Breaking News

What Did The Government Shutdown Achieve?

By Econintersect LLC (Steven Hansen)Market OverviewOct 20, 2013 06:05AM ET
What Did The Government Shutdown Achieve?
By Econintersect LLC (Steven Hansen)   |  Oct 20, 2013 06:05AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

I enjoyed the Rasmussen Poll this week where 78% of those polled would vote to get rid of the entire Congress and start over again.

I am an analyst without much to analyze due to the government shutdown. The economic news becomes the shutdown itself. The shutdown likely caused only transient damage to the economy. Depending on your political persuasion, the transient damage is either little or huge. But the truth is that fiscal policy since 2000 is one of the major reasons why the economy sucks – and the shutdown effects are only an additional nail in the already sealed coffin.

The USA government was shut down because of the inability of Congress to perform its constitutional task in Article I Section 8:

The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;

This clause places squarely on Congress the responsibility for taxation and spending. If Congress does not authorize a tax or prescribe a spending program for the USA government – then there is no authority for the President to collect revenue or spend money. Clearly, the responsibility for this shutdown is Congress. From here, the problems go from bad to worse as another part of Article I Section 8 states:

To borrow money on the credit of the United States;

Some have suggested that US Treasury has an option to fund the government (and circumvent the debt ceiling) by issuing a trillion dollar coin and depositing it with the Federal Reserve – or maybe issuing a new debt free currency. Here too the constitution seems to prevent the issuance of any coinage (and by logical extension any currency) without Congressional approval*:

To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;

*Note: Congress passed and the president signed into law in 1996 the authorization for the U.S. Treasury to mint platinum coins to be of any valued declared, irrespective of metal content, at the discretion of the U.S. Treasury. The intent of the legislation has been reported to provide for the production of commemorative coins rather than currency, but the wording of the law clearly authorizes the production of money.

Congress has chosen an archaic method to set borrowing limits, even though they authorized the expenditures and taxation in the first case. Some point to President Lincoln’s unilateral actions during the civil war in funding the government, but there is question whether this would have survived constitutional review at that time**.

**Congress retroactively blessed Lincoln’s actions.

What good would a unilateral Presidential action be in 2013 – would you buy a debt document where there was a question of its validity? Anyway, the shutdown is over – and there is a considerable backlog of government reports. These catch-up reports should be published within the next few weeks.

Goverment Reports Delayed By Shutdown
Goverment Reports Delayed By Shutdown

The impact will cascade, and the scheduled releases for next week will likely will be late also. The various government manpower and data gathering systems are sized for a release schedule spread over a month. The cascade therefore will likely impact data releases for at least a month.

In the end, the shutdown ending compromise is again kicking the can down the road – the debt ceiling and government funding is only for 3 months.

  • no long term solution to debt ceiling (such as eliminating the ceiling as Congress both authorizes expenditures and taxation, and has full control over government debt).
  • seemingly unwillingness to compromise by right and left wing fringe – I fear people who destroy rather than allowing an opposing idea to proceed.
  • no can kicking to date (the last six years worth) has resulting in a long term solution.

There is no question that the government costs (compared to not shutting down) are higher. As a pragmatist, I see no gain but damage caused.

Other Economic News this Week:
The Econintersect economic forecast for October 2013 again improved and it appears an improving cycle has begun. There is no indication the cycle is particularly strong, as our concern remains that consumers are spending a historically high amount of their income, and the rate of gain on the points we watch are not very strong.

The ECRI WLI growth index value has been weakly in positive territory for over four months – but in a noticeable improvement trend. The index is indicating the economy six month from today will be slightly better than it is today.

Current ECRI WLI Growth Index

Z Weekly_Indexes
Z Weekly_Indexes

Initial unemployment claims went from 374,000 (reported last week) to 358,000 this week. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate.

The real gauge – the 4 week moving average – degraded from 325,000 (reported last week) to 336,500. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge.

Weekly Initial Unemployment Claims – 4 Week Average – Seasonally Adjusted – 2011 (red line), 2012 (green line), 2013 (blue line)
Weekly Initial Unemployment  Claims
Weekly Initial Unemployment Claims

Bankruptcies this Week: Valley Forge Composite Technologies, Savient Pharmaceuticals

Data released this week which contained economically intuitive components(forward looking) were:

All other data released this week either does not have enough historical correlation to the economy to be considered intuitive, or is simply a coincident indicator to the economy.

Weekly Economic Release Scorecard:

Click here to view the scorecard table below with active hyperlinks

Z Weekly
Z Weekly

What Did The Government Shutdown Achieve?

Related Articles

What Did The Government Shutdown Achieve?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Are you sure you want to delete this chart?
Write your thoughts here
Replace the attached chart with a new chart ?
Post also to:
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Peter dikeakos
Peter dikeakos Oct 20, 2013 5:41PM GMT
Saved. See Saved Items.
This comment has already been saved in your Saved Items
My answer, to my above question:. Joe, the trader, owes Lee, the businessman, one trillion dollars..Joe induces Lee to be part of the family; Lee accepts..Hurrah !!!.Joe and Lee.............j o l l y !
0 0
Peter dikeakos
Peter dikeakos Oct 20, 2013 5:21PM GMT
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Who is paying the bill?.................to w h o m ?
0 0
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Post 1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email