18 Jan

Will We See a Government Shutdown this Time Around?

WRITTEN BY Ricky Cove FEATURED IN Macroeconomic Analysis

Probability of a shutdown still high

Though the Republican Party holds the House and the Senate, raising the debt ceiling limit would need 60 votes. After the Democratic victory in Alabama last month, Republican strength in the Senate has dropped to 51, and Republicans would need nine Democrats to back this debt ceiling legislation to avoid a shutdown. President Trump pulled off a last-minute deal in September to get temporary government funding that runs out on January 19. This time around, the Democrats are likely to play hardball to get the Deferred Action for Childhood Arrivals Program (or DACA) included in the deal.

Will We See a Government Shutdown this Time Around?

The latest update on the looming debt ceiling crisis

As per reports published on Bloomberg, the House leaders are planning to get another temporary funding arrangement until February 16, giving them time to negotiate a deal with the Democrats and get the 60 votes needed to raise the debt ceiling.

Conclusion

Both Republicans and Democrats are aware that a US government shutdown is catastrophic for the domestic as well as the global economy. Republicans will have to come up with a plan to entice nine Democrats to back debt ceiling legislation and avoid a government shutdown. In the long run, the US GDP must increase to reduce the deficit and avoid these problems.

Volatility (VXX) in the bond (BND) market is likely to be high if the debt ceiling isn’t raised. Equity market (SPY) investors are likely to look at the Trump administration’s ability to pass this bill as a future indicator of further spending programs, like infrastructure (INXX) and defense (ITA) spending. This debt ceiling drama has a higher probability of leading to a shutdown—but like all previous shutdowns, it’s likely to be short.

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