Shutdown End Predictable: Consequences May Surprise

Posted: Oct 03, 2013 12:01 AM

President Obama and the House of Representatives will ultimately maneuver towards a resolution of the government shutdown, but only after the stock market begins to take a serious tumble on fears that the debt ceiling will not be raised later this month. It really is just that simple.

Here are some other realities related to the shutdown.

First, most Americans just don't care about it, at least not yet. Polls show that many have become far more anti-federal government in recent years and really don't mind if there is a partial shutdown. Ironically, their belief that government just does not help them was on full display on the very first day of what some termed a "government slim down" when the new website, designed to navigate people to their new "affordable care" under President Obama's healthcare law, failed to work.

Second, there is the question of whether the Republicans will be politically damaged as a result of their decision to force the issue of a shutdown. I was comparing some notes with my friend Newt Gingrich and, although many pundits suggest otherwise, the fact is that after Gingrich and fellow Republicans shut the government down (twice in a short period of time) nearly eighteen years ago, Republicans retained their majority in the House of Representatives and picked up two seats in the U.S. Senate. Yes, Bob Dole lost to Bill Clinton, but Dole was a weak candidate to say the least.

As for that third point: A tumble in the stock market. That is a relatively new wrinkle in the story's history of government shutdowns. In the past, partial closures of government have presented little reaction from the business community or investors. And, true to form, this shutdown received barely a yawn from Wall Street.

But the 2008 refusal of the House of Representatives to approve the first version of Tarp, and the ensuing market meltdown that occurred, caused politicians to begin to keep a wary eye on the stock market, knowing that they can push it just so far.

As of midweek of the shutdown, investors seemed cautiously optimistic. And already Speaker Boehner and Majority Leader Harry Reid were said to be considering a "clean" continuing resolution with the "promise" of a more detailed look at the budget in the near future.

But Boehner will likely have a hard time selling what, in essence, would be quick retreat on the part of his Republican majority, unless he first secures more meaningful concessions from the Democrats. Or unless an artificial panic is created on Wall Street.

What everyone knows is that this year, with a modest at best economic recovery underway, no one can run the risk of failing to raise the nation's debt limit. And even the most conservative of Republicans will feel that, by shutting down government, their bite has been made as serious as their bark.

In the end, there will likely be some short-term moment of panic, likely involving what might be a miniature version of the true stock market panic of 2008, followed by a decision by all parties to increase the debt ceiling and crank the government back up.

In the end, President Obama will at least know that Republicans can back their rhetoric up with real action.

More importantly, the more faint-hearted of Republicans will be able to rest their heads knowing that no true harm was done to the nation.

In fact, most of these shutdowns have been followed by a period of "economic euphoria." And with the debt ceiling issue likely out of the way, such a boom is likely again.

But this entire episode, contrary to the opinion of so many pundits, will not be a permanent black eye for the conservative Republicans who pushed a "slim down" for whatever period of time it might last.

If history is any indication, the "Newt Gingrich" side of the GOP in this modern version of the shutdown showdown will likely suffer no long-term political side effects from their decision to take on President Obama and Harry Reid. Indeed, Speaker Boehner may have rescued himself from a likely mutiny next year.

It's the "Bob Dole" types -- those who mourn for a day of civility that never really existed -- who may well have problems in the coming years for their failure to take a stronger stand on a shutdown.