Will the potential 2011 shutdown resemble the one in 1995?
STEVE CHIOTAKIS: Senate Majority Leader Harry Reid said this morning negotiators had agreed to $38 billion in cuts. But the two sides are reportedly still hung up on ideological differences such as funding for Planned Parenthood. The deadline for a deal is midnight tonight.
Jill Schlesinger is editor at large at CBS/MoneyWatch and she’s with us live from New York, as she is every Friday. Good morning Jill.
JILL SCHLESINGER: Good morning.
CHIOTAKIS: For now at least, I’m looking at the stock markets. They don’t seem to show any panic over a possible shutdown, haven’t really for the past few days. What’s going on there?
SCHLESINGER: I think investors have assumed that even if the government were to shutdown, it would only be temporary — maybe lasting until Tuesday or Wednesday of next week. And people may also be looking back at the 1995, 1996 shut down for some context and in that period, stocks actually continued to go up and in the six months following the shutdown the market was up 6 percent. Of course we were in the midst of a massive bull market then. This time, the economy’s far more fragile.
CHIOTAKIS: And in 1995 the shutdown lasted days and days and days, right? It wasn’t just a few days.
SCHLESINGER: Right, it was three weeks.
CHIOTAKIS: And here we are literally, hours away from the possibility of such a shutdown. How long would it take for investors to get worried?
SCHLESINGER: Well, I think again if we look back to that 1995, 1996 period, the economy did loose some steam temporarily. That was due a big drop off in government spending. But ultimately, we recovered pretty quickly and today if you think about it, most of the stimulus dollars have been spent already, and whatever the government was going to spend will occur eventually. So unless a shutdown were to drag on for many many weeks, with no hopes for compromise, I think there’s going to only be limited impact on corporate profits, that’s what drives this stock market. And frankly, right now, investors are far more concerned about the price of oil than a government shutdown.
CHIOTAKIS: All right Jill Schlesinger from CBS/MoneyWatch. Have a great weekend.
SCHLESINGER: You too.
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