Both houses of Congress passed a stopgap bill that would extend funding for the federal government until March. This marks yet another stopgap bill that gives more time for Congress to come to a more permanent consensus on long-term funding plans. It seems, however, to have little effect on the overall markets, raising questions about whether or not investors truly care about fears of a shutdown.
American Action Forum President Doug Holtz-Eakin joins Yahoo Finance to discuss the recent measures taken by Congress, what they mean for investors, and what it means for the federal government's handling of its financials.
Holtz-Eakin lays out what should concern investors most: "The major concern should be that if the government gets shut down, the rating agencies take this as another piece of evidence that the US is unable to manage his finances and you get another... negative watch, downgrade to the credit rating. That's a big deal, and investors should care about that. The larger issue here is the capacity of our political system to manage the federal finances."
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Nicholas Jacobino
Video Transcript
- So Doug, are the markets right to shrug this off again? I mean, that's sort of become the reaction, right, which is a government shutdown. OK, maybe it'll happen. It'll probably be averted. We've got another potential deadline come March. At what point does it become something that you think investors can't ignore?
DOUG HOLTZ-EAKIN: I don't think a government shutdown per se is a great threat to markets to the economy as a whole. We've had shutdowns. They have a really tiny impact on the overall growth path of the economy. Mostly, it consists of shifting things around in time. You put them off and accomplish them later, and and so you recover anything you lose during the shutdown. So I don't think that's a big concern.
I would say the major concern should be that if the government gets shut down, the rating agencies take this as another piece of evidence that the US is unable to manage its finances and you get another negative watch downgraded the credit rating. That's a big deal, and investors should care about that.
The larger issue here is the capacity of our political system to manage the federal finances. And on a short term basis that is funding the government, it doesn't seem to be able to do that. And on a long-term basis, controlling the debt, it has been unable to do that. Both are really not good signs for the US.