Government shutdown avertedAdvantageVoice® Blog—
Brian Jacobsen, Ph.D., CFA, CFP®, Chief Portfolio Strategist
The House and the Senate both passed a continuing resolution to fund federal programs and agencies until the end of the federal government’s fiscal year, September 30, 2013. This avoids a possibly annoying shutdown of nonessential programs and services of the federal government on March 27. The funding bill keeps the sequester (the $85 billion in spending cuts) in place. That doesn’t mean the sequester will fully go into effect—because it is phased in and the House and the Senate are still working on their budget proposals, which could undo the sequester. The House passed a budget, and the Senate is likely to pass one before both chambers go on a two-week spring break. But the two versions are vastly different. And the fact that each chamber passed a budget doesn’t mean the government will actually have a budget.
Here’s why: When the debt ceiling was raised in February with the “no budget, no pay act,” the House and the Senate were threatened with changes in the timing of congressional pay if they didn’t pass a budget. The legislation didn’t require that they pass the same budget, just a budget. Passing two different versions upholds the letter of the law, but it doesn’t actually do much to resolve the differences between the two parties on budgetary issues. But at least we won’t have to hear about threats of a government shutdown for a while. We will probably hear more about the debt ceiling, as it will likely need to be raised again this summer.
As important as budgetary issues are, they are somewhat of a sideshow right now to the more immediate concerns about the eurozone banking system. The Cyprus banks are going to stay closed until Tuesday, and if a deal isn’t struck on the bailout terms, the European Central Bank has threatened to stop providing emergency support on Monday. The Cypriot government needs to find 5.8 billion euros. The original proposal to tax depositors failed miserably—which is good because it was a miserable idea in my opinion. Now it looks like selling natural gas rights or selling the Cypriot banks will be the easiest paths forward. It will be interesting to see what happens to deposits at eurozone-wide banks as the weekend approaches. It was on a weekend that the proposal came out to tax depositors. Perhaps depositors will begin fearing the weekends, especially extended weekends.
The views expressed are as of 3-21-13 and are those of Chief Portfolio Strategist Brian Jacobsen, Ph.D., CFA, CFP®, and Wells Fargo Funds Management, LLC. The information and statistics in this report have been obtained from sources we believe to be reliable but are not guaranteed by us to be accurate or complete. Any and all earnings, projections, and estimates assume certain conditions and industry developments, which are subject to change. The opinions stated are those of the author and are not intended to be used as investment advice. The views and any forward-looking statements are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any mutual fund. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.