
As the United States endures the longest shutdown in its history as Americans are getting a taste of life without government. The absence of some services are clearly visible, such as a buildup of trash at national parks or longer lines at airport security checkpoints. Others, like those felt primarily by businesses, are less noticeable but arguably more important, such as an inability to get a small business loanor limited service from the IRS, Securities and Exchange Commission and other key agencies. Collectively they show that government matters. But once the shutdown ends and the memories of the pain and discomfort it caused begin to fade, the visceral reminder Americans got of this message may fade with it.
In its fifth week, the partial government shutdown is inflicting far greater damage on the US economy than previously estimated, the White House acknowledges, as President Donald Trump’s economists doubled projections of how much economic growth is being lost each week the standoff with Democrats continues. The revised estimates from the Council of Economic Advisers show that the shutdown, is beginning to have real economic consequences. The analysis, and other projections from outside the White House, suggests that the shutdown has already weighed significantly on growth and could ultimately push the US economy into a contraction.
Similarly, Gold held steady, supported by a softer dollar due to concerns the prolonged US government shutdown will limit economic growth even as concerns of slowing global growth grew. Spot gold was mostly steady at $1,281.54 per ounce, as of 0717 GMT, while US gold futures were down 0.2 percent at $1,281 per ounce. Rising economic and geopolitical uncertainties, a more dovish Federal Reserve and waning US dollar strength continue to underpin gold prices.
However, the recent rebound in equity markets limits further upside. The US dollar index, which measures the greenback against a basket of six major currencies, was hamstrung versus its rivals. However, Asian shares rose on Thursday after Wall Street managed to end higher. The issue for gold is (that) there is a very heavy resistance seen around $1,290 and $1,310. A further weakening of the US dollar could be supportive. But we need something to really push gold through the resistance level.
Moreover, the US President Donald Trump said that the United States was doing well in trade talks with China, saying at a White House event that China very much wants to make a deal. A prolonged US government shutdown, however, reminded investors of risks to growth to the economy. Meanwhile, investor focus turned to the European Central Bank (ECB), which is widely expected to keep its monetary policy unchanged at its first policy meeting of 2019.Market watchers also expect ECB to acknowledge growing threats to the euro zone economy.
Technically, spot gold may retest a support at $1,278 per ounce, a break below which could cause a loss to the next support at $1,266, according to Reuters analyst Wang Tao. Among other metals, palladium, which hit a record high of $1,434.50 an ounce last week on low inventories and rising demand, was steady at $1,346 an ounce. Silver was down 0.3 percent $15.33 an ounce, while platinum rose 0.3 percent to $796.
Till now, the partial shutdown, has left about 800,000 government employees either furloughed or working without pay, affecting more than 10 agencies. This has resulted in the slowing or halting of a great deal of activity, including food safety inspections, initial public offerings on the stock market and the approval of new craft beers. And these costs are felt by citizens as the risks grow to their food, the environment and other things. Economists warn that long-term impacts could also undermine confidence as businesses, consumers and investors lose faith in political leaders’ ability to make constructive policies.
The White House’s own economists estimate that every week of shutdown reduces growth by 0.13 percentage point, meaning the economy has already taken a hit of half a percent. If it goes for another week, total costs could exceed $6 billion, which is more than what the president is demanding for his border wall. And yet Americans won’t even know the actual impact because many of the government workers whose job it is to collect and measure economic activity have been sent home. While the shutdown crystallizes what the absence of government feels like, the debate over its proper role in business is as old as the American Republic.
For example, Alexander Hamilton, the nation’s first Treasury secretary, wrote eloquently about the need for the government to get involved in markets, specifically through the establishment of a national bank. He called it a key public institution that “facilitates and extends the operations of commerce among individuals. Industry is increased, commodities are multiplied, agriculture and manufacturers flourish: and herein consists the true wealth and prosperity of a state. Beyond a central bank, public goods often require the protection of a set of laws. Examples include the environment, national defense, national parks, consumer protection and advanced research that helps seed inventions and create the industries of our future.
In his book The Fifth Risk, author Michael Lewis, details many of the important yet little-noticed functions that government agencies handle better than private industry, such as the protection of food safety or the oversight of spent nuclear resources. Further, he shows how a functioning economy depends on civil servants using the best data and science available to provide vital services to all Americans. To offer just one example of the federal government’s positive role in fostering innovation, its creation of the Defense Advanced Research Projects Agency in 1957 gave us the internet, GPS, stealth aircraft and countless other technologies used in non-defense sectors today.
On the flip side, the absence of proper regulation can lead to serious economic and personal damage, as we saw during the global financial crisis a decade ago. And only government – through regulatory agencies and smartly designed laws is in a position to prevent another crisis. Indeed, fears are growing that another one may be on the horizon as a result of Wall Street excesses or financial bubbles in housing or debt. The point is that in all these cases, the question is not about no government but about how much, what kind and which level (state or federal).
In a latest development, chairman of the White House Council of Economic Advisers Kevin Hassett has said that the economic growth in the United States would slow to as little 0 percent in the first quarter of 2019 if the partial shutdown of the federal government continues. If [the shutdown] extended for the whole quarter, and given the fact that the first quarter tends to be low, we could end up with a number close to zero, Hassett said in an interview with CNN.
Though Hassett conceded that the ongoing shutdown would likely take a toll on the US economy, he insisted that growth would return to normal levels once the government reopens.
Meanwhile, addressing the ongoing shutdown, Congressman Hakeem Jeffries said during a news conference on Capitol Hill that US President Donald Trump’s State of the Union address is unlikely to occur on the floor of the House of Representatives.
Unless the government is reopened, it is highly unlikely that the State of the Union is going to take place on the floor of the United States House of Representatives, Jeffries, who is the House Democratic Caucus chair, said. Trump’s State of the Union speech to Congress is tentatively planned for Tuesday. However, House of Representatives Speaker Nancy Pelosi has asked the president to postpone the address until the partial shutdown of the federal government ends.
On Tuesday, media reports suggested that Trump is preparing two State of the Union speeches for next week, one in case he delivers his address in Congress and another for delivery at a rally somewhere outside of Washington, DC. The US federal government has been partially shut down since December 22 as a result of a dispute over the wall between Trump and Congress. Trump has asked Congress to authorize $5.7 billion to build the wall, but Democrats have refused to meet the demand.
The data releases about the US government shutdown by the University of Michigan Index, the latest results point to a US economy dealing with multiple bearish factors. The University of Michigan Index is out. Due to the partial government shutdown, as widely expected, the last update is ugly. The consumer index fell to 90.7 in January versus 98.3 in December, well below the consensus of 96.8. The index was affected by a combination of negative factors: the shutdown, financial market turmoil, higher tariffs and the global economic slowdown. Despite this sharp drop, it remains at a very elevated level which is consistent with well-oriented spending growth in coming months. It is likely that the Conference Board Consumer confidence index that is expected to be released on January 29 will follow the same downward trend. Government shutdowns are rare. This one is unique because the US has never before experienced a shutdown under a unified government, a time when the White House and Congress are controlled by the same party. The policy consequences of this shutdown are likely to be minimal. And, the shutdown itself will also probably be short-lived. However, the political consequences and long-term optics may be significant and are more likely to negatively impact Republicans than Democrats. The top Democratic leaders in Congress issued a joint statement accusing Trump of plunging the country into chaos on Christmas Eve.
Democrats say the wall would be ineffective. The Trump administration signaled it would accept a package that included $2.5 billion in wall funding. Democrats argue that the administration only spent 6 percent of the $1.7 billion already allocated. They maintain that the wall is ineffective and wasteful. Even the conservative Heritage Foundation agrees. It says the money would be better spent on technology and agents to prevent illegal crossings. It advocates more enforcement to apprehend immigrants who overstay their visas.