So far, the government shutdown has left babies without formula, military families without death benefits, home owners locked out of their properties, investors increasingly worried about a financial meltdown and animal lovers deprived of streaming panda video. In our peculiar, looking-glass economy, however, unhappy developments sometimes generate unexpected benefits. Here are three ways ordinary people stand to gain from the gridlock in Washington:
Lower mortgage rates. A month ago, the average mortgage rate on a fixed, 30-year loan was 4.57%, according to Freddie Mac. That has since fallen to about 4.2%, reversing part of a summer run-up that pushed mortgage rates to the highest levels of the year and threatened to choke off the nascent housing recovery. Worries about financial turmoil tend to push mortgage rates lower because investors typically take money out of riskier stocks and put it in safer bonds—especially U.S. Treasuries--which pushes up demand for those investments and allows bond issuers to pay lower rates. Mortgage rates closely track the benchmark 10-year Treasury rate, so they fall as demand for Treasuries rises. A rise in financial risk also makes businesses and consumers less likely to borrow, which reduces demand for loans and also pushes rates lower.
A drop in rates has led to a modest increase in mortgage applications, mostly for home owners seeking to refinance an existing mortgage. Refinancing activity dried up over the summer, but apparently there are still a lot of people who would benefit by locking in a lower rate than they have on their loans now. Such home owners have already had ample opportunity to refinance, at rates that bottomed out near 3.5%. But banks have been pretty stingy during the last few years, so some borrowers were unable to get approved for a loan. With homes gaining value once again and banks moderately loosening their lending standards, more people may find they’re eligible to refinance. There is one catch, though: If the shutdown drags on, there could be holdups in mortgage approvals because the Internal Revenue Service and Federal Housing Administration -- debilitated by employee furloughs -- wouldn't be able to process the paperwork needed on many loans.
Cheaper gasoline. Gas prices have fallen by more than 20 cents per gallon during the past month, to about $3.35, according to AAA. A lot of different factors move gas prices up and down, and some downward pressure has come from oil prices, which have fallen by about 9% since early September as the threat of U.S. military strikes against Syria has receded. The economic hit caused by the shutdown may also be pushing down energy prices, since reduced economic activity usually depresses demand for oil and other types of energy, along with prices. If the U.S. government runs out of money in late October without an extension of its borrowing limit, that could trigger a genuine financial crisis that pushes gas and other energy prices even lower.
Continued stimulus from the Federal Reserve. When Ben Bernanke spoke to the press in mid-September, he explained that “upcoming fiscal debates may involve additional risks to financial markets and to the broader economy.” He was referring to the mess we’re in now. The Fed surprised many analysts by choosing not to begin reining in its aggressive monetary stimulus policy in September, even though Fed officials had been hinting for months that it would. Part of the calculation at the Fed seems to have been that a renewed fight over the federal budget might torpedo the economic recovery and require ongoing intervention by the Fed. That’s what seems to be happening now.
The Fed’s policies generally help push interest rates down and stock prices up, with a modest boost to interest-rate sensitive parts of the economy, such as housing and auto sales. So the Fed has some ability to prevent damage caused by political brinksmanship from being worse. But even Bernanke has said that the Fed’s tools are limited, and sooner or later, Congress has to do its part to help the economy. Until they do, consumers should probably be happy for a few inadvertent upsides to the mess Washington politicians have created.
Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.