Here's What To Expect If Government Shuts Down After Dec 21 Deadline

Following Tuesday's contentious Oval Office shouting match between President Trump and Democratic leaders Nancy Pelosi and Chuck Schumer, it appears more and more likely that some agencies will be shut down after a December 21 deadline looks less and less likely to be met - which, according to Trump, must include $5 billion for his hallmark southern border wall. 

Senate Republicans are now looking for a "Christmas miracle" to avoid the shutdown. S&P 500 traders, however, don't seem too concerned about the prospect. During the January 2018 shutdown, the SPX Index rose 4 out of the first 5 trading days after it began. 

The Treasury-Bill market is already starting to kink around the shutdown, with the pre- and post-shutdown yield curve steepening dramatically...

Congress and Trump have already approved funding bills for three quarters of the $1.2 trillion operating budget for federal agencies - which leaves several other agencies in unfunded limbo.

Source: Congressional Budget Office

Notes: Based on House subcommittee allocations. Numbers reflect regular discretionary appropriations subject to spending caps and exclude overseas contingency operations funding. Via
 
Bloomberg

President Trump has vowed to block funding if Democrats don't allocate $5 billion to build his signature southern border wall, saying he would be "proud to shut down the government for border security." 

Among the agencies which would be affected by the partial shutdown are Homeland Security - although several of the agency's law enforcement components would continue to operate as usual as they are considered essential, according to Bloomberg

At the Department of Homeland Security, the overwhelming majority of border patrol, emergency management and immigration enforcement staff would be able to keep doing their jobs, though with their pay delayed.

At the Department of Housing and Human Development, on the other hand, 87 percent of the agency’s 7,800 employees would be sent home. The Treasury Department is among agencies that would furlough workers. Its biggest component is the Internal Revenue Service and most of its employees wouldn’t report to work because it’s not tax season. Environmental Protection Agency employees would also be furloughed. -Bloomberg

National parks would remain open, however park staff would be sent home.

The Securities and Exchange Commission (SEC) would be forced to halt new investigations unless they are needed "for the protection of property." 

The Defense Department, of course, is fully funded and would operate as usual. 

An estimated 400,000 federal employees would work without pay and 350,000 would be furloughed, according to a congressional Democratic aide. The essential employees who work during a shutdown are paid retroactively when the government reopens and payroll operations resume. After previous shutdowns, Congress also has passed legislation to retroactively pay furloughed workers. -Bloomberg

That said, it's possible that lawmakers could agree on another short-term funding bill that would last into January, or perhaps they would reach a deal that allows all sides to prevail.

Some Senate Democratic votes are needed to pass spending bills, even though Republicans hold a majority in the chamber. Because Trump has made shutdown threats in the past and backed down, Democrats say they have the upper hand.

Schumer and Pelosi said they made to two offers to Trump. Both would keep funding for border fencing -- not the concrete wall Trump wants -- at the current level of $1.375 billion. Trump has said he wants $5 billion to build a border wall. -Bloomberg

Both Pelosi and Schumer are under intense pressure from Congressional Democrats and their constituents within their districts. Pelosi in particular has an incentive to stand her ground; she'll need the support of House Democrats for her bid to return as speaker after Democrats assume control in January. 

Pelosi has warned that even a limited shutdown would hurt the economy - telling reporters following the shouting match: "The Trump shutdown is something that can be avoided, that the American people do not need at this time of economic uncertainty, people losing jobs, the market in a mood and the rest." 

The Food and Drug Administration (FDA), meanwhile, says that while its funding would expire, it would "continue all vital activities," though it would be forced to stop routine inspections of pharmaceutical and food plants. 

The State Department would continue to issue passports, unless the office they are operating out of is run by another agency subject to shutdown.