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Do Government Shutdowns Lead to Recessions

Hello Friends,

Brian Wesbury, Chief Economist for First Trust, recently came out with an article looking at the relationship between government shutdowns and recessions. I must admit even I was a little surprised by his findings. Here are my key takeaways:

“History shows no relationship between federal shutdowns and the performance of the economy.

We had two shutdowns in late 1995 and early 1996, and saw no recession either time.  There was a shutdown in 2013, no recession.  There was a brief shutdown early in 2018, no recession.  The most recent shutdown was the longest, thirty-five days from December 2018 through January 2019.  You guessed it, no recession.  The last time a shutdown coincided with a recession was in October 1990.  That was only a four-day shutdown, but money was already tight and a recession was inevitable either way.

Here's another way to think about it: In the last forty years, the government has been shut for 91 days.  Among those days, the US was in recession for four days and not in recession for eighty-seven.  By contrast in the past forty years the US has been in recession about 8% of the time.  That means the economy was more likely to be growing when the federal government was shut than when it was open!

This doesn’t mean a recession can’t start in the fourth quarter.  But if we do get a recession it’ll be a coincidence, due to the lagged effects of the tighter monetary policy of the last year, not a shutdown itself.”

 I would urge you to please keep the above facts in mind as the rhetoric ratchets up from our politicians, and in all of financial journalism, on the catastrophic effects of a possible government shutdown. 

 It is political theater and as Warren Buffet says:

 "If you mix your politics with your investment decisions, you're making a big mistake". 

 As I have stated numerous times in these notes, the economy cannot be forecast and the market cannot be timed and besides, the two rarely move in tandem. We are long-term, multi-generational investors with beautifully crafted plans designed to meet our most cherished long-term goals and as long as those goals haven't changed, we best not alter our investment plan based on the current "noise". History shows that staying the course has always been the right decision in the long run. 

 I hope you’ve found this note informational and thought provoking. As always it is a pleasure and an honor to serve you. If you would like to discuss any of this information further, please give me a call. Have a great day and talk with you soon!

 Best Wishes and Regards,

 David R Henderson

P.S. We are never too busy to help your family and friends. If you know of someone who may not be getting the financial advice they deserve or who just wants an objective second opinion from someone they can trust, please feel free to pass on our information. It stands to reason that if we enjoy working with you, we’ll enjoy working with them too!

This is being provided for informational purposes only and should not be construed as a recommendation to buy or sell any specific securities. Past performance is no guarantee of future results, and all investing involves risk. Index returns shown are not reflective of actual performance nor reflect fees and expenses applicable to investing. One cannot invest directly in an index. The views expressed are those of David Henderson and do not necessarily reflect the views of Mutual Advisors, LLC, or any of its affiliates. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. DCH Wealth Management, nor any of its members, are tax accountants or legal attorneys, and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional. Investment advisory services offered through Mutual Advisors, LLC, DBA DCH Wealth Management, an SEC registered investment adviser. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies

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