Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

U.S. Federal Budget, a Rerun of 1994-95 Episode or More?

Economics / Government Spending Apr 07, 2011 - 06:21 AM GMT

By: Asha_Bangalore

Economics Best Financial Markets Analysis ArticleThe continuing resolution, a temporary arrangement that is currently financing the operations of the federal government, expires on April 8, 2011.  A federal government shutdown follows if Congress fails to authorize appropriations prior to this date.  It is widely expected that a breakthrough in budget talks will take place prior to the deadline.  However, there is uncertainty about whether a compromise will be reached at the appropriate time. 

The 2011 federal budget impasse brings to mind the 1994-1995 shutdown of the federal government following differences between then Speaker Newt Gingrich and President Bill Clinton.  The federal government was closed for business November 14-19, 1994 and December 16 - January 6, 1995.  It is estimated that this 27-day closure of the federal government entailed a cost of $1.4 billion. 

At the present time, the financial market environment is markedly different from 1994-95 period because the global economy is recovering from a severe financial and economic crisis and advanced economies are faced with budgetary challenges.  During the 1994-1995 federal budget impasse, the U.S. economy was growing at a rapid clip and the Fed was tightening monetary policy aggressively to rein in inflation.  Between November 14, 1994 and January 6, 1995, Treasury market yields were not unduly affected by budget negotiations.  The Fed raised the federal funds rate 75 bps on November 14, 1994 and 50 bps on January 31, 1995 (see Chart 1).

Currently, bullish economic data have been largely responsible for higher Treasury market yields in recent days (see Chart 2).

Equity markets in the late-1994 and early-1995 reflected fundamental economic conditions and the impact of tight monetary policy in 1994. 

The bottom line is that the federal government shutdown had virtually no impact on financial markets in the 1994-1995 episode; a similar situation is emerging this time around. But, the bigger challenge pertains to the debt limit of the United States.

The current debt limit of the U.S. economy at $14.29 trillion is set by Congress; this was last raised from $12.394 trillion on February 12, 2010.  Reaching this limit prevents the Treasury from raising funds through issuing new debt and the Treasury may find itself unable to meet its day-to-day obligations.  The statutory debt limit has been raised on ten occasions since 2001.  As of March 31, 2011, Treasury debt outstanding was estimated to be $14.2 trillion.  (Daily commentaries of January 10 and 11, 2011 include details pertaining to the debt situation)

The Treasury Department estimates that outstanding debt will hit the ceiling by May 16, 2011.  Treasury Secretary Timothy Geithner's remarks summarize the implications of the not raising the debt limit.

The "consequences of that would be catastrophic for the United States. Default by the United States would precipitate a crisis worse than the one we just went through. I think it would make the crisis we just went through look modest in comparison. It would force us to cut payments to the military, cut critical payments to our seniors. It would be a reckless, irresponsible act."

He said failing if the country defaulted on its debt (which as of Friday was $14.199 trillion) it would "call into question the willingness of the United States to meet its obligations" and this would "shake the…foundations of the entire global financial system."

Asha Bangalore — Senior Vice President and Economist
Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

Copyright © 2011 Asha Bangalore

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules