A Government Shutdown Would Be Terrible For The Economy
The financial markets will be squarely focusing on Washington this week as investors (and everyone else) will be paying close attention to the looming government shutdown. A substantial, temporary closure of many federal services could occur as early as Tuesday.
Here’s the deal…
The Republican controlled House voted to attach an addendum to a bill which would have extended government funding for another couple months. The addendum delays several key provisions of the Obamacare rollout for a year.
In other words, the Republican contingent in the House is tying their Obamacare battle to the government budget. The government’s fiscal year starts on October 1st, which is also when the new Obamacare mandated health exchanges are set to open.
There is essentially no way the Democrat controlled Senate, or Obama for that matter, will pass the budget bill with the Obamarcare delay attached. As such, Congress only has about a day to resolve the budget before the shutdown begins.
That being said, I’m not going to discuss the issues or merits of Obamacare in this article – this isn’t the right place for that. However, the potential government shutdown is a huge deal to options traders, and all other types of investors.
You see, a shutdown would involve sending roughly 800,000 federal workers home, without pay. These are all the government employees working for non-mandatory services.
And make no mistake, 800,000 workers without pay would be a huge hit to the economy if it lasts more than a day or so. We’re talking an estimated reduction of1.4% GDP for the quarter.
Our slowly recovering economy simply cannot afford to take that kind of hit. It could very easily plunge the country back into a recession. Not to mention, the US could also see a downgrade in credit rating – which could do all kinds of damage to the financial markets.
Bottom line, not only will a shutdown likely tank the market, but it will certainly ramp up volatility in a big way.
No matter what the reason, shutting down the government – and intentionally damaging the economy and the country’s credit rating – is an awful idea. There’s simply no excuse for this to happen… in any situation.
A shutdown which doesn’t get resolved immediately would be one of the dumbest government decisions in recent history. Let’s hope our politicians come to their senses long enough to avoid an economic crisis.
If not, it might not be a bad time to load up on puts…
Yours in Profit,
Gordon Lewis
Category: Breaking News
