The fix is merely short-term, but it is certainly welcome.

Provided by Marc Aarons @ Money Managers Inc.

At the eleventh hour, a default is averted. After weeks of contention, a bill to reopen the bulk of the federal government and raise the debt ceiling made its way to the White House late Wednesday. President Obama signed the bill into law shortly after midnight, and by the middle of Thursday’s trading day, both the S&P 500 and the Russell 2000 had reached all-time highs.^1,2

In a sense, Congress merely kicked the can down the road. Capitol Hill lawmakers passed a stopgap deal to fund the federal government through January 15 and extend America’s borrowing authority through February 7. A bipartisan negotiating committee will face a December 13 deadline to create a federal spending and tax blueprint for the next ten years.¹

Asked Wednesday night if another shutdown would occur in the coming months, President Obama emphatically told a reporter: “No.” On October 17, Senate Minority Leader Mitch McConnell (R-KY) told the conservative National Review that “a government shutdown is off the table” this winter.^1,3

The deal resulted in just one alteration to health care reforms. The Affordable Care Act emerged from this battle relatively unscathed. People who receive federal subsidies for their health insurance under the ACA will face a new income verification test, but the subsidies will remain in place. House Republicans had demanded a 2-year delay for the 2.3% tax on medical devices stemming from the ACA, but that effort was set aside Tuesday. Congressional Democrats had argued for a 1-year delay in the $63 per-person “reinsurance” fee slated to hit group health plans in 2014; they didn’t get it.^4,5,6

Retroactive pay is coming for furloughed federal workers. All federal employees sent home as a result of the shutdown are slated to receive delayed salary payments “as soon as practicable.”⁷

The budget cuts passed into law in 2011 remain in place. The $1.2 trillion in automatic federal spending cuts scheduled through 2021 will still be carried out, as mandated by the Budget Control Act of 2011 that brought an end to that summer’s debt ceiling fight. The 2013 sequester cuts represented the first step in this reduction of federal spending.^4,8

A short-term fix is better than none at all. You could argue that this deal simply postpones a solution in favor of a short-term truce on Capitol Hill. Even so, it beats the potentially catastrophic alternative of a U.S. default. Wall Street will now wait to see if Congress can provide a gift for the holidays – a larger-scale solution to trim future deficits.

Marc Aarons may be reached at 714-887-8000 or marc@ocmoneymanagers.com.

www.ocmoneymanagers.com

Citations.

1 – chicagotribune.com/news/chi-government-shutdown-20131017,0,1184326.story [10/17/13]

2 – tinyurl.com/ljh5xhl [10/17/13]

3 – blogs.marketwatch.com/capitolreport/2013/10/17/mitch-mcconnell-says-another-shutdown-is-off-the-table/ [10/17/13]

4 – tinyurl.com/m94pmd5 [10/16/13]

5 – tinyurl.com/lsp6gkg [10/16/13]

6 – washingtonpost.com/blogs/wonkblog/wp/2013/10/15/delaying-obamacares-reinsurance-fee-would-be-a-win-for-insurers/ [10/15/13]

7 – foxnews.com/politics/2013/10/16/senate-budget-deal-provides-back-pay-for-furloughed-federal-workers/ [10/16/13]

8 – washingtonpost.com/blogs/wonkblog/wp/2012/09/14/the-sequester-explained/ [9/14/13]

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