Tuesday, October 01, 2013 - The Universe is Unfolding As It Should

The Universe is Unfolding As It Should

by Sinclair Noe

DOW + 62 = 15,191
SPX + 13 = 1695
NAS + 46 = 3817
10 YR YLD + .03 = 2.64%
OIL - .70 = 101.63
GOLD – 40.40 = 1288.50
SILV - .54 = 21.27

Thank you for joining us today. We will now arbitrarily shutdown for no apparent reason. We regret that this might cause inconvenience for listeners, advertisers, employees, or anyone else.

Can you imagine if you tried that with your business? But the business of politics is not like your business; politics has become more like theater of the absurd. Let's review how this is supposed to work. Voters elect representatives. The representatives write legislation, vote on it, the House of Representatives votes, the Senate votes, the bill goes to the President, the bill becomes a law. There are a series of checks and balances, including the possibility of a veto. The courts may weigh in to opine on whether the law is constitutional. And then every couple of years, the voters get a chance to weigh in and vote the bums out or not, which might open the door for a new crop of politicians to write new legislation.

Now, I've been wondering what I might say that's new and different about the shutdown; probably not much, except perhaps that it is more of a showdown that a shutdown, and there will be a political price to pay eventually. That thought is based upon the last shutdown in 1996; just ask Bob Dole.

The truth is that there were 17 government shutdowns from the initiation of the modern Congressional budget process in 1976 until 1996. Even after 1980, when it was mandated that government agencies receiving appropriations close down if funding ran out, government shutdowns occurred with disturbing regularity, with nine throughout the Reagan-Bush years, and two under Clinton. In fact, every time there has been divided government since the Ford Administration, the government has shut down at some point, with only one exception: the tenure of George W. Bush.

Shutdowns were, for quite a while, part of the normal business of government. When Congress and the White House are held by different parties, Congress has no bigger chip at their disposal than the power of the purse. So they use that, over and over again, to extract often unrelated policy concessions from the executive branch. It may have stopped for a while for various reasons, but it’s back because it’s a very inviting way for a Congressional majority to assert their will.

In a parliamentary democracy, the process is slightly different; a disagreement over budget priorities might lead to an election, not sending federal workers to furlough, and then one party wins the vote, and they do what they want for a while and then the public eventually gets to vote on things and they overturn one agenda or another. It's all part of the democratic process, or what some like to call mob rule.

Except it's not quite the mob that rules but rather the mob gets the short end of the stick, because it is the poor and the working poor who will get hit hardest from the shutdown, at least in the near term. Then it spreads out to the middle, and eventually it affects the entire society and the entire economy, but that takes time, and we're just at day one; so maybe it's not much more than political theater for the moment. Over time there is a political price to pay.

Here’s a look at some of the latest numbers on how a shutdown might affect our economy: A shutdown that lasted between three and four week could cost the economy about $55 billion (Moody’s Analytics). Washington, DC, would lose $200 million a day on lost wages and lost spending by those who get furloughed. That estimate doesn’t include tourism, and the huge losses DC will feel from the museums and national mall being closed. The shutdown would “reduce federal spending” by about $8 billion, which could reduce GDP growth by .8 percent annualized (Goldman Sachs). Estimated 1.4% lost economic growth in fourth quarter (Moody’s Analytics’ Mark Zandi). One billion per week from the pay of the roughly 800,000 federal employees will be lost.

These numbers, of course, don’t count a lot of things: The loans that the Small Business Administration will not make, the permits that the Environmental Protection Agency won't issue, the contracts that will be postponed, and the nutrition assistance for infants and mothers that won't buy food and milk. Or, of course, the stock market might eventually react adversely if consumer confidence tanks. And much, much more.

Of course the whole mess could be resolved in 20 minutes with a vote on a clean CR, a continuing resolution that funds the government without attacking the Affordable Care Act. It could happen immediately or in a week or two, whenever the political cost of the shutdown becomes high enough for Boehner to finally find the courage to say no to the Tea Partiers in his caucus. That CR will pass with mostly Democratic votes and about 20 moderate Republicans (and the latest count has about 40 or so moderate Republicans willing to come clean.) And maybe the result will be a revolt against Boehner that leads to him losing the speakership; or maybe not; Boehner's job could be safe simply because no one else could possibly want it.

And the CRs the House and Senate are passing back and forth now only fund the government for six weeks, meaning we could have a shutdown, followed by a debt ceiling crisis, followed by another shutdown. Whenever the next CR expires, we'll do it again, and we'll do it again the next time the debt ceiling has to be raised.

In addition to the shutdown, we are fast approaching the debt ceiling in about 2 weeks time, and that's when things will get real interesting because the repayment of the debt is mandated by the Constitution's Article XIV. And maybe the only answer is to mint a few trillion dollar coins, but don't get me started on that.

Meanwhile, the brouhaha supposedly has something to do with the Affordable Care Act, aka, ACA, or aka, Obamacare, which is one of the few parts of government not shut down today. Ironic, isn't it?

So, very early reports are that Obamacare exchanges are, as expected, having some technical glitches on the first day — maybe even a bit worse than expected, because it appears that volume has been much bigger than predicted.

The glitches will get fixed; remember the calamitous rollout of Medicare Part D? Remember the launch of the iPhones? Remember the launch of every Microsoft Operating System? What matters is whether enough people, especially, of course, young, healthy people,  actually do sign up for insurance. If they do, health reform will be a success, and will become irreversible.

The big fear has been that a combination of ignorance and misinformation would keep people away, that they wouldn’t sign up either because they didn’t know that insurance was now available, or because Republicans had convinced them that the program was the spawn of the devil, or part of a diabolic plot by Obama to force everybody to be healthy. Lots of people logging on and signing up on the very first day, a day when the Congress is dominating the headlines, is an early indication that it’s going to be fine, that plenty of people will sign up for the first year of health reform.

There will be some negative news stories about the glitches. Obamacare is not up for a vote. And today’s heavy volume is yet a sign that it is being accepted in large numbers. And whether or not it is clear to you, no doubt the universe is unfolding as it should.