Fears of a stock market crash are swirling ahead of the upcoming government shutdown deadline set for this Friday, Jan. 19. Indeed, the Senate is currently under a tense deadline to come up with a short-term continuing resolution (CR) as a means to avoid a partial government shutdown this weekend.
Unfortunately, the matter of political division remains a crucial factor related to potential success of the process. “Time is of the essence,” said Senate Majority Leader Chuck Schumer (D-NY). “If both sides continue to work in good faith, I am hopeful that we can wrap up work on the CR no later than Thursday.”
Thirteen senators voted “no” on a proposed CR Tuesday night, with Senate policy allowing any of the naysayers the power to delay a final vote. Even assuming the Senate sorts out any conflicts by Thursday, House Speaker Mike Johnson would still have just one day to gain approval for the bill in the House of Representatives.
If policymakers fail to approve funding, the resulting shutdown would occur in two phases. On Jan. 19, agencies like the Departments of Agriculture, Energy and Transportation would close. On Feb. 2, the government would shut down entirely. The CR would push the deadlines to March 1 and March 8.
What would a partial government shutdown mean for the economy?
Stock Market Crash in Focus Ahead of Looming Partial Government Shutdown
While the short-term repercussions of a brief partial shutdown would probably be quite minor, especially if the government reopens in a timely fashion, there are some potential concerns related to the event.
A shutdown may reinforce the growing skepticism surrounding the country’s creditworthiness. If you recall, last year rating agencies downgraded U.S. credit on the basis of consistent dysfunction related to its hectic legislative process that threatens government shutdown — or government default — on a seemingly yearly basis.
Indeed, last summer the country was just hours away from defaulting on its debts for the first time in history, before politicians finally settled on a spending bill. While the country narrowly avoided defaulting, rating agencies found the uncertainty related to the process justification for a minor credit downgrade.
Credit downgrades have a slew of effects on the economy. The most notable is higher interest rates.
Should the country fully shut down, it may mean a different dilemma for the U.S. Indeed, a government-wide shutdown would result in thousands of “non-essential” federal workers being furloughed, including some government subcontractors.
Some entitlement programs would also be threatened, like food assistance benefits and food safety inspections. In such a circumstance, investors may turn bearish on stocks, at least until the government sorts out its funding.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
