a Dem or Rep, forget being a Lib or Conservative. Just forget that now once and for all.  They spent themselves out of our game.  Damn them but most of all forget, ignore, and shame them. Have a valuable day.
Sep 30, 2013 9:30AM
If you live in Chicago you'll know what I mean ... the threat of a devastating government shutdown is as real as the threat of a teacher's strike in Chicago. It's boring "wolf crying" annual news. Every single year for decades, the teachers threaten to strike right before the school year begins ... then the school year begins. They did actually strike once in the last several years just like the government actually shut down  -- 17 years ago -- (even though we hear the threat every few months) and it was as boring and anti-climatic as the threats themselves.
Sep 30, 2013 1:12PM

Lets think about Shutting down all the politicians pay checks, bank account, credit cards & special interest income generating projects, call all there personal home, car and business loans due immediately, I believe the DEFASATE would be paid of quickly.  Think about closing the private schools and special interest  education that their kids are in since so many of them do not believe in the PUBLIC  school system that they have created.


I would then lay odds that all the game playing would STOP.  Democrat, Republican, Tea Party or any other special interest what about AMERICAN, until we change the process of special interests politics ME AGAINST THEM the out come will remain the same.


The enology if it aint broke don't fix it !  NEWS FLASH WASHINGTON D.C. ITS BROKE!!!!!  LET US THE AMERICAN PEOPLE FIX IT GET OUT OF OUR WAY!!!!!!!!!!!!!!!!!!!  MEDEA STAY OUT OF IT AS WELL!  

Sep 30, 2013 10:29AM
I really don't see how someone standing up for what they believe in makes them a bully but I agree about term limits because it seems like that would hinder special interest buying a politician forever. JMHO...
Sep 30, 2013 11:09AM
we are not embarrassed  by our government now ? lol the world in whole is laughing at our joke of a government . they lie we catch them in, in our media lies we catch them in it .they spie on every living being on the planet .killing people at weddings with drones and killing with no trial .corruption on every level yeah we are proud of our law makers who don't even make laws they make policies that's why they are politicians not law makers . they arnt even public servants anymore they are the elite that ride the revolving door from corperation to government greasing they slimy paws with our hard work.yeah we are proud now right ......
Sep 30, 2013 1:02PM
Sep 30, 2013 10:42AM
To the Politicians and their cronies the Banking Cartels ! TO BIG TO FAIL / TO BIG TO JAIL ! TAKE YOUR MONEY AND RUN !  FRAUD STREET/WALL STREET !  THE ULTIMATE CON GAME !
Sep 30, 2013 4:05PM
Bank of America in record settlement $ 32 million denies allegations of wrong doing ? $32 million is a drop in the bucket for a company that makes Billions ! This is the new justice  ? They get off free after pillaging ,plundering and raping the American People !  TO THE TO BIG TO FAIL/TO BIG TO JAIL   DIE BANK OF AMERICA DIE
Sep 30, 2013 9:52AM

Just say it Cramer, Government (collective) owns it all through investment!

They are the economy!


This shutdown would work if someone on the outside could tell the government which sections would be shutdown -- Obamacare, IRS, NSA, TSA, Congress, Washington DC and which sections would remain open -- S.S., Medicare,Medicaid,Parks,FBI


sure we could save enough money this way to have the US in a surplus easy.

Sep 30, 2013 3:47PM


This leads one to watching less national news and more football.


The local television station has a "countdown to shutdown" clock.  Igits.


I'm sure Standard & Poor is loading their guns for a U.S. credit downgrade along with Moodys.





Sep 30, 2013 1:29PM
I think what is really sad about this shutdown is that in my opinion it is over nothing.  The last time we a a debate about revenue increases vs spending cuts, a very worth while debate with merits on both sides.  WTF is this one, get rid of the law past 4 years ago because we won't be able to legally do so until 2016 IF we win the election or else we will make sure there is no functioning government?  That is insane to core, if the GOP had spend the 40 something times it voted to get rid of Obama care actually trying to change it for the better the entire country would;
A respect them more 
B be in a much better off spot
Also, they offer no solution or alternative, just we hate your idea.  Of course I think we all know by now it's grandstanding and a kick the can down the road bill will be passed.
I concede the point that Obama Care has plenty of flaws, but really the entire system would need to be re-build from scratch in order to properly give everyone care.  Remember before Obama Care the USA spent 18% of GDP on healthcare and left millions not covered while Canada and Europe cover everyone and spend 15 - 16% GDP.
Sep 30, 2013 4:42PM
It's all an illusion.  The people in office represent mostly the supporters that helped them get there and I'm not talking the voters.  I'm talking big business!  The ones that make huge donations to the political actions committees in return for big favours.  The people are merely pawns that facilitate the outlandish republic we call the United States.  The model takes a little from the many rather than a whole lot from a few.  Unfortunately, the percentage they take from the many has become ever more onerous.  Those that govern continue to increase their earnings and benefits at a rate far above inflation if you believe those bogus inflation numbers the government serves cold!  The people on the other hand receive wages that don't even begin to keep pace with inflation and their benefits constantly dwindle!  We need to clean this mess up!  Let's start by replacing the congress's generous pension with a 401K like they allowed business to stick us with!  Wouldn't that be hilarious!
Sep 30, 2013 1:05PM
News by the end of this week: JCP files for bankruptcy protection. Several recent jobless reporting stats will be re-adjusted with more severity. 5 major banks will report quarterly losses. Gas will fall another 25 cents on mounting supply, less demand. 5 days of closing bell sell-offs. Real condition reports on Europe tank bonds and force another Fed comment about what they are doing. The Fed will warn it's member banks about the lack of viable sustaining activity. A major corporation will say that they have used a third-party to eliminate candidates for interview to circumvent civil rights.  
Sep 30, 2013 12:21PM
Manipulators in complete control like they have been since the opening bell and no signs of things changing anytime soon....Just play defense....There will be some small sucker's rallies, as usual, but do not fall for them, they don't mean a thing....The goal is to bring us down in the 200 point range and they can do it in a heart beat...Just remain very cautious the rest of the day...Today belongs to the cheating bastards.
Sep 30, 2013 11:01AM
Facebook share action is a total fraud.  There are folks sitting, watching, and recommending going short on Faceplant., hoping to see one more sucker go short as they then bid it up once again and scare another out of their position.  Zero fundamentals and everything Wall Street. I would avoid being long or short with this fraud.  Somethings are best left untouched and boy is this issue ugly.  If you ignore it it will go away as there will be no money to be made.  JMHO
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