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Joined Nov 11, 2007
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On the Verge of a Government Shutdown: Prepare to Rejoice

“Barring some last-minute miracle, it looks like the government is going to shut down at midnight tonight.

The crux of the matter is that the House GOP is not inclined to pass a budget that doesn’t include some kind of delay or defunding to Obamacare. And obviously Democrats won’t agree to that. So, impasse.

Markets are already falling, it would seem, on the news.

But there are reasons to think this would be good.

Goldman explained why this could be helpful in a note to clients last Friday:

It would be a mistake to interpret a shutdown as implying a greater risk of a debt limit crisis, in our view. It would not be surprising to see a more negative market reaction to a shutdown than would be warranted by the modest macroeconomic effect it would have. We suspect that many market participants would interpret a shutdown as implying a greater risk of problems in raising the debt limit. This is not unreasonable, but we would see it differently. If a shutdown is avoided, it is likely to be because congressional Republicans have opted to wait and push for policy concessions on the debt limit instead. By contrast, if a shutdown occurs, we would be surprised if congressional Republicans would want to risk another difficult situation only a couple of weeks later. The upshot is that while a shutdown would be unnecessarily disruptive, it might actually ease passage of a debt limit increase.

This seems kind of vague, but there are three distinct reasons it could be a positive.

  1. The market is reacting now….”

Full article 

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