October 2, 2013
As you have no doubt heard, the United States government shut down at midnight (Eastern) October 1, 2013. There are many questions and concerns about this situation, but here are some basics.
What happened? In short, Congress did not pass any of their appropriations bills. These bills provide money to various federal agencies. Federal law requires agencies without these funding laws in place to close.1
How long will this last? As with other shutdowns, this is largely up to the two major parties and their abilities to reach whatever deal is necessary to get the bills passed. If we look to history, the two most recent government shutdowns happened in the Clinton administration. One only lasted five days. The other lasted three weeks.1
Whatâ€™s closed, whatâ€™s open? Not every public service is shut down entirely, as not every agency requires appropriations to function. Social Security and Medicare are not affected, active duty military will continue to function, as does the Department of Defense, intelligence, law enforcement, and our embassies overseas. Some are only partially closed; U.S. Courts will be open for 10 days, for instance.1,2
CNN has a frequently updated list of shutdowns at: http://www.cnn.com/interactive/2013/09/politics/government-shutdown-impact/index.html?iid=article_sidebar
How is this different from the debt crisis? They are different situations, but one can affect the other. With the shutdown a fluid situation, itâ€™s difficult to say when this will be resolved. Whether you are a government employee or an ordinary citizen, itâ€™s only natural to be concerned. If the shutdown drags on, it will start to shake consumer and business confidence.
The debt crisis relates to the separate matter of establishing how much money the U.S. Government can borrow in order to fund its various agencies and programs. However, Treasury Secretary Jack Lew says that the crunch is coming soon â€“ no later than October 17.4 The brewing fight over raising the debt ceiling is actually a much bigger threat to the economy and the markets than the shutdown.
Overall, we expect this shutdown to be resolved and the debt ceiling to be raised â€“ but politics will likely cause volatility in the markets. We will be watching the situation closely. As always, call with any questions.
Edward J. Kohlhepp, CFPÂ®, ChFC, CLU, CPC, MSPA
Edward J. Kohlhepp, Jr., CFPÂ®, MBA
Please contact us whenever there are any changes to your financial situation, personal situation or investment objectives.
1 - latimes.com/nation/politics/politicsnow/la-pn-government-shutdown-q-and-a-20130930,0,5564531.story [9/30/13]
2 - cnn.com/interactive/2013/09/politics/government-shutdown-impact/index.html?iid=article_sidebar [10/1/13]
3 - businessinsider.com/government-shutdown-debt-ceiling-obamacare-2013-9 [9/30/13]
4 - money.cnn.com/2013/09/25/news/economy/debt-ceiling-lew/index.html?iid=EL [9/25/13]