In 2019, the U.S. government is experiencing another shutdown because President Trump is requesting $5.6 billion to build a wall, but the Democrat-controlled Congress is opposed to funding it. The shutdown has already cost American taxpayers $6 billion, surpassing the wall’s proposed costs. It’s predicted that the shutdown will conclude around mid-February 2019, potentially costing over $10 billion. Meanwhile, President Trump may declare a national emergency to begin construction on the wall along the southern border.
Reflecting on the 2013 shutdown, about 800,000 employees received retroactive pay, which settled things temporarily. However, as of 2019, around 25,000 federal workers have still not been compensated. From an investment perspective, anticipating no resolution in Washington D.C. led me to shift my investments from equities to bonds. Following the shutdown, the 10-year yield has decreased to about 2.64%, and the broader market has declined by 3-4%. The critical question now is when the government will resume operations, as this will determine our next financial moves.
Historically, government shutdowns have been costly but also mean that federal employees, although delayed, eventually receive back pay. This was true in the 1995 and 1996 shutdowns, which effectively gave furloughed employees a paid vacation at taxpayer expense. The shutdown causes inconveniences for many, from park visitors to taxpayers and children, yet ironically, Congress members, the President, and furloughed employees are often least affected financially in the long run.
As for predictions, it’s expected that the government will reopen no later than October 17, 2013, because failing to raise the debt ceiling by then could lead to severe economic consequences. There is also widespread concern among furloughed employees about their financial stability as they do not receive daily wages, adding to the urgency for a resolution. As discussions around the debt ceiling continue, the tension and rhetoric in Washington are likely to escalate before any significant resolution is achieved.
