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Posted by on Sep 30, 2013

What’s Happening on Capitol Hill?

What’s Happening on Capitol Hill?

The stalemate in Congress has now caused a government shutdown.  Senate Democrats voted for a fourth time to reject a spending plan by House Republicans that sought to undermine Obamacare.

The last time a government shutdown happened was in 1996 when the federal government was shuttered for 21 days between Dec. 15, 1995, and Jan. 6, 1996. Before that, a five-day shutdown occurred from Nov. 13 through Nov. 19, 1995. According to the Congressional Research Service, 800,000 federal employees were furloughed during that period.

After the 1996 fiscal year shutdowns, the Office of Budget and Management estimated the cost of the shutdown to be $1.4 billion.

A government shutdown does not mean the lights will go out on Capitol Hill, in the White House and in every government department and agency. Many agencies and government functions are exempt from a shutdown. All government agencies that are not funded through annual congressional appropriations will not be affected. In addition, there are certain functions deemed “exempted” by the federal government that may continue in an absence of appropriations. Such functions include those necessary for emergencies involving “the safety of human life or the protection of property,” and those necessary for activities essential to national security, including the conduct of foreign affairs essential to national security.

The reaction in the equity markets has been muted to date.  I do believe that will change to some degree.  However, even after the shutdown deadline has passed, as of 11:30 a.m. Tuesday, the stock indexes are up slightly for the day.  The real focus for the markets going forward will be in raising the debt ceiling.  The present Debt ceiling is scheduled to expire on or about October 17, 2013.  This is something the rating agencies and the treasury markets will watch very closely as it will have a meaningful impact on stock prices.

These issues are complex and fast moving; I would encourage people with specific question to contact us directly.