The Retired Investor: Government Shutdown Looms Large

It is getting to be a regular occurrence. The U.S. Treasury runs out of money and warns Congress that they need more. Politicians on both sides strut and crow but delay until the 11th hour only to pass another "continuing resolution" for a few months. Will it ever end?

 

Exactly what is a continuing resolution (CR)? They are temporary spending bills that allow the federal government operations to continue when final appropriations have not been approved by Congress and the president. CRs are never-ending stories with a shelf-life of 2-3 months.

 

This time, the deadline is March 14. Has anything changed? Well, yes and no. The factions within the Republican party are still around, with scores of Republicans who routinely vote against funding the government. At the same time, the narrow GOP House majority of last year is narrower still. The Republicans versus Democrats score card is 218-214 (with the death of Texas Democrat Sylvester Turner on Tuesday) in this new Congress. That makes it probable that to pass another CR, Democrat votes will be needed.

 

In prior votes, Democrats have stepped up to the plate to support short-term bills but that was under a president of their own party. However, that was then. President Trump's program of slashing government workers, efficiency efforts by DOGE, the threatened upending of entire departments, and the administration's effort to control spending have the minority party in no mood to compromise.

 

The Democrats argue that Congress, not the president, holds the power of the purse. Unless there is explicit language in the bill that limits the involvement of the executive branch in spending decisions, many Democrats will not be a party to a compromise. Other Democrats insist that there also be included written constraints that would rein in Trump and Elon Musk's attempts to close or reduce the size of government agencies.

 

The opposition is also against several GOP add-ons to the bill including $32 billion in transfer authority for the Defense Department, a $20 billion cut to IRS enforcement, and an increase in funding ICE deportation operations. Of course, the Republicans are laughing at these Democrat demands and have no intention to compromise either.

 

Within the Republican Party, the Freedom Caucus voted last week to go along with the rest of the majority to pass a budget resolution to raise the debt ceiling by $4 trillion. The chairman of that group, Rep. Andy Harris, has already signaled that the group is on board to pass a continuing resolution as well. But there are at least two Republicans who say they are sick and tired of kicking the can down the road and want a full appropriations bill passed. 

 

Every president, including Donald Trump, would like to put an end to these constant bills that last for a month or three, but a full funding deal seems out of reach. The most that can be expected is maybe another short-term bill to keep the government running on autopilot until the end of the fiscal year. You can be sure that the administration will be doing its utmost to make sure every one of the party faithful votes yes on March 14th.

 

If a deal fails to be passed, Donald Trump has proven that shutdowns do not deter him.  It happened during his first administration when Congress failed to fund his proposed wall along the southern U.S. border. The partial government shutdown was the longest in U.S. history.

 

 This time around there would be some unintended benefits to a shutdown from the administration's point of view. For one, government spending would come to a standstill for the most part. That helps when your stated aim is to reduce government spending anyway. For another, thousands of government workers would be laid off, some of which could be permanent if the administration so desired.  That also coincides with their effort to reduce the size of government.

 

In any case, whatever happens will be dragged on until the last bit of free airtime is used up and every legislator has his or her comments duly recorded for posterity. Some things never change. In Congress, it appears as if it is business as usual when it comes to spending.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.