INSIGHTS
JAN
15
COSTA’S CORNER
The law of unintended consequences, maybe.

It’s not yet the biggest story of 2019 but it soon will be and that’s part of the problem. The partial US Government shutdown has put roughly 800,000 people on furlough. Some of them are working through the shutdown because their jobs are considered essential yet not critical but they are not getting paid.
We all get how this happened and depending on which side of the aisle your head lies, you blame the other side but it is safe to say that everyone involved has a hand in it and the ripple effect of 800,000 unpaid, on a forced hiatus, people will soon be felt in much bigger ways.
Not to discount the effect the shutdown is having on these people but it goes far beyond them.
To understand the potential consequences in the bigger picture it’s probably best to understand the impact Federal spending has on the economy of the United States.
Roughly 20% of US GDP is tied to the Federal Government, and based on conservative calculations the ripple effect of that 20% is another 15% in ancillary business that can be linked back to Federal spending.
However, shutting down 1/3 of that government does not mean that 1/3 of the spending disappears. The impact is more directly tied to employees of the government, programs that are funded by the government and approvals that are provided by the government.
These factors are the ones that people don’t fully understand the true impact of yet.
For example: Several construction companies will bid on a job with the US Department of Transportation for road repair. While the Government is shut down, no bids will be awarded and the companies that bid will have to wait longer and delay hiring or possibly have to lay people off in the interim. The costs won’t show up on the Federal balance sheet but there definitely will be costs incurred.
These down the line costs are part of the game of chicken that Washington is playing.
The idea behind this game is President Trump wants his funding for the border wall between Mexico and the US. As a way of pressuring Congress to approve this funding, he refuses to sign any spending bill and the government, without legal authorization to pay its employees partially shuts down. Now there are 800,000 or so voters in almost every district that are not getting paid. Theoretically, those voters should be up their congressman’s grill to get this straightened out so they can get paid again.
Those voters are in both Democratic districts and Republican districts and their representatives should be listening to their constituents and move this along to a resolution.
Conversely, the now Democratically controlled House has decided that they don’t want to fund this border wall and the way to stop it is make sure the President knows they will not pass his legislation which includes funding for the wall.
Who blinks first?
Understanding the broad scope of the Government shutdown is the only way both sides will understand that a compromise needs to be worked out and quickly.
While I am very sympathetic to those furloughed workers, I am also looking at the unintended part of this mess and that it will have a much broader impact of US growth if it keeps going on.

I will still play it conservatively.

50% Stocks
25% Fixed Income
25% Cash