Government Hemorrhaging Money
January 11, 2019 | Tags: Financial Crisis, Politics, shutdown
Dear Money & Crisis Reader,
Holy crap, folks. It’s been 21 days.
If President Trump does not reach an agreement with house Dems today, this will officially be the longest government shutdown in American history.
(We’re making history here, folks!)
So far, the fallout from the shutdown has been relatively limited.
I say “relatively,” because those going without pay are undoubtedly going through their own private crises right now. But if this shutdown goes on any longer, the effects are going to ripple through our economy and have some serious long term effects.
Today, we’re going to take a look at the side of the crisis you haven’t seen. And I’m going to run down some of the biggest consequences and misconceptions about the shutdown.
A Closed Government Loses Money
You’d think a government shutdown would save a little money.
After all, if those idiots on the hill are spending all our hard-earned tax dollars then we must be saving at least some money.
Unfortunately, as with all things economic, it just ain’t that simple.
When the shutdown ends, those furloughed workers will get their paychecks.
And they should. These are honest folks who want to work. It’s our politician’s incompetence that is keeping them from work.
But of course, they didn’t do any actual work during this time. So essentially, the government is paying 380,000 people’s paychecks… for work they didn’t actually do.
Make no mistake, that’s money lost.
The last government shutdown. Obama’s 2013 government shutdown, which lasted 16 days, cost the country $2.5 billion in pay and benefits.
The Trouble With Contracts
Right now, the government is ducking a huge amount of grants, contracts, and other financial obligations.
The government is contractually obliged to pay all of these obligations when business returns to normal. And because of the Prompt Payment Act and the Cash Management Improvement Act, the government is legally required to pay interest of 3.625% on all of these missed payments.
That may not sound like a lot. But when you’re dealing in numbers as a large as government contractor’s do… it adds up.
Trees and Fees
The headlines which have touched on the shuttering of national parks have mostly been focused on the uncollected trash and overflowing toilets at Joshua Tree.
But there is a financial cost going unreported in the mainstream media. Closed parks and museums are losing out on uncollected parking and entrance fees.
During the 2013 shutdown, the Smithsonian reported a loss of about $4 million from its museums. While the parks service lost about $7 million in revenue.
Yes, you’ve undoubtedly heard that 800,000 federal workers have been impacted by the shutdown.
380,000 federal workers are furloughed — i.e. not reporting for work and not being paid. While a further 420,000 workers are working without pay.
But for many, today is the day when the real hardship begins. Today — what should be payday — is the first time workers will be missing a full paycheck.
As the crisis continues, the effect of 800,000 workers not receiving pay will have a ripple effect on the economy. Every unfulfilled paycheck is consumer spending power lost.
These folks aren’t eating at restaurants. They’re not buying clothes or groceries. Many are missing their rent and mortgage repayments (according to Zillow, federal workers owe a combined $249 million in monthly mortgage payments).
They sure as hell aren’t buying new cars or flashy iPhones.
And it’s not just localized to federal employees. U.S. farmers will be paralyzed without their federal loans and federal crop payments
And the longer this shut down goes on, the heavier the toll on the economy at large. There will be a ripple effect that spreads throughout the economy. To Wall Street and beyond. And could quickly devolve into a full-blown financial crisis.
I hope it doesn’t come to that. President Trump has raised the possibility of declaring a national emergency to fund the border wall. Which at this point may be the only way this stalemate is broken, as both parties refuse to make any concessions in the budget.
What about you? Have you been affected by the shutdown? If so, click here to email me and let me know.
All the best,
Editor, Money & Crisis
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