For 2019, the US government is going through another shutdown because Trump wants a $5.6 billion for a wall and the Democratic controlled congress doesn't want to pay for it.
After a 21 day shutdown, the cost to the American tax payer is now $6 billion, or more than the cost of the wall.
It's my estimate the shutdown will end sometime in mid-February 2019, and cost the US over $10 billion. Meanwhile, Trump will declare a national emergency and start building a wall to protect our southern border.
***** Below are thoughts on the previous shutdown in 2013 where ~800,000 employees got retroactive pay, so all was well. Except, as of 2019, 25,000 federal workers still haven't gotten paid.
As an investor, I've thought about this question a fair bit recently. It seemed clear in September that no agreement would be made in Washington DC, which is why I sold equities and raised my stake in bonds as indicated in my quarterly private newsletter. The 10-year yield at 2.8%-2.91% was relatively attractive in light of everything.
Now that the government has shutdown, the 10-year yield is at ~2.64%, and the broader markets have sold off by 3-4%. The question is what's next? I think the simple focus has to be on making an assumption of when the government starts up again. By figuring out when, we can potentially make more profitable bets or at least save ourselves from blowing up.
See: How To Buy Treasury Bonds
THE GOVERNMENT REOPENS….
My prediction is that the government reopens by Oct 15, and absolutely no later than Oct 17, 2013. Oct 17 is the backstop because an agreement must be made in order to raise the debt ceiling unless we want to start another economic armageddon. I seriously believe there will not only be a massive 10-15% decline in the markets within days of not raising the debt ceiling, there will be rioting on the streets. No politician or person with means will be safe.
Right now we're experiencing creeping doubt, but also hope our politicians will get it together before the debt ceiling debate. You're beginning to hear complaints by those furloughed about not having enough money to care for their families. While I hope all federal government employees learned from the sequester debacle by saving for a rainy day, perhaps not everybody is rational.
But here's the funny thing people realize but aren't thinking properly about. Federal government employees don't get paid daily! Most are paid bi-weekly, which means there is absolutely no negative economic impact, yet to employees. All that's going on is fear about the possibility of not getting paid on Oct 15.
Let's just look at history. The last shutdown, which lasted a total of 27 days in 1995 and 1996, cost tax payers $1.4 billion, or $2.1 billion in today’s dollars according to the government. Most of that cost was attributed to paying back wages for furloughed employees, essentially negating much if any of the cost savings from closing shop.
In other words, many furloughed federal government employees got essentially 27 days of paid vacation. If history is any precedence, then I'm sure the Senate and President Obama will sign legislation allowing for backpay this time around. The government must take care of their own because it would be unbearable to avoid eye contact with 800,000 non-essential employees for the remainder of their terms.
Think about all the people the government is supposed to serve who were inconvenienced by the government shutdown e.g park goers, tax payers, children. Now think about all the “essential” government employees who had to work during the government shutdown while their 800,000 non-essential brothers and sisters got to fret at home and still get paid. To put things optimistically, everybody is getting screwed EXCEPT for Congressmen and women, the President, and the furloughed who will all likely get paid in the end.
THE RHETORIC WILL GET WORSE BEFORE GETTING BETTER
I'm sure there will be more political jockeying that will make things seem like we are going to hell in a cookie basket before October 15. Congress and the President will BUCKLE under the pressure of 800,000 furloughed workers threatening bloody murder if they don't get their bi-weekly paycheck.
I retain a very conservative rollover IRA portfolio (punt portfolio) of 25% bonds, 45% individual stocks, and 30% cash at the moment. I will be buying if there is another 3-5% pullback e.g. S&P 500 1,600. But for now, I'm happy to have locked in gains for the year and watch the circus. If there is a resolution before Oct 15, the markets will likely recoup its losses. If resolution comes down to the wire on Oct 17, then a recovery will take longer because we'll need time to make up for all the damage and lost confidence. And if there is no opening by Oct 17, then down goes the market and we should all hug our families just in case we never see them again. But I'm sure we will, because the pain of such financial loss will finally push our leaders into action.
We shall soon see. Fill out the poll and tell us what you think!
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35 thoughts on “When Will The Government Shutdown And Furlough End?”
It’s amazing to see how much jibber jabber there is on Capital Hill and still nothing. I’m thoroughly impressed that the markets have rallied 3% on speculation. Got to love the human condition of hope. Things will get done… but the longer we wait, the more irreparable damage we have towards consumer confidence and belief in our government.
Well….. It’s a game of political theater right now. All rational politicians know that the GOP strategy has failed. Now it’s about saving face.
Mr. Boehner appears to be a sane person, whom enjoys a high lifestyle. I’m very sure that he would want to continue living that lifestyle. I don’t think he will allow any kind of default.
The larger problem is that he has a very inexperienced crew of lawmakers, whom are just so crazy hardcore!
I think we will the debt ceiling raised, but the government remaining shuttered for a while.
The scary thing is that so many of the hardcore GOP guys are true believers! I suspect that many of the wealthy business/bankers, etc., will begin to cut off funding these folks.
Another reason for a quick settlement; Veterans benefits will be suspended soon.
These are typically GOP voters. Nothing like angering your electorate:
5.2 million military veterans…… That is going to be a lot of nasty phone calls. This nonsense ends soon!
I think this ends by Monday. This government shutdown strategy doesn’t seem to be working for the GOP:
So….. There doesn’t appear to be much volatility in the equity markets. I have mixed feelings…. I was hoping to get some better pricing on some stocks!
On the other hand, I’m rather tired of these pointless political games.
I’m with you brother. With the debt ceiling where it is now, they have enough money to pay Grandma as well.
Again, it’s the extra fat that needs to be trimmed here and if we just keep raising the federal credit limit, more fat builds. At what point does it stop ? I’m not taking political sides here, but I don’t see very much in the way of anyone in congress talking about trimming the fat. And by fat, I don’t mean entitlements that are owed to people who paid into the system. I mean entitlements and unfunded liabilities for those who did not pay into the system and/or abuse the system, as well as funding for pork projects.
I thank Financial Samurai for the valuable forum that links what is going on with our government to what we need to consider in watching out for number 1.
The House GOP may put the US into a technical default; but, I’m hoping that Boehner won’t allow that. Mr. Boehner at least appears to be sane.
This is what I am confident about: If Grandma doesn’t get her $900 Social Security check, the GOP is in big trouble!
I’d have to say between Oct 15-Oct 17. I don’t believe either side wants this stalemate to never end, and there seems to be some movement toward a resolution.
I’m glad that I had pulled out prior to the overarching 3-4% drop, before going back in by 70% equities and 10% bonds. Another lucky “shot in the dark” as they say.
The US government will not DEFAULT, and congress will not end up in a situation where it doesn’t have enough money to pay it’s bills. Everyone needs to think for themselves here and ignore the propoganda being spewed. The federal government takes in MORE THAN enough from our tax dollars to ensure that we do not DEFAULT. The debt ceiling debate is about the “extras” the government wants to spend on. We can all agree that there is a lot of fat to trim and with some ingenuity they can make it work with the existing line-of-credit they have without raising it (or our taxes to support it). With that being said, this site is about what we need to do to position ourselves for the inevitable panic and volitility this causes; but we need to keep things in perspective here and not continue to spread the propoganda and lies about what the real debate is.
Overconfidence killed the cat!
The problem is little things have a big impact because the world economy is based on constant growth. What initiated the 2008 recession? Falling us home prices eventually lead to much bigger issues around the world including massive layoffs, near collapse of the banking system and a stock market collapse because without constant growth the bubble pops.
Regardless of whether US spending is waste or not. The deficit is a sizable enough percentage of gdp where it would easily be enough to pop the bubble if we suddenly cut enough spending to not have to borrow any money. If suddenly for instance we stopped giving social security checks how long until the foreclosures piled up to the point or (or even just falling home prices got to the point) where banks are underwater again? Even if we took the money from only govt functions you don’t like the same thing would happen to whatever group we took it from and its a large enough sum of money to make a 2008 repeat inevitable if we went through with it for any length of time.
In macroeconomics, government spending is the most efficient multiplier. So, yes, as an investor, I’m concerned about the shutdown and default risk. Historically, United States political risk has not been a concern for investors; but, now it is.
We are observing a game of poker here.
Gosh I didn’t realize that the government was shutdown for 27 days back in 95/96. I should have known that, but I must not have been paying attention to the news at all.
If I had to guess, I’d say Oct 15th is the date. I feel for all the furloughed workers. They must be so frustrated and stressed out right now.
I think they will raise the debt ceiling before the 17th, but it will come down to the wire. Politicians are kind of like Miley Cyrus in that any publicity seems to be what they are looking for, good or bad. I worked at my government job today. Morale is kind of low, not because they fear they won’t be paid soon, but because they actually have to work while others are getting a paid vacation. Sucks to be essential!
I wonder if the current shutdown will have an effect on the 2014 election. Since I am a poor market timer, I remain in equities. Although there has been volatility, I have done pretty well. I suffered with furlough days for the last 4 years and only wish I would receive back pay for those days.
I hope the furloughed employees get backpay. Sure they didn’t work during that time but it’s not their fault, and they suffered during that time. I think it will all be over by the 17th but if it isn’t I’m hoping I can keep my job and I can buy some stocks. I don’t really own any stocks at the moment, but the crash after a US default would be my signal to get in the market.
Sam, on a related note were you able to figure out anything wrt folks not receiving the quarterly private newsletter? I know you responded that since it is the first time you were working out the kinks
I’ve only sent one. Records show it was sent. I suspect the usual culprit: spam filters. My email address needs to be an approve sender if one is signed up and not receiving I believe.
Timing the market typically doesn’t work. I hope it works this time around for you.
Thanks! But sometimes it does. I’m only trading around with my Rollover IRA anyway, which is my punt portfolio.
The goal is to get investors thinking about the future and making some educated forecasts. Share yours!
I love that you’re looking for an opportunity to buy. I agree that the furlough is bound to end soon, that the furloughed will likely receive back pay, so the best thing to do try to find (& capitalize on) any silver lining.
Unfortunately, it looks like the time to load the boat was yesterday! :) We shall see. Never underestimate Congress’s ability to snatch defeat away from the jaws of victory.
Never underestimate the craziness of the faction of congress that is championing this whole effort. The same members of congress most up in arms over the size of the nat’l debt at election time are now trying to convince people that defaulting on it won’t be such a big deal. It’s staggeringly stupid. I can’t imagine that anyone would willingly throw the US into default over a law they don’t like, but nothing would really surprise me at this point.
I don’t know when it will end but I don’t expect for Monday’s deposit to be much (technically pay day is the 15th but the money is in our account the Saturday or Monday before). This has helped me stick to a pretty strict budget! I feel like they’ll go over Oct.17 a few days if the conservative contingent won’t agree but no longer than the 19th. Maybe they will wake up before then, though they could help some buddies make good money on stocks if they dipped. Sadly, I always look for Congress to have back door deals going.
Good luck Meghan. Have hope that the last time we had a furlough, there was backpay for most furloughed. I can’t imagine the shutdown lasting for more than a month, and I’m hopefully that everybody in federal government can survive for a month without pay no?
This thing will get done. As an investor, I’m just waiting for opportunity if any materializes. Looks like we might have a 6 week debt ceiling raise extension today, with the gov’t still closed as a possibility.
I don’t know when it’s going to end, but I do believe it’s one massive cluster. The crazy thing that many don’t realize though is that we’re getting exactly what we asked for by re-electing so many of these fools who’d rather hear the sound of their own voice as opposed to actually working together. What I do know though is that you better buckle that seatbelt while being in the market until we have an actual resolution. Were seeing it today with the crazy up day, but it’s anyone’s guess. As for me, I took a few gains and waiting for a good pull back to jump in for some good opportunities.
I wish the ratings agencies would come out and trash Congress. But the last time S&P did that, the government just blasted them with some lawsuit over financial crisis-era ratings. Not surprisingly, Moody’s, which made the same mistakes rating subprime mortgages as AAA, didn’t get the slap. Go figure, right?
This whole thing is beyond stupid. No way in hell we go over the cliff on the 17th, but not much surprises me any more.
@JT, re: (n)ot surprisingly, Moody’s, which made the same mistakes rating subprime mortgages as AAA, didn’t get the slap.
Reminds me of an old saying in Tennessee…“Never slap a man, while he’s chewing tobacco.” – Frank J. Underwood
“Right now we’re experiencing creeping doubt, but also hope our politicians will get it together before the debt ceiling debate. ”
That pretty much sums it up for me. I doubt politicians are really that stupid to cause default, but then you never know. If history is any guide, noone expected in 1914 that an event in Sarajevo would cause a world war 30 days later, which also last 4 years and cost millions of lives.
I plan on buying more if we get a 15 – 20% decline.
Seems like some conversation is being to stirred on both side as rumors of delays in Social Security payments are being to be floated out there. I’m sure one that first pay period passed for all the furloughed employees the talks to resolve will heat up.
Pay day for federal employees is tomorrow, October 11th. Those called back from POMA get paid tomorrow for somewhere between 48-80 hours, depending on if they were originally furloughed. Those federal employees still furloughed will almost certainly not get paid tomorrow, even if congress passes a CR today (due to the lag it would take for the payroll people to come back and get things paid).
As an Australian I’ve found this entire situation mildly amusing. In the scheme of things (long term) it is unlikely to matter too much. I think they will end up sorting it out. No idea if it will be before the debt ceiling occurs. Probably.
Worst case scenario if they don’t reach an agreement. Spending stops and the US grinds to a halt for a number of years. Which (as long as you have a job still) will be a great time for young people to buy up stocks.
Question: You say the bond yield dropped from 2.8-2.91 down to 2.64. That’s a 7-8% yield drop, while the markets dropped only fell 4%. But you didn’t say how much the value of the bonds dropped due to the fall in yields.
P.S. I had been wondering if employees had been given back-pay last time. Sounds like a nice bonus, a bit of unfortunately stressful holiday. But a holidays nonetheless, and a (in the end) good life lesson about risks and not living paycheck to paycheck
There is an inverse relationship between bond yields and bond prices. If bond yields decrease, this means bond prices increased.
Dividend Growth Investor
That made no sense for a minute, then the light went on.
When yields fall, the old bonds price increases. As when they are compared to new bonds, their yield has an implied future value that’s higher. So its now worth more.
Thanks for making me think about it. That will teach me for completely ignoring bonds. I still have no intention getting bonds for another 5 or so years. But there’s no excuse why I shouldn’t read up on it more.
Well i guess all this crap will affect the voting