Here we go…

As we approach a pending Federal Government shutdown this week, many of our clients have asked us how this will affect them. Another question for those looking at the big picture is, “Is this pending shutdown just the warm-up act to the battle over debt ceiling?”

First, if nothing changes between now and midnight, October 1 this will be the 18th government shutdown since 1976.  The most recent two both occurred in 1995 under President Bill Clinton. All previous shutdowns have ranged anywhere from 1-21 days, so the first thing we remind our clients is despite the media hype, the sky is not falling.

Next, lets look at why is this happening. What are the circumstances of the most recent shutdown? Of course, we’re not promoting a political blog, but in our current day and age financial markets and political gridlock collide more often than we’d like them to – in this case they are inseparable.

Let’s call it like it is: The threat of a government shutdown is truly a result of a band of Republicans using the debt limit ceiling to attempt to block the implementation of Obamacare. If the shutdown persists and becomes a problem, Obama probably has enough power to raise the debt ceiling by executive order, so resist the urge to assume that can’t be solved at the 11th hour. Of course, that is not an ideal situation as it will further highlight our gridlocked political system, but just remember… it is a possible outcome.

As it relates to your personal finances, the shutdown is not the huge deal the media would lead you to believe, but the debt ceiling deadline later this has the potential to be.

Before you think we’re dismissing a huge issue, our opinion echoes that of David Stockman (the budget director under the Reagan administration).  Of the 17 prior shutdowns we have gone through dating back to 1976, Stockman has been personally involved in 11 of them, so he’s been there, done that.  Here’s what he had to say in a recent interview: “Shutdowns are not what they’re cracked up to be.  Essentially, government shutdowns are very partial because we define something called ‘essential’ government services, and as it turns out, most of the federal government is essential (according to the guidelines).  So the shutdown isn’t the real story… it’s a side show before we get to the debt ceiling.”

Let’s pause here until we all see what our elected officials come up with before the midnight hour on 9/30. If they follow course (and we believe they will), both sides will dig in and refuse to negotiate. So buckle up – this first act will prove to be bumpy, but it’s the following weeks that will illuminate the real issues that must be faced before we get into un-chartered water.

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This post was written by Conscient Capital