Government Shutdown

It is hard to fathom the amount of damage that will be done to our economy by even the shortest government shut down. Already there are articles about studies and experiments that were being conducted, that are now tainted by the break and will have to be either scrapped or started anew. Billions of dollars of impact there alone.

At any rate, it will be huge and it is tough to get ones head around.

So as a means of trying to get into that, lets look at the financial impact of the smallest piece of that puzzle and see how it plays downstream.

Which piece is that? Why the human interest side of the story that the press is already beating to death. The payroll of some 800,000 federal employees.

I don’t mean to denigrate their value when I say the smallest piece. Federal employees are the backbone of our government, and affect all of our lives more than we realize or care to admit. And besides they are people.

But with a federal expenditure of $4,400,000,000,000 (2018), that 68,000,000,000 (average fed pay of $83k times 800,000) only represents 1/64 of the funds that will be spent (roughly 1.5%). Given that, employee payroll is a  tiny piece of the money that WILL NOT be circulating during this shut down.

So lets look at the impact of that tiny piece and see how it will affect the country as a whole.

For starters, the financially responsible portion of this group, will be dipping into their savings. This will reduce the amount of savings that banks have on hand. When banks holdings are lower, the amount of money they have available to loan is reduced (by a factor of 10). This reduced liquidity can get caught in a negative feedback loop very quickly, having disastrous results throughout the economy. This doesn’t happen immediately of course… but the longer the shutdown goes on, the more people dip into their savings,  the higher the risk gets.

Next comes the impact to insurance companies, and their other customers. 800,000 insurance premiums are not being paid every two weeks. How do you think that affects the insurance companies bottom line? Given that Insurance companies represent roughly .85% of the countries GDP, how do you think that affects the markets? Definitely something to chew on.

The immediate effect will be what they do to not get financially distressed, which is the same way insurance companies always mitigate risk. They fundraise. That means your rates will go up to cover the shortfall.

Then there is the affect to the housing markets. They are already feeling slight downward pressure as the recent real estate expansion cools off, and now 800,000 people are being challenged when it comes to how they will pay their rent or mortgage. Just for a frame of reference, that is 2/3’s of the 1.2 million foreclosures in 2006 that sparked the great recession. That is not the direction I want to see things go…but that is a very real risk of this game of chicken that the President and Congress are playing (not to assign blame, but both are Republican controlled currently and it is over a wall that less than half of the country wants).

Another major bill that most people have is a car payment. One of the strategies that car manufacturers have used to try to stay solvent, is by creating financing companies to help sell the vehicles they make. Given the current state of affairs with GM and Ford both shutting sown plants, I cannot imagine that either company is in a position to weather half a million or so people suddenly being unable to make their car payments.

The thing is we could go on like this all day.

The number of industries impacted by this shut down is hard to comprehend.

The number of human lives that this will negatively impact in unconscionable.

We just spent a decade digging out of one recession, and here we are with a President who seems hellbent on sending us spiraling into another… over a wall that won’t work and isn’t wanted.

It is time for the adults in the room to take charge.

 

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About Robb

A husband, Dad to 5, and Grandpa to 9. US Navy Vet. 18 Year Postal Employee turned full time Realtor. I enjoy a wide variety of things, but you will find that here I mostly write about Indianapolis, government/politics, recent news, and whatever book I am reading or have just finished at the moment.
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