Looming government shutdowns have become to most people another episode of 'The Boy Who Cried Wolf.' Both sides square off swearing that they won't compromise, but in the end a last minute deal averts the crisis. This time, however, could be different. The last time the government was shut down was in 1996 for 28 days, as a result of a standoff between Speaker of the House Newt Gingrich and President Bill Clinton. There is probably just as much acrimony now as there was in 1996 between the parties. There are also much bigger stakes this time around, and don't forget the government has not had a budget since 2009. The Tea Party wing of the Republican Party is also attempting to use the October 1 budget deadline as a mechanism to defund Obamacare. I am not going to break down the political issues point by point; I will let you go elsewhere to get that kind of analysis. What I do want to address is what could happen on October 1 if the government actually does shut down.
1. Social Security Checks
In theory, Social Security checks are funded from a separate government trust fund and not from general revenues. Additionally, if what's past is prologue, a budgetary impasse should not affect regular payments to Social Security recipients. Of course, a wild card here is that the employees that prepare and send out those payments are part of the government's general workforce. As a result, the President, as the chief executive, could furlough enough of the Social Security Administration's workforce to make the preparation and distribution of funds an impossibility.
I doubt this will happen, but it can't be completely ruled out. A move along these lines was taken by the president when he closed the White House to tours after the budget sequestration went into effect in March of this year. Most critics of this move aptly point out that the cost of opening up the White House for tours is minuscule, and that the discontinuation of tours was done to cause a political backlash. Can you imagine the backlash if Social Security payments were even just a few days late?
2. Travel Plans
No, airports will not shut down. Air traffic controllers would fall into the category of exempt workers and would still be paid, as would TSA employees. Most national parks, museums, and other government operated points of interest would be closed. If your plans include a visit to such a venue, you may have to come up with an alternative. If you are in the process of applying for, or waiting for, a passport, that may really become an issue. It would be likely that substantial delays would be in order.
3. Student Financial Aid
For those just coming back to school for the fall, timing could not be worse. Many students are waiting for their first installment of financial aid for the new school year. Depending on what stage your student financial aid is process is in, those funds could face a substantial delay.
4. Government Backed Mortgages
If you are applying for an FHA, VA, or any other government backed mortgage program, experts say that a government shutdown could delay your closing. Again, just as with student financial aid, how much you are impacted would be based on how far along you are already in the process. This would be an important question to ask your loan officer about. Those under contract to purchase real estate may be wise to discuss with their agent how any funding delays could affect their purchase contract.
5. If You Work For The Government Or A Government Contractor
The stark reality is that you may face weeks out of work and the possibility of losing your position completely. Large numbers of government workers will be furloughed. In past cases, furloughed workers were given back pay when the stalemate ended, but there is no guarantee that this will happen in this case. If you don't work directly for the government, but for a government contractor, you may also be out of work. Those in such circumstances may want to start thinking through their 'plan B' and how they plan to get by if they have to go a few weeks without a paycheck.
If there is an extended government shutdown, it is likely that there will be extreme volatility in both the stock and bond markets. The truth is that we really don't know what will happen, and the stock market is already considered to be very overvalued by many analysts. Some investors have already begun to prepare by moving their money into money market funds and other options that represent 'safe havens' until the dust settles on the current impasse.
What are the chances that we will actually see a government shut down this time? I honestly think they are better than 50/50. As a result, I would not suggest taking a laissez-faire attitude this time around. We simply don't know what is going to happen, and anyone paying the least bit of attention has to conclude that things really are different this time. Yes, the military would still be paid and the mail will still delivered, but services outside of what are considered absolutely essential would be suspended. Oh one last thing; you will be heartened to know that Congress and the President would still receive their full pay.
Helping you make the most of God's money!