This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

The Consequences of a Government Shutdown

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (TheStreet) -- The economic consequences of a government shutdown can't be calibrated on a spreadsheet with an economic model. It all depends on who wins public opinion -- congressional Republicans or the president and Democrats.

Federal spending is out of control. From 2007, the last full year before the financial crisis, to 2011, the second full year of economic recovery, spending has jumped $1.1 trillion, or 40%, when a $200 billion increase would have satisfied inflation.

For any other country, a deficit exceeding 10% of GDP would force austerity by sending interest rates on government bonds through the roof. Alas, the U.S. prints the world's currency -- the dollar -- so it can inflate its way to solvency, and the bond market is starting to take that bet.

Enter the Tea Party, that troublesome bunch of youngsters pushing elder Republicans to stand up for fiscal solvency, end the madness or halt funding for the government.

Closing federal offices for a few days won't have a great, lasting impact. When they reopen, checks will go out. What counts, though, is whether the newly elected conservative majority in the House of Representatives keeps its mandate as measured by the polls.

Through 2012, the projected cumulative deficit is $11 trillion, and House Republicans are crafting a plan to cut that figure by $4 or $6 trillion -- reports vary on the amount. The means are hardly attractive -- vouchers for poor folks to purchase health care and block grants to the states to replace and reduce much of federal Medicare spending. That would morph President Obama's vision of universal coverage into a victimization plan for the poor and even bigger budget crises for the states.

Americans pay too much for health care, spending 18% of GDP for less effective service than the Germans and Dutch receive spending only 12 percent. Instead of taking on higher U.S. drug prices, bloated health insurance and hospital administrative costs, and malpractice abuse, Republicans will tell the poor and the states to bargain with the big guys directly. Good luck with those ideas.

As for Social Security -- hush, Republicans have a secret plan! The GOP will save money, but so far it not revealed how. Private investment accounts, the favorite among free marketeers, would leave brokers smiling but the old poorer, judging by how most IRAs have faired since 2000.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,098.45 +18.88 0.11%
S&P 500 2,003.37 +6.63 0.33%
NASDAQ 4,580.2710 +22.5760 0.50%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs