Washington DC

Notes on a Shutdown

By David Stockman  |  January 4, 2019

Now, this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning… We mean to hold our own.

– Prime Minister Winston Churchill, Remarks at The Lord Mayor’s Luncheon, Mansion House, November 10, 1942

The federal government is made up of about 3.5 million civilian and uniformed employees.

About 2.7 million work for the six parts of Leviathan that are already funded for fiscal 2019.

This includes the U.S. Departments of Defense, Veterans Affairs, Health and Human Services, and Education. The Bureau of Reclamation (think “pork barrel”) and, naturally, the legislative branch are also funded.

So, the maximum impact from the nine agencies going dark is 780,000 pay-rollers.

“SHUT IT DOWN” is the headline of the lead story in the January 2019 issue of The Stockman Letter, which we’ll publish this afternoon. We cover a lot of ground – including what it means for you and your money – so be sure to check it out.

Today, in this space, I’d like to start by sharing my most regrettable contribution to Leviathan… (It definitely relates…)

It was back in the early 1980s. I was fully engaged in Ronald Reagan’s battle to drain the swamp.

But I was persuaded to issue an official Office of Management and Budget circular that exempted certain critical employees from being furloughed in the event of a government shutdown.

It’s these types of “exigencies” that, over time, doomed Reagan’s revolution. Every little bit counts…

The idea of the thing, of course, was a “common sense” exemption for a small number of critical federal employees.

Here’s how the Associated Press framed it in a piece that ran as recently as December 18, 2018, in The Washington Post:

Under a precedent-setting memorandum by Reagan budget chief David Stockman, federal workers are exempted from furloughs if their jobs are national security-related or if they perform essential activities that “protect life and property.”

The air traffic control system, food inspection, Medicare, veteran’ health care and many other essential government programs would run as usual. The Federal Emergency Management Agency could continue to respond to disasters.

On the other hand, the Washington Monument and many other iconic park service attractions would close, as would museums along the National Mall.

Nearly four decades of definition-creep has turned virtually everything the federal government does into a matter of national security and/or protecting “life and property.”

So, what does get shut down are the Washington Monument and the Smithsonian Institution museums on the National Mall.

The level of “inconvenience” associated with government shutdowns these days ain’t all that much.

For example, 400,000 of the 780,000 employees impacted by the nine-agency shutdown are in the exempted categories – mostly “police state” and public safety stuff.

What’s left could hardly be considered “inconvenient” to the public. For example, 52,000 Internal Revenue Service employees get to stay home.

Likewise, 29,000 Forest Service employees get furloughed. But most of the public only pays attention to our national parks at times like these. And we haven’t been to the moon in nearly 50 years, so NASA’s 17,000 employees probably won’t get too far behind schedule.

The bottom line is it took the Donald putting his foot down for the feckless GOP to finally step back into its traditional role of standing athwart Big Government yelling, “Stop!”

And here’s where it gets really interesting…

Nancy Pelosi’s 22-ring circus of investigations is underway. Soon, it will hit close to home (i.e., tax returns). So, the Donald is going to get even more militant, even more erratic, and, well, even more disruptive.

The real showdown won’t come until spring. That’s when the current “debt ceiling holiday” expires and the U.S. Treasury runs out of cash.

It’ll make what’s shaping up as a prolonged and bitter battle over the Wall look like an episode of “Romper Room.”

It used to be an Inside the Beltway, establishment game: The duopoly played wink-wink games of rope-a-dope.

Backbench militants still fresh and naïve enough to think they’d been sent to Imperial Washington to “speak truth to power” and/or cauterize the hemorrhaging national debt were allowed to vent for a few days.

And, then, they’d get stabbed in the back by GOP leadership’s lifer’s brigade. Mitch McConnell, for example, has been suckling on the public teat for the past 56 years.

But, after the Battle of the Wall, now led by the Great Disruptor, all bets are off.

Flyover America is about to get the showdown it wants.

Down 600, Up 800

Desperate times call for… “common sense” measures.

These are desperate times… how else to explain 600- and 800-point swings for the Dow Jones Industrial Average on what seems a daily basis?

This is not “normal.”

Markets are corrupted by monetary central planning. They’re confused. And the road back is going to be treacherous.

We’re looking at a major re-pricing for all financial assets. And thousand-point intraday or day-to-day swings are part of that equation. Those can be frightening… for “buy and hold” investors.

I have a different approach, one that combines strategy and tactics into a plan flexible enough for you to survive and thrive amid the coming chaos. It’s called “The Stockman Model.”

All we’re after is a little stability, perhaps a chance to pocket a windfall when opportunity presents…

Sincerely,

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David Stockman

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR