Will the Republicans Actually Close the Government?

At midnight on Monday we will find out if the hard-liners within the Republican party (read: the Tea Party) will follow through on their threat to close the government as they refuse to negotiate in good faith on a deal to expand the debt ceiling. Whether one agrees with ObamaCare or not, I think it’s reprehensible that the right-wing members of the Republican party¬†led by Congressman Ted Cruz of Texas,¬†seeks to draft policy after losing the election, rather than focus on what is important right now: ensuring that the government can pay its bills. Now is not the time for extreme partisan politics. Now is the time for statesmanship; for cool heads to find common ground and a compromise that is in the best interests of the country.

I’ve ranted countless time in my newsletter, this blog and my twitter feed about the gutless and selfish sycophants that pretend to be our leaders in Congress. I won’t bore you by repeating the same withering criticisms. Suffice it to say that these morons are once again holding America hostage as their inability to put aside partisan politics in order to draft a federal budget leaves us a scant three days shy of a partial government shutdown. I can make an argument that, in certain circumstances, it wouldn’t be a bad thing for the government to close for a while. I do believe that we’d all be better off with a much small federal government. But that’s a conversation for another day. In this case though, it would be a very bad thing for all concerned. I still hold out hope that a deal will be struck before October 1 as our Congressional leaders are concerned first and foremost with their own re-election, and to be blamed for shutting down the government won’t help any of them at the ballot box.

As I write this about 30 minutes after the market opened for trading on the last day before the weekend, the Dow Jones Industrial Average is down about 100 points thanks to all of the uncertainty regarding the fight to raise the debt ceiling and agree on a budget for fiscal 2014. The Treasury Secretary has stated that the government will run out of money no later than October 17 and will thereby begin to default on its debts. Before that there will likely be furloughs and other cost cutting measures employed to stretch the deadline out as long as possible. None of those measures are likely to be good for workers or for an already weak economy.

I don’t believe that a crisis will come to pass. I think that the moderates in the Republican party will bring the extremists to heel and that a deal will get done. I do think the Democrats will have to agree to some spending cuts to get a budget deal done. But I don’t believe that any aspect of ObamaCare will be on the table, although the inter-party fight over this legislation will likely continue for the remainder of this Presidency. Hopefully the budget will include a combination of spending cuts and tax enhancements that will make a meaningful impact on the deficit.

So what does this mean for investors? I think the market will likely close lower today, and losses could continue through the close on Monday. I think a stop-gap measure will be agreed to sometime Monday night, allowing the government to continue in business. That agreement will likely trigger a rally in the market. Therefore, I think Monday may provide a nice buying opportunity. Stay tuned.