Surprise Setback on Budget Bill Ripples Through Markets

Surprise Setback on Budget Bill Ripples Through Markets

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Not ready for summer to be over? Well, it seems, neither is Congress.

This week, the House revived the game of chicken they'd been playing a couple of months ago with the nation's finances. Back then, the political brinksmanship caused investors and even a credit rating agency to lose confidence in the government's ability to manage the nation's finances, though the politicians eventually resolved their differences with a deal on the debt ceiling.

The renewed political turmoil is again adding to investor worries.

The Skinny

On Wednesday, Democrats and Republicans teamed up (for completely different reasons) to defeat a stopgap spending bill, putting the government on the brink of a shutdown after September 30th. The impasse could hold up billions of dollars in relief for victims of a string of recent natural disasters. And it reveals, once again, the inability of the two parties to agree on spending cuts.

Just as they had in the summer, the political stalemate and its ramifications for U.S. debt stoked even more fear in the markets, which tumbled amid other bad economic news. (See our story on yesterday's stock market plunge and the Fed's economic stimulus plan.)

On Thursday, House Republicans scrambled to build support for a new bill ahead of a Congress's recess next week (and the possible shutdown next Friday).

Points of Contention

  • Democrats opposed the measure because they viewed the amount of disaster relief —$3.65 billion—to be too low, and they took issue with Republicans' insistence on offsetting some of the cost. As House Democratic leader Nancy Pelosi told The New York Times, “We never paid for tax cuts for the rich,” Ms. Pelosi said. “We never paid for the wars in Afghanistan and Iraq.”
  • For their part, Republicans opposed passing the bill because they believed it did not cut spending enough.
  • Republican Representative Robert B. Aderholt of Alabama told The New York Times, “While Congress has an undeniable obligation to thoroughly address our nation’s disaster relief needs, we can no longer afford to simply throw money at calamities and then ask the hard questions later.”

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What You Can Do

Don't drop your investments. Humans have the unfortunate tendency to buy when stocks cost a lot and sell when they aren't worth as much as they could be. Hold on to your sense of perspective and stay the course.

Do be just cautious enough that you're safe. In other words, don't freak out and pull all of your investments out of the market, but do make sure you have a solid emergency fund, a high-interest savings account with at least six to nine months of living expenses. If you're feeling nervous or have irregular income, consider making that ten to twelve months.

Don't expect investing to be a quick win. The point is to set yourself up for the future, so this episode of political infighting should not affect you (unless you plan to retire right away or otherwise need your investments tomorrow).

Do contact your Representative and Senator, urging them to work across party lines.


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