“Both Sides Are Dug In”: Why This Government Shutdown Could Last A Long Time

Saturday, January 20, 2018
By Paul Martin

by Tyler Durden
Sat, 01/20/2018

Today for only the 19th time in history, the US government has found itself in a “funding gap”, a technical term for shut down. One of the reasons why this event is not being taken too seriously by the financial punditry, markets or much of the media, is that looking back not only have most government shutdowns been brief affairs, lasting less than 10 days – with the occasional outliers, such as the 21-day closure in 1995 and the 16-day halt in September 2013 – they have had little to no impact on either the market or the economy.

And yet, as Goldman writes, after the two political parties breached the shutdown Rubicon, there is a distinct possibility that this time the shutdown lasts “a few weeks” if not longer. The reason is one of both optics and motives: according to Goldman’s political economist Alec Phillips, “both sides appear to think they could gain from a [lengthy] shutdown.” He explains:

Democratic leaders appear to believe that a shutdown would highlight the DACA immigration issue, which a large share of the public, including a majority of voters who supported President Trump in 2016, generally support according to most public opinion polling (87% of the public and 79% of Republicans according to a CBS News poll released January 18).

Meanwhile “Republican leaders appear to believe that Democrats, who are in a good political position going into the midterm election according to generic ballot polling and other metrics, would suffer from a shutdown.”

In other words, “If both sides believe the other side will be blamed, neither has the incentive to avoid a shutdown.”

Making matters worse, there is nothing in the immediate future that will make conflict resolution an urgency: traditionally a drop in the market would serve as an incentive for political parties to reach a compromise, although as we have extensively discussed in the past year, risk assets no longer respond to political events or narrative. This means that without the market intervening as an “arbiter” – i.e., underoging a sharp correction – the two sides are likely to dig in and avoid any tangible negotiations, let alone a compromise.

As a result, while a bitter episode of fingerpointing has erupted, with both sides trying to make the other look like the villain, the US now faces the threat of a protracted shutdown with no end in sight.

* * *

In practical terms, events from the first day of the shutdown seem to confirm this scenario. As The Hill reports, Republican and Democratic leaders on Capitol Hill lashed out at each other on Day One of the government shutdown Saturday, trading barbs and casting blame “as a resolution to the funding impasse appeared nowhere in sight.”

The rhetoric took a harsh turn, with Democrats complaining that President Trump is an erratic, unreliable negotiating partner and Republicans bemoaning Democrats’ intransigence over what the GOP sees as unreasonable immigration demands.

“Both sides are dug in. … I wouldn’t be surprised if we’re here tomorrow,” Rep. Bill Pascrell (D-N.J.) told The Hill after huddling with fellow House Democrats in the basement of the Capitol.

And, if Goldman is right, he shouldn’t be surprised if he is still there in several weeks time.

There is of course, hope for a breakthrough: both chambers are in session Saturday –– a rare weekend workday when many lawmakers were griping about risking vacation plans and overseas trips. But it appears to be largely a day dedicated to theatrics and PR management: no votes are scheduled to reopen the government as the sides continue to air their grievances in press conferences and on cable news shows.

The Rest…HERE

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