WASHINGTON, DC-For those of you who don't have the stomach tofollow the political minutia behind the recent news coming out ofofficial Washington, this is your lucky day—we have been doing itfor you. Today, the US government partially shut down. Mosteverybody knows why: Republicans in the House of Representativesare insisting on a measure that will delay or defund ObamaCare inexchange for funding government operations. How long this impassewill last is anyone's guess, but the ramifications could besignificant. Following are some FAQs about the shutdown and how itmay impact the commercial real estate industry.

|

How many government employees have been thrown out ofwork? Numbers vary from between 800,000 to onemillion.

|

Will they recoup their lost pay? They did inthe last shutdown but there is no guarantee that will happen thistime. Indeed, pundits have noted that many politicians now are farmore hostile to government workers and unlikely to feel they shouldbe paid for work they didn't do.

|

And that matters to the commercial real estate sectorbecause…? Depending on how long the shutdown lasts, itwill have some impact on local economies. Washington, DC, ofcourse, will feel the strongest impact but there are somecities and states where the impact could be surprisingly severe as well. A protracted shut downwould worry consumers, tank the markets and more than likely causebusinesses to scale back capital equipment spending. It is alsoimportant to note that federal employees will not be available forimportant – but not critical – tasks. The CRE industry will noticethat too.

|

Such as? Well, there is some doubt aboutwhether the September job numbers will be released on time thisFriday. Websites with important data, such as Census.gov, are goingdark or the equivalent thereof. The Census site is currentlyshowing a warning that "due to the lapse in government funding,census.gov sites, services, and all online survey collectionrequests will be unavailable until further notice."

|

Is that all? No, but the cynically-minded mightnot be so dismayed by other closings. The Internal Revenue Servicewill cease audits and examinations (filing deadlines remain inplace). The Securities and Exchange Commission will not open newinquiries and will hold off on litigation as much as possible.(Filings, though, will continue as always).

|

What comes next? Who knows? This is a clashover policy and each side is equally determined it is correct.

|

You don't seem too worried about the shutdown.As a Washingtonian and U.S. citizen I am mortified by it and ifthis were the only item on the menu I would be worried todistraction over it: without a doubt, an extended shutdown has thepotential to unwind our slow but still forward-moving recovery. Butthe coming clash over the debt ceiling is what really frightens me.On or about Oct. 17, the US will start to default on its debtunless Congress agrees to raise the debt ceiling.

|

How does the shutdown play into this? They aretwo separate issues, but there is a theory that the shutdown maydiffuse passions in the House of Representatives and make them moreamendable to a deal to raise the debt ceiling.

|

Or? Or it could harden their resolve,especially if the shutdown ends without many or any of Republicansdemands met. In that case if neither side blinks there is a goodchance the US could technically default.

|

And then what happens? Economists saya default will make the Lehman Bros. collapse looklike a walk in the park.

|

I am a real estate guy not a constitutional attorney, sorefresh my memory – what other options are out there?President Obama could invoke the 14th Amendment and raise the debtceiling himself. That will surely be litigated all the way to theSupreme Court, but it is also questionable whether it will sootheUS and world markets anyway. Investors will not likely want to buyany of that debt if there is a question mark attached to it.

|

Maybe Obama will blink over the debt ceilinginstead? Maybe, but it is highly unlikely. It would be theend of his political career; also, it would make him look weakabroad as he deals with various crises and issues. He can't affordthat.

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Erika Morphy

Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.