The era of hostage politics continues. This week's edition has us days away from a government shutdo

• 09/25/23

The era of hostage politics continues. This week's edition has us days away from a government shutdown. You might be thinking "who cares" or "good!!" I'd like to take a second to discuss several reasons why you should care. 1) Moody's, the only remaining credit rating agency that hasn't downgraded the nation's credit rating, indicated that any government shutdown would be "credit negative." According to Reuters: "A U.S. government shutdown would have negative implications for its credit assessment as it would highlight the weakness of U.S. institutional and governance strength compared to other top-rated governments, Moody's said on Monday. https://www.reuters.com/markets/us/moodys-warns-us-government-shutdown-would-be-credit-negative-2023-09-25/ Credit downgrades result in higher interest rates being charged when the nation borrows money, resulting in an increase in the national debt. After the 2011 debt ceiling hostage crisis resulted in a credit rating downgrade by S&P Global, The Government Accountability Office, in a 2012 report, estimated that the 2011 budget standoff raised Treasury’s borrowing costs by $1.3 billion that year. (Source Fitch downgrades US credit rating, citing mounting debt and political divisions https://apnews.com/article/credit-rating-downgrade-deficit-68fb6c578190d8361b6639e603714e5a) So in an effort to reduce discretionary spending, the smallest part of the federal budget, certain members of Congress are flirting with causing yet another credit downgrade. "In particular, it would demonstrate the significant constraints that intensifying political polarization put on fiscal policymaking at a time of declining fiscal strength, driven by widening fiscal deficits and deteriorating debt affordability," Moody's said. Congress so far has failed to pass any spending bills to fund federal agency programs in the fiscal year starting on Oct. 1 amid a feud within the Republican Party. 2) A Government shutdown means the suspension of economic data. Per Reuters: The publication of major U.S. economic data, including employment and inflation reports of critical importance to policymakers and investors, will be suspended indefinitely should the federal government shut down at the end of this week because of lack of funding, a government official said. The suspension of the reports would occur across all government agencies such as the Labor Department's Bureau of Labor Statistics (BLS) and the Commerce Department's Census Bureau and Bureau of Economic Analysis (BEA), and leave policymakers at the Federal Reserve, investors, businesses and ordinary Americans in the dark as they make key decisions. https://www.reuters.com/markets/us/us-government-shutdown-would-delay-release-key-economic-data-official-says-2023-09-25/ The Federal Reserve is in the middle of assessing the effectiveness of their rate hike cycle at bringing down inflation. They use economic reports produced by government agencies to assess their progress, but these agencies will be shutdown on October 1. The next Federal Reserve Open Market Committee meeting is scheduled for November 1. It's entirely possible they enter into this meeting totally blind as to what is going on in the economy. This could cause them to continue pausing when they should be hiking rates or to hike rates when they should be pausing. Overall the suspension of data won't help them deal with inflation. 3) Stock Markets dislike uncertainty. Per Yahoo Finance: "New number crunching out of RBC Capital Markets strategist Lori Calvasina on Monday found that in the lead-up to the last seven government shutdowns (of 10 days or more) dating back to 1976, the median S&P 500 decline was 10.2%. The largest decline of 19.8% came ahead of the government shutdown that lasted from Dec. 21, 2018, to Jan. 23, 2019. The smallest decline in stocks tallied 3.7% ahead of the 21-day shutdown that ended on Jan. 6, 1996." https://finance.yahoo.com/news/the-worst-government-shutdowns-and-the-stock-market-what-history-shows-usually-happens-142728907.html While the "burn it all down" approach to governance might sound fun.. it does have consequences. Hundreds of thousands of people will stop receiving a paycheck. Not only talking about "elites" but also run of the mill government employees, soldiers, regular public servants. When you add this to everything happening economically including record personal debt levels, the restart of student loan payments, and inflation that's risen each of the last 2 months I would expect for the declines of August and September to continue. Join my Discord community made up of hundreds of investors just like you https://discord.gg/GaUxA4dvZs //// #tcardizzle #shutdown #government #macroeconomic

All of your investing.All in one place.

All of your investing.
All in one place.