“Money it’s a crime. Share it fairly, but don’t take a slice of my pie” Pink Floyd

One of my blog readers asked me to write about the government shutdown. What is evident upon only a little bit of thought is how irrelevant so far the government shut down and accompanying fight between Rs and Ds is to long-term U.S. fiscal and monetary policy. Yes, the fight is over defunding/ delaying Obama care (and/or eliminating the special exemptions for Congress and their staffs) and this fight is noble in the minds of many conservatives. And yes, Obama care remains generally unpopular with the public and has may flaws which will hurt full-time employment in a number of service industries. And the imposition of Obama care will cost us money as a society – every economic projection including those by the more optimistic CBO has demonstrated that.

But did anyone really believe that providing nearly universal and affordable health care would save us money as a country? ( I never bought into the cost savings claims when the bill was initially passed. “More” of something for more people never costs less!). This isn’t to pass judgement on the merits of providing more coverage. My own view and I suspect that of most Americans (both R and D’s) is that every civilized society needs to make sure ALL people can get at least basic health care coverage. And lets face it, that costs money.

More importantly, is this a threshold issue worth shutting down the government over? My view is this is a terrible mistake on the part of the Republican party in that it is an issue they can’t win on anyway and for which they will take most of the political blame. Most importantly, Obama care is NOT an important enough issue to warrant shutting down the government. However, having said that, most Americans (outside the Washington DC area) are finding that a government shutdown in the short-term ranges from having no impact to being annoying and inconveniencing (e.g. if they planned to visit a National Park). This is because all the essential functions of government (or at least those whose loss would be felt most acutely in the near term) either are not subject to the Congressional funding resolutions (eg. Social Security, Medicare/Medicaid, pensions, food stamps etc.) or have remained funded thru separate legislation (military pay and deployments, national security, etc.). Further, per usual, government employees will very likely get paid while on furlough. (This has happened the last 17 times the government was shutdown and legislation passed the House on Saturday and should eventually pass the Senate too). Of course, a longer government shutdown would have much more widespread impacts particularly on contractors/companies that do much of the government’s work or for necessary permitting and inspections for agricultural products or to commence new projects. However, as of now, nine days into the shutdown, for most people, this is not YET a big deal.

So my biggest frustration with the shutdown is that it is over the WRONG issue. We have a truly threshold fiscal issue in this country which is our enormous spending, debt and related monetary problems. We should start dealing with it NOW because the consequences will be much less painful than if we wait until later. Further, I believe the risk of high inflation, US default, stock market crash, and major economic depression is growing every day we continue adding to $17 trillion debt AND accommodating our debt by printing more than $1 trillion per year. So if it takes shutting the government down for an extended period to really deal with these issues in a very substantial way NOW, then I am completely for it. Of course, I would hope that Congress and the President would be mature enough to at least cut a deal to start this process in earnest. Then again, given what we have seen over the past few weeks, it’s hard to be optimistic.

Lastly, we have the emerging question of the debt ceiling being raised by mid to late October or risk the possibility of default. Here, there has been a lot of hyperbole about the possible effects of failing to do so and the stock markets have been reacting negatively the past few days. However, the President has been disingenuous in describing a failure to raise the debt ceiling in time as akin to US default on its debt and therefore an economic Armageddon. The reality is very different. Unless, the President WANTS to default on interest payments on the debt, he continues to have enough revenue to service the debt and pay a majority of the government bills, although he may have to continue to furlough employees and delay salary and other payments in order to make ends meet. This is obviously NOT a good outcome and will create economic problems of its own (particularly if it lasts awhile), but it is far better than debt payment default which could literally cost the US and the World economy trillions of dollars. The markets are jittery because they see this is a growing possibility, but the chances of this happening are still very remote and solely in the hands of the President if the debt ceiling is not raised by mid October. I believe wholeheartedly that the President and Democrats were more than willing to let the government shut down rather than negotiate away any part of the Affordable Care Act. However, I do NOT believe that the Administration would willingly default on debt payments if the debt ceiling is not raised when there are other less economically destructive options available. It would be both economic and political suicide.

Time will tell. I just really wish the petulant children would stop fighting and begin to solve the financial problems that plague our country NOW. And with that somber note, I promise to move on to non-political/ non-economic topics on my next blog post.