The Markets

Americans are experiencing déjà vu all over again. Sure, the prospect of another fiscal showdown doesn’t electrify a crowd like a Rugby World Cup final against the Aussies. All the same, investors’ response to the possibility the U.S. government might partially shut down on October 1 was muted. Some U.S. stock markets gave back a little for the week; others moved higher. All remained up year-to-date. 

So, are investors confident America’s elected officials will do the right thing? Or, have they become complacent? Are they so accustomed to debate and delay that it doesn’t faze them? According to The Economist:

“[U.S.] Federal spending comes in two types: discretionary which must be authorised every year; and mandatory which is set in law. These labels are confusing because much discretionary spending is anything but: it includes funding for the justice system and defence. Since 1976 Congress has required itself to pass a dozen appropriations bills annually to cover this stuff. Unfortunately, it has missed its deadline every year since 1994. To keep the lights on it has resorted to temporary resolutions to finance discretionary spending at existing levels until agreement can be reached, sometimes after a brief pause for effect.” 

As it turns out, government funding has expired 10 times since 1981, and the government has closed down each time. Nine of the 10 closures occurred over weekends so they had limited impact. The tenth lasted for 21 days during 1995 and 1996. We should learn how this round will turn out pretty quickly.