“Give me liberty or give me death!”
– Patrick Henry
Shutdown Season
The clock is ticking. Congress has until the end of the month to avert a partial government shutdown. Federal agencies, and their dependent employees, are counting on a last-minute deal to keep the money flowing to their coffers.
Certainly, there have been government shutdowns in the past. In fact, since 1976 there have been 20 of them. Typically, they just last for a day or two. But the most recent partial government shutdown, which took place during President Trump’s 1st term – between December 22, 2018, and January 25, 2019 – lasted for 35 days.
Government shutdowns, without question, can be highly disruptive. This is especially true in America in the year 2025 where a good part of the population is dependent on Washington in some form or another. Federal employees, contractors, businesses and individuals who rely on government services will quickly feel the pinch as federal dollars disappear.
When it comes down to it, a government shutdown is a failure to pass a budget. Congress, having power of the purse is supposed to pass appropriations bills to fund federal agencies and programs. When the fiscal year ends on September 30th, if these bills haven’t been passed and signed into law by the President, government funding runs out.
When this happens, federal agencies must stop all non-essential activities. This is a partial government shutdown, where all government services that aren’t considered critical to public safety and national security are stopped.
This all comes back to politics. Republicans hold a 219-212 majority in the House of Representatives and a 53-47 edge in the Senate. The chamber’s rules require 60 votes to pass most bills. Thus, support from seven Democrats will be needed to pass a funding bill.
By Golly
Senators and Representatives are politicking. They want to shape the narrative so when there’s a shutdown the other party can be blamed.
This week, for example, Senate Minority Leader Chuck Schumer wrote a letter to colleagues stating that, “The only way to avoid a shutdown is to work in a bipartisan way, with a bill that can get both Republican and Democratic votes in the Senate.”
Schumer, of course, doesn’t want to avoid a shutdown. He wants to use the prospect of a shutdown to help the Democrats politically.
One of the primary issues, as far as we can tell, is healthcare coverage. The One Big Beautiful Bill Act, signed into law on July 4, 2025, included cuts to Medicaid and Medicare. These cuts were needed to fund President Trump’s tax cuts.
The Congressional Budget Office estimates these reductions could result in millions of Americans losing their health insurance coverage over the next decade. Democrats are looking to use the funding deadline to get their way. Senator Elizabeth Warren recently explained the strategery:
“In September the Republicans are going to need to get a budget through to keep the government open and to do that they are going to need some Democratic votes. You want my vote – and I hope the votes of the rest of these Democrats – then by golly, you can restore healthcare for 10 million Americans!”
The forthcoming budget impasse is a high-stakes gamble. Many lowly federal workers will be sacrificial pawns in the game. Whether a federal employee is furloughed or not comes down to whether they are essential or non-essential.
Ripple Effects
Essential employees are those whose jobs are deemed necessary to protect life and property. Military personnel, federal law enforcement officers, air traffic controllers, certain medical professionals, and the like. They continue to work, often without pay, until a funding bill is passed.
Non-essential employees are workers who are furloughed or placed on mandatory unpaid leave. These are employees of useless administrative agencies like the Bureau of Land Management, the National Park Service, and countless others. They are not allowed to work. Federal contractors may also have their contracts suspended.
Still, a government shutdown is more than just political fisticuffs by Washington bogtrotters. There are real, tangible effects on the lives of millions of Americans. When hundreds of thousands of federal employees are unable to spend their paychecks, it creates a ripple effect on local economies.
Small businesses that rely on federal workers to consume their products or services struggle. Cafés next to federal buildings find their customers have disappeared from one day to the next. Delays in processing federal development permits can stall business expansion and investment. Data center projects on federal land, which are needed to support the burgeoning AI revolution, are put on ice.
So too, the shutdown of non-essential services can affect a wide range of public programs. This means delays in processing applications for Social Security benefits or veterans’ claims. National parks and museums may close, impacting tourism and local businesses.
A shutdown also has political ramifications. The party perceived as being responsible for the shutdown may suffer during the next election. And when the shutdown ends, there’s a ramp up period while things return to normal.
How a Government Shutdown Can Restore American Independence
A government shutdown can also impact financial markets. While the political drama unfolds in Washington, traders, investors, and analysts closely watch for signs of market instability.
Typically, stock market investors consider a government shutdown to be short term noise. Unlike a debt-ceiling standoff, which threatens the government’s ability to pay its bills, a shutdown does not directly impact the Treasury’s ability to service its debt. This is why the stock market doesn’t usually panic.
The S&P 500 has generally been flat during past shutdowns. The average return of the S&P 500 during the 20 government shutdowns that have occurred since 1976 is 0.04 percent. Moreover, during the 35-day government shutdown in 2018-19, where approximately 800,000 federal workers were furloughed or required to work without pay, the S&P 500 rose 10.3 percent.
That doesn’t mean there won’t be a panic this time around. Stocks, at this very moment, are riskier than they’ve ever been. They’re even more risky than they were on March 10, 2000, at the peak of the dot com mania. If you recall, over the following 30-months the NASDAQ crashed 78 percent. The S&P 500 also lost nearly 50 percent over this time.
The stock market, right now, is a bubble searching for a pin. The prospect of a government shutdown may deliver just the prick that’s needed to let out all the frenzied gas that has built up over the last decade. A bear market is long overdue. Now is as good a time as any to get on with it.
Likewise, here at the Economic Prism we believe a government shutdown’s precisely what’s needed for the health and wellness of all Americans. Quite frankly, there’s no reason such a massive cross section of the economy should have ever been made dependent on the government to start with.
In truth, the U.S. government is beyond broke. Without money printing and inflation, it cannot meet the obligations it has committed to. A shutdown – a lengthy one – may just be what is needed to shrink the size of government and restore some independence back to the American people.
But let’s not kid ourselves. Americans, circa 2025, prefer comfort and safety to liberty and independence.
In standard fashion, the political hacks in Congress will come to an agreement at the 11th hour. Some sort of continuing resolution to keep the lights on will be reached…
…and America will continue down the ugly road towards the complete overturning of society. We anticipate the crisis moment will be triggered sometime before the next presidential election.
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Sincerely,
MN Gordon
for Economic Prism
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