Breakout

The Upside to a Closed Government

Breakout

For most of us, Tuesday will simply mark the first day of October or perhaps the start of the fourth quarter. But in Washington, October 1st is New Year's Day, as in fiscal new year, and once again, the federal government looks like it's going to be late to the party. This as lawmakers haggle and horse-trade down to the final minute, risking the closure of non-essential government offices, in hopes of securing the best possible political outcome for themselves.

While the President, the chairman of the Federal Reserve and many others are warning that such a closure would hurt an already fledgling economic recovery, not everyone agrees.

"I don't think shutting down the government can do any more destruction than a lot of what government actually does right now," says Jonathan Hoenig of CapitalistPig.com, in the attached video. "Anything that can be done to slow the size and scope of government is ultimately a beneficial thing for the bottom line."

Related: 12 Ways A Government Shut-down Would Effect You

For the record, Hoenig says he doesn't want the government to "grind to a halt" but if it does, it'll be fine with him presuming we get something beneficial out of it.

"I am from the school that says if it wins us a longer term victory in terms of keeping this country more free, more capitalist, that's a beneficial result," he says.

Politics aside, the actual economic cost of a government shutdown is hugely debatable and largely depends on how long it lasts. Sam Stovall, chief equity strategist at S&P Capital IQ recently analyzed the impact of the 1995 closure, writing the following to clients:

"The peak-to-trough decline associated with the shutdown of the U.S. government between 12/16/95 and 1/6/96 saw the S&P 500 decline 3.7%, only to witness a jump of 10.5% in the subsequent month."

In other words, a closure could beget a buying opportunity, after an initial period of disappointment. Given that the punditocracy overwhelmingly expects an 11th hour solution, anything short of that theoretically would be a surprise.

"If it takes a temporary shutdown of government to get us on a more sustainable fiscal path, that's a good thing," Hoenig says.

He may just get his wish.

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