Threat of shutdown hits shares

Threat of shutdown triggered a fall in Dow Jones shares as the midnight deadline to resolve the deadlock looms closer and closer.

Soon after opening, the Down Jones and S&P both fell by about 1%, and then recovered.

According to the Wall St. Journal, “The Dow Jones Industrial Average dropped 132 points, or 0.9%, to 15125 in afternoon trading. On Friday, the Dow fell 70 points, or 0.5%, to cap its first weekly loss in a month.”

Markets around the world shudder as the deadlock among US lawmakers remains unchanged, like an unstoppable force meeting an immovable object.

European markets, worried by both the Italian political crisis and the American inability to come to an agreement, all saw falls in their stock markets:

  • UK’s FTSE 100 fell 0.77%
  • Germany’s Dax fell 0.77%
  • France’s Cac 40 fell 1.03%
  • BBC Global 30 was down 1.14%

Threat of shutdown – what is it? Put simply, midnight tonight is the end of the financial year in the United States. Lawmakers have to agree on a new spending bill before twelve o’clock. If they do not, government employees have to stop work in their hundreds of thousands.

Unfortunately, negotiations are deadlocked. If there is a government shutdown, approximately 700,000 employees – one third of its 2.1 million workers – will probably have to stop work, without any clear guarantee that when the deadlock is over, that that they will receive any back pay.

National parks would close down, as would the Smithsonian Institution, including its National Zoo and 19 museums and galleries.

Veterans and other seniors would experience serious delays in receiving they checks. Passport applications and visa requests would virtually grind to a halt.

Essential services would continue.

Many civil servants who prepare and issue economic reports on the country’s performance, including unemployment and non-farm payrolls would stop working. Reports which investors keenly read would not be available.

Erica Groshen, Commissioner of the Bureau of Labor Statistics, wrote in a memo in the department’s website “All survey and other program operations will cease and the public website will not be updated.”.

The U.S. Senate, which has a Democratic majority, rejected a budget bill (54 to 46) today that the Republican-led House of Representative had passed to prevent a government shutdown. The bill wanted President Obama’s health care law (Obamacare) to be delayed by one year.

The Commerce Department’s reports on construction and factory orders, which are due out on Tuesday and Thursday this week, could be delayed. Sara Horowitz, spokeswoman for the Department, said that in the event of a shutdown economic indicators would not be released.

Even though stocks have fallen amid fiscal uncertainties recently, the S&P is still 4% higher than it was at the beginning of this quarter, and nearly 18% higher than at the beginning of the year. The Dow is up 15% for the year.