A Crisis That Isn't

Sooner or later one of these governance "crises" will have dire consequences, but your humble observer doubts that the impending October 1st shutdown of the Federal government will have different results from the sequester, the 2012 debt limit kerfuffle, or the 2012 U.S. Treasury downgrade. Some people, such as government employees, will be affected, but the rest of the country will probably just shake its collective head and hope that the stalemate does not go on too long.

While there has been no government shutdown since 1996, there were 17 separate events in the previous 20 years so clearly the markets would not be too inconvenienced by a brief hiatus. Analysis by Rabobank found that the previous events had very little impact on bond yields. The famous 1995 shutdown did not make a dent in a roaring equity bull market.

Undoubtedly the House Republicans will take most of the blame for the shutdown, but I can't fault them too much for their desperate and seemingly futile attempt to stem the tide of big government. Increased government control over medical care, education, and banking seems to have made the problems in those areas worse; the proposed solutions always involve more spending, prosecuting the "crimes" of the people working in those sectors, and more regulation and more laws.

Someday lenders will stop lending, taxpayers will stop paying taxes, and government services will be shut down in earnest, but the good news is that it won't be this October 1st. © 2013 Stephen Yuen