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Fears of a stock market crash are swirling ahead of the next government shutdown deadline set for this Friday, January 19. In fact, the Senate is currently under a tense deadline to introduce a short-term continuing resolution (C.R.) as a means to avoid a partial government shutdown this weekend.
Unfortunately, the issue of political division remains a crucial factor related to the potential success of the process. "Time is of the essence," the Senate majority leader said. Chuck Schumer (D-New York). "If both sides continue to work in good faith, I am hopeful that we can conclude the work on the CR by Thursday at the latest."
Thirteen senators voted โnoโ on a CR proposal Tuesday night, and Senate policy allows any of the naysayers the power to delay a final vote. Even assuming the Senate resolves any conflict by Thursday, House Speaker Mike Johnson would still have just one day to get the bill through the House.
If authorities do not approve the financing, the resulting closure would occur in two phases. On January 19, agencies such as the Departments of Agriculture, Energy and Transportation would close. On February 2, the government would shut down completely. The CR would delay the deadlines until March 1 and 8.
What would a partial government shutdown mean for the economy?
Stock Market Crash in Focus Ahead of Imminent Partial Government Shutdown
While the short-term repercussions of a brief partial shutdown would likely be quite minor, especially if the government reopens in a timely manner, there are some potential concerns related to the event.
A shutdown could reinforce growing skepticism about the country's solvency. If you recall, last year the rating agencies downgraded American credit based on ongoing dysfunction related to their hectic legislative process that threatens a government shutdown โ or government default โ seemingly on an annual basis.
In fact, last summer the country was just a few hours away from defaulting on your debts for the first time in history, before politicians finally passed a spending bill. While the country narrowly avoided default, rating agencies deemed the uncertainty related to the process justified a minor credit rating downgrade.
Credit downgrades have a series of effects on the economy. The most notable is the higher interest rates.
If the country were to shut down completely, it could mean a different dilemma for the United States. In fact, a government-wide shutdown would result in the layoffs of thousands of โnon-essentialโ federal workers, including some government subcontractors.
Some social benefit programs would also be threatened, such as food assistance benefits and food safety inspections. In such circumstances, investors may become bearish on stocks, at least until the government sorts out their funding.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com. Publication Guidelines.
