The Most Important Thing Investors Should Remember During a Government Shutdown

It looks like the federal government will shut down tomorrow. And in another two weeks, the Treasury could run out of cash unless Congress raises the debt ceiling.

I dug through some newspapers to see what people are saying about this stuff. 

"Pressure grew on Republicans to accept an increase in the nation's debt ceiling yesterday when a major Wall Street rating firm threatened to downgrade U.S. government securities," read one article.

"We need to know what options are available to avoid default," remarked a worried congressman.

"The Treasury Department said it was [its] 'duty and intention to take all legal steps necessary to assure that the nation's financial obligations -- obligations already approved by Congress -- are honored,'" wrote The New York Times.

"Default would produce global economic and financial crisis of major proportions," warned the Treasury Secretary.

What's interesting about these quotes? They're all from 1995.

Yes, we've been here before. The government shut down in late 1995 and early 1996 for 28 days. President Clinton and then House speaker Newt Gingrich finally agreed on a budget deal, and life went on.

The 1995 shutdown can be seen as silly. Maybe offensive. But for investors, there's one thing it wasn't: meaningful.

The S&P 500 (SNPINDEX: ^GSPC  ) barely budged during the 1995 shutdown. More importantly, the shutdown didn't have a measurable impact on long-term businesses. If you're an investor, that's really all you should care about. 

As pundits talk about the looming damage of a government shutdown, keep this in mind: In the summer of 1995, Jeff Bezos sold his first book out of his garage for a fledgling start-up he called Amazon. If you ever get the chance, ask Bezos how much attention he was paying to the government shutdown in 1995. He'll laugh at you (loudly).

Also right in the middle of the 1995 government shutdown, two Stanford students named Larry Page and Sergey Brin met on campus. They started working on a search-engine technology called BackRub. It later became Google. Ask them how much they were paying attention to the government shutdown at the time.

If you're a government employee, a shutdown has a real impact on you and your family. But if you're an investor watching from the outside, this stuff should have virtually no impact on how you invest or think about the economy. 

Because I guarantee you this: Somewhere right now, there's a 19-year-old kid at Stanford or MIT, or in his parents' basement, tinkering with spare parts or designing a new technology. Ten years from now, that kid will be a billionaire who changed the world. There's also a pundit sitting in a studio forecasting doom. No one will remember what he said next week. 

You get to choose who you want to pay attention to. Choose carefully. 

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Read/Post Comments (24) | Recommend This Article (74)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 30, 2013, at 6:19 PM, neelvk wrote:

    Pretty pathetic article. GOP is trying to destroy the US and we should not be so complacent that we sit on the sidelines for the eventual end of the shutdown.

    In 1995, China was not #1 consumer of all commodities. India had barely awoken from its 40+ year stupor. Russia was a broken and broke has-been. Brazil was mired in a mess. For most poor yet educated people around the world, US was the only logical destination.

    Today, young people have tons of options. Lives are getting better all over the globe. And if we behave like a bunch of yahoos, why should they come here or bring their money here?

  • Report this Comment On September 30, 2013, at 7:03 PM, cmalek wrote:

    "If you're a government employee, a shutdown has a real impact on you and your family."

    The impact should start at the top and then go down, instead the other way around. Members of Congress, Cabinet members, the President and other senior government officials should be the first ones to have their paychecks stopped when something like this occurs. They continue not getting their checks until the budget mess is cleaned up. Guaranteed an agreement would be hammered out in a matter of a few days. Until those that caused the problem feel the pain they will continue to play their stupid games.

    There is an election coming up shortly. We could replace the current bunch of do-nothings in Congress but it won't happen because the sheeple will vote for their favorite incumbent come hell or high water.

  • Report this Comment On September 30, 2013, at 7:04 PM, JungleGent wrote:

    Wonderful post, Morgan. I agree 100% with you that this current "crisis" will resolve itself soon enough.

  • Report this Comment On September 30, 2013, at 9:22 PM, barrybwa wrote:

    Written like a fool a Pompous one !

  • Report this Comment On October 01, 2013, at 6:51 AM, sevenheart wrote:

    All this meaningless hullabaloo over the meaningless issue that our government will be spending money it doesn't have for the rest of the year. Will that be Mastercard, Visa or American Express?

  • Report this Comment On October 01, 2013, at 12:00 PM, alexf wrote:

    Great article Morgan! True - and sad - for the working families that will go without a paycheck, and the communities they support that will go with lowered sales. For the tourists that come to this great nation, to visit and spend money, and find National Parks, Monuments and museums closed.

    I have no sympathy for the congresscritters. they should all go unpaid for the duration.

    As for the previous poster, i assume he means which credit card is the government using. People do not seem to understand that this has nothing to do with credit or debt limit. This is a government shutdown due to political BS.

    If he meant - and confused this with - the debt ceiling issue, that is not the fault of the Treasury or the Executive branch but solely of Congress who creates a budget that is overblown (i.e. has a deficit) the moment it is created and then requests - by law - the Treasury to spend that money as budgeted and to borrow the difference, then it does not allow the Treasury to borrow what Congress requested because Congress instituted an artificial limit. Stupid? yes. Unnecessary and something we could do without? yes 9get rid of the artificial limit as most countries 9other than Denmark) already do.

    As for us investors, it is just a blip to be forgotten in the long-run.

  • Report this Comment On October 01, 2013, at 1:50 PM, SetMyPeopleFree wrote:

    Great article with advice borne out today; darn, didn't see it yesterday, so didn't sell my SP500 shorts and bot just a little stocks and options last 2 days. I was listening too much to Marxist CNBC commentators and guest screaming the sky is falling, though never mentioning the fact we OBVIOUSLY don't pay for our spending now as the deficit has nearly doubled in the last 5 years from what had accumulated over a 220+ year span, Now THERE"S something to scream about CNBC and some of the leftists fools (small f purposely) screaming the same here. Are you going to apologize to Morgan?

  • Report this Comment On October 01, 2013, at 2:27 PM, sevenheart wrote:

    Regarding the commenter of 12:00 pm

    I understand this is all about a continuing resolution, the result of the US Senate and President of the United States of America not passing or presenting an acceptable budget for 5 years. A budget, a real one not a government contrivance, would show insufficient anticipated income to pay anticipated expenses and in the world that doesn't "print" money and in the world of real consequences the end result would be a tidy little haircut of expenses or bankruptcy. Alas, only our government can exercise shrimp on a treadmill, clearly the private sector is incapable.

    Gosh, without the EPA in their offices, I hope it is as safe to breathe today as it was yesterday. Is the meat in my freezer safe without the presence of the USDA bureaucrats in their offices? Woe is us.

  • Report this Comment On October 01, 2013, at 2:40 PM, AkaThePerfessor wrote:

    The Republicans are NOT trying to destroy the U.S. They are only trying to destroy the U.S. government, democracy, the Democratic Party, all entitlements, and the future of the U.S. middle class.

    Okay, that might be about 99% of the U.S., but still, the U.S. will still be here, even if it soon resembles Somalia, Argentina or Vietnam.

  • Report this Comment On October 02, 2013, at 3:27 PM, Mathman6577 wrote:

    Good article. I've had enough of the doom and gloomers that have come out of the woodwork. I think the government has "shutdown" 17 times over the last 40 years.

    Hold for the long term. Ignore the short term chatter. You will be rewarded.

  • Report this Comment On October 04, 2013, at 2:01 AM, herky46q wrote:

    Like all the selective listening on which party is to blame.

  • Report this Comment On October 04, 2013, at 11:43 AM, WAP0324 wrote:

    The analogy with 1995/96 is true. However, if this shutdown drags on and becomes an integral part of the debt ceiling debate, it could last much longer and the impact on the economy, stocks included, could be significantly much more detrimental.

  • Report this Comment On October 04, 2013, at 12:03 PM, richak28 wrote:

    Just like fools always do, jibber jabber about what they are completely ignorant of !!!

  • Report this Comment On October 04, 2013, at 12:27 PM, MariaFolsom wrote:

    You are absolutely right, Mr. Housel! Thank you for a fine explanation. AND - - I am a government employee who is not getting paid, and I still agree with you.

  • Report this Comment On October 04, 2013, at 2:03 PM, noredzone wrote:

    <i>Because I guarantee you this: Somewhere right now, there's a 19-year-old kid at Stanford or MIT, or in his parents' basement, tinkering with spare parts or designing a new technology. Ten years from now, that kid will be a billionaire who changed the world. There's also a pundit sitting in a studio forecasting doom. No one will remember what he said next week. <i/>

    Morgan,

    Thank you for the excellent article. I have been investing for over forty years, and until I affiliated with the Fools in 2009 I was floundering. RB, MFOptions, and SA literally changed my life. Your comment quoted above summarizes my approach to investing now and for the rest of my life. Too long I paid attention to "noise." Now I buy companies, not stocks, and I now pay no heed to doomsaying pundits.

  • Report this Comment On October 06, 2013, at 5:50 PM, VictorErimita wrote:

    There is another thing in common between the current budget hullabaloo and the one in 1995. That the media and other partisans are solely laming Republicans. Republicans spent too much in the Bush years, but the Democrats make them look like pikers. Running up vast, impossibly unfulfillable promises and debts, and then blaming those trying to exercise at least a modicum of restraint is childish and reckless. In ten years when the U.S. government begins to default on its bonds, because annual trillion dollar deficits are unsustainable, will that be all the Republicans' fault too? Temember, that which cannot continue forever, won't. Reality is not partisan.

    I hope the author is right that some genius in a garage will save us from government perfidity. But hope is not a plan.

  • Report this Comment On October 07, 2013, at 11:02 AM, JuliaMan wrote:

    If you look at the history of government spending, the republicans when in power spend way more than the democrats. They shout that they are the savers but the facts show otherwise.

  • Report this Comment On October 08, 2013, at 4:18 PM, karmmunist wrote:

    This article, and most of the comments on it, display something that's been obvious for quite some time to people who are paying attention:

    Businesspeople, investors, middle managers, executives... they all know how to make money. Some of them know how to run a business, and some of them know how the stock market works like the backs of their hands. But they know nothing whatever about macroeconomics. And, because they believe that macroeconomics is exactly the same as running a business, and therefore that they know EVERYTHING about it, and because our society is conditioned to believe that businesspeople know EVERYTHING, they are incredibly dangerous.

    I'm not worried about people's fragile egos, though. I'm sure that, should we breach the debt ceiling and the giant catastrophic clusterfork actually happen, you all will be able to find some way to explain how you weren't wrong. Because that, alas, is the most useful possible skill for businesspeople and investment professionals alike.

  • Report this Comment On October 08, 2013, at 10:33 PM, achandler wrote:

    Wow! Not to worry we have shutdown 17 times? That is the analysis? How many times has the U.S. defaulted on it's debt obligations? Let's see uuhhmmmm... never. Anyone know what will happen then?

  • Report this Comment On October 09, 2013, at 1:41 PM, AltReality11 wrote:

    The fact is, worrying is not dealing with anything.

    What I think we tend to forget is things happen. Worrying does not improve the outcome.

    On Dec. 4, 2006 Time magazine had a cover with this bolded title "Why We Worry About the Wrong Things" by Jeffrey Kluger. The subtitle was "The Psychology of Risk." I saved the issue and I have kept it at arm's reach ever since. It's worth a read.

  • Report this Comment On October 11, 2013, at 10:37 AM, Johny205 wrote:

    I have a friend who was bow hunting for deer on federal public land and got a $175 fine from the DNR, because you are not allowed on federal land during a shut down. What a load of crap! This is raw land, for hunting. low and behold the DNR are still working and probably staking out the public land waiting to write tickets out to people who have no idea they are doing something wrong!

  • Report this Comment On October 11, 2013, at 11:40 AM, nikita02445 wrote:

    Shutdown and default are 2 entirely different things I

  • Report this Comment On October 13, 2013, at 6:58 AM, skypilot2005 wrote:

    Great article Morgan. Thanks.

    I'd like to point out that there is enough tax revenue coming in each month to pay the interest on the debt.

    Draw your own conclusions regarding the White House leveraging this situation and the way most of the media is reporting it.

  • Report this Comment On October 13, 2013, at 7:26 AM, skypilot2005 wrote:
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