U.S. Government Shutdown Explained by Rob Riedl

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Congress failed to agree on a spending bill for the fiscal year starting October 1, 2013, resulting in the first government shutdown since 1995. According to the Congressional Research Service, this is the 18th time the federal government has shut down as a result of a failure to agree on an annual appropriations bill. Most shutdowns have lasted only a few hours or a few days. The most recent shutdown, in 1995, lasted three weeks.

What happens when the federal government shuts down?

When the government shuts down, federal agencies must generally suspend operations and furlough their employees. However, there are significant exceptions for government functions that promote national security, or protect human life and property. As a result, a shutdown doesn’t impact certain essential functions like the military, law enforcement, TSA, air traffic control, border patrol, emergency and disaster assistance, food safety, foreign embassies, prisons, and federal medical care (among others).

A shutdown also doesn’t impact federal entitlement programs (like Social Security and Medicare) that aren’t funded by discretionary annual appropriations. Funding for these programs is considered mandatory, because the legislation creating the benefit obligates the government to make payment. So benefits under these programs continue uninterrupted, and the employees who administer those benefits are generally exempt from furlough.

Finally, some agencies are funded by multiple year appropriations. Even though these agencies don’t yet have any funds appropriated for the new fiscal year, they may still have funds remaining from prior appropriations, which they can use to continue operations until those funds run out.

So what does a government shutdown mean to you?

What you can do during the shutdown:

  • Receive and send mail–the post office is an independent agency unaffected by the budget process
  • Buy insurance through one of the new health insurance Exchanges
  • Receive your Social Security and Medicare benefits, or apply for new benefits
  • Get a passport or visa–but only until the State Department’s available funding runs out (during the 1995 shutdown, 200,000 U.S. applications for passports went unprocessed)
  • Conduct business with the United States Patent and Trademark Office–but only until the USPTO’s available funding runs out
  • Receive unemployment benefits and food stamps
  • Get an FHA or VA mortgage
  • Receive medical care at a veterans hospital
  • Use the federal court system–but only for about 10 days

What you can’t do during the shutdown:

  • Stop paying taxes–the IRS will continue to process electronically submitted tax returns, but if you’re being audited, you’ll get a temporary reprieve
  • Get taxpayer assistance from the IRS
  • Get a small business loan
  • Go to a national park, zoo, or museum–if you’re already overnighting in a national park, you generally have two days to leave
  • Get a paycheck, if you’re a federal employee–unless you’re the president, a member of Congress, or in the military; however, in the past workers were paid retroactively after a new appropriations bill was passed

If you need more information, most government agencies have posted their shutdown contingency plans on their websites.

And there’s more to come…

The shutdown is separate and distinct from another looming crisis–the debt ceiling. According to Treasury Secretary Jacob Lew, it’s anticipated that the United States will run out of funds as soon as October 17, and will default on its debts, unless Congress acts to raise the debt ceiling before then. More on that crisis to follow

Endowment Wealth Management Weekly Market Update as of October 4, 2013 by Prateek Mehrotra

By Weekly Capital Market Updates

Highlights for the week ending October 4, 2013:

  • Domestic stock prices hit a snag this week. September ended with the S&P 500 gaining +3.1%, but with the partial government shutdown beginning on October 1st, investors decided to book some profits. Equities gained today amid growing optimism that the budget impasse would be resolved soon and the first government shutdown in 17 years would come to an end.
  • Global markets were mixed on the week. World markets reacted in sympathy with domestic U.S. indices, with the budget stalemate causing some investors, particularly in developed European countries, to stay on the sidelines. Emerging markets fared better overall, with many markets advancing each of the last four days.
  • Treasury prices were little changed for the week. The yield on the benchmark 10-year U.S. Treasury was basically flat. Yields are hovering near a seven-week low as investors await news about budget negotiations.
  • Commodity indices were mostly lower on the week. Crude oil posted slight gains, but metals and grains declined sharply.

A Macro View – September 2013 Monthly Recap

Domestic equity markets generally posted large enough gains in September to recoup most of the losses incurred in August. Driving the market’s gains during the month once again was the Fed’s decision as to whether to taper its quantitative easing program. Speculation had increased during August that the Fed would indeed announce a scaling back of its program following its September meeting, but economic data was lackluster enough that the Fed decided to stand pat. The decision propelled both equity and fixed-income markets higher for the month. Also bolstering the market was an easing in the tensions surrounding Syria, as well as a continued improvement in the housing market. The government shutdown had yet to begin by the end of the month, but the market didn’t seem to be overly concerned that it would be a drawn out affair. For the month, the S&P 500 advanced +3.1%. The Dow Industrials posted a +2.3% gain, and the tech-heavy Nasdaq Composite Index was up a robust +5.1%. The Russell 2000 Index of small cap stocks outperformed the Russell 1000 Index of large cap stocks, with gains of +6.4% and +3.5%, respectively. In terms of sector performance, industrials were the strongest performers on a relative basis, gaining +5.7%, while telecom services declined by -0.5%.

International equity markets again performed well relative to domestic U.S. markets in September, with the MSCI World ex-U.S. Index advancing +7.1% for the month. Continuing a recent trend, developed markets once again outperformed emerging markets during the month, with the MSCI EAFE Index jumping +7.4% and the MSCI Emerging Markets Index gaining +6.5%. Regionally, Eastern Europe and Latin America fared the best, with the MSCI Eastern Europe Index advancing +9.0% and the MSCI Latin America Index climbing +8.6% for the month. Japan also had a good month, gaining +8.4%, and is now up +24.5% on a year-to-date basis.  Other Asian markets also fared well for the month.

Fixed-income markets rebounded sharply in September after trading lower in August. As with the equity markets, the key driver of activity was the Fed’s announcement that it would not taper its quantitative easing program yet, but would wait until economic data shows a more clear uptrend. Many analysts believe the Fed will announce a scaling back in the program at its December meeting. Against this backdrop, the benchmark 10-year U.S. Treasury yield ended the month at 2.61%, a decline of 13 basis points from August. Yields had peaked at 2.98% early in the month before investors began to speculate the Fed may not taper after all. Broad-based fixed-income indices advanced in September, with the Barclays U.S. Aggregate Bond Index gaining +1.0% for the month. Global fixed-income markets posted especially strong gains for the month, with the Barclays Global Aggregate ex-U.S. Index surging +2.8%. High yield bonds advanced with other risk assets like stocks; the Barclays U.S. Corporate High Yield Index posted a gain of 1.0% for the month. Municipals also recouped the significant losses experienced in August by climbing +2.2% in September.