Fox Business host Stuart Varney misleadingly downplayed the harm that a government shutdown would inflict on the U.S. economy by claiming Wall Street would be mostly unaffected and that it could help the housing market. In fact, a shutdown would harm the housing recovery and economists say it would slow economic growth.
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Varney: Shutdown "Is Not That Big A Deal For Wall Street," "Good News For The Housing Market"
Fox Business' Stuart Varney Claims Shutdown Would Help Housing Market, Downplays Harmful Effects To Economy. On Fox & Friends, Fox Business host Stuart Varney claimed that the threat of a government shutdown is "[g]ood news for the housing market," and downplayed the negative effect of a shutdown on the economy by claiming it was "not that big a deal for Wall Street":
BRIAN KILMEADE (co-host): I mean, we're still going to have some government services. We're still going to have the post office, we're still going to get Medicare, we're still going to get Social Security, if there is a shutdown. So what is Wall Street worried about?
VARNEY: Look, most people won't notice. If the government shuts down at midnight tonight, most people will not notice. National parks are closed. Eight hundred thousand federal workers furloughed, OK. Most people won't notice that. What Wall Street is worried about is a totally separate issue.
KILMEADE: Which is?
VARNEY: That comes up in the middle of October. That is the decision on whether or not we raise the debt ceiling. Can the government borrow any more money? This current fight is whether we can spend any more money. Two weeks later, it's can we borrow any more money. Now, that's a more serious fight. The one we're fighting right now is not that big a deal for Wall Street. Hold on a second, there are in fact a couple of positives out of the shutdown. Number one, interest rates are going down this morning. Good news for the housing market. You want to refi, you want a mortgage, that's good news. Oil prices are plummeting this morning. That's good news for gas prices down the road. So this is a mixed bag. Hundred points down for the Dow, but oil and interest rates down, and that's a positive. [Fox News, Fox & Friends, 9/30/13, emphasis added]
Shutdown Would Stop Some Home Loans, Harm Housing Recovery
AP: Federal Housing Administration "Wouldn't Underwrite or Approve Any New Loans During The Shutdown." A breakdown of the effects of a government shutdown by The Associated Press explained that the Federal Housing Administration (FHA) would stop approving loans during a shutdown:
Many low-to-moderate incomes borrowers and first-time homebuyers seeking government-backed mortgages could face delays during the shutdown. The Federal Housing Administration, which guarantees about 30 percent of home mortgages, wouldn't underwrite or approve any new loans during the shutdown. Action on government-backed loans to small businesses would be suspended. [The Associated Press, 9/28/13]
CNNMoney: Multiple Federal Agencies Would Stop Processing Home Loans. A CNNMoney article on the effect of a government shutdown on the housing recovery explained that "loans guaranteed by the Federal Housing Administration, the Veteran's Administration and the rural development loans of the United States Department of Agriculture, won't be processed":
The good news is that most government-backed home loans - those purchased and securitized by Fannie Mae and Freddie Mac - will be unaffected by a shutdown. Those companies pay for their operations out of the fees that they charge lenders.
The bad news is that loans guaranteed by the Federal Housing Administration, the Veteran's Administration and the rural development loans of the United States Department of Agriculture, won't be processed. If an application for an FHA-insured loan has not been approved by the time of the shutdown, it will have to wait until after the shutdown ends.
FHA-backed loans accounted for 45% of all mortgages used to purchase homes issued in 2012, according to the Federal Reserve. The FHA alone insures about 60,000 loans a month.
"FHA will be unable to endorse any single-family loans and FHA staff will be unavailable to underwrite and approve new loans," in the event of a shutdown, according to the contingency plan from the Department of Housing and Urban Development, the FHA's parent agency.
Many buyers have no alternative to FHA, VA or USDA mortgages. First-time buyers in particular often lack the cash for the large downpayments that other lenders require. FHA rules allow homebuyers to make a downpayment of as little as 3.5% of the selling price -- $7,000 on a $200,000 home. A 20% downpayment is normal, which would be $40,000 for that $200,000 purchase. [CNNMoney, 9/27/13]
Mortgage Bankers Association CEO: Shutdown "Could Have A Sizeable Impact" On Housing Recovery. From a September 27 CNNMoney article on how a shutdown could affect the housing recovery:
"The housing market is searching for recovery, and we've been seeing signs of optimism," said said [sic] David Stevens, CEO of the Mortgage Bankers Association. "This could have a sizable impact on the recovery."
A slowdown in home sales would be felt beyond the housing market. Homebuying triggers related economic activity. New homeowners have their homes painted, they buy furniture, install floors or carpeting and put in new decks and landscaping.
"All that would come to a stop," said Stevens.
And, if a shutdown drags on for more than a few days, "The impact on the housing market and the economy could be significant," he said. [CNNMoney, 9/27/13]
Economists Say A Shutdown Would Slow Economic Growth
Mark Zandi: A Short Shutdown Would Still Cut Growth By 0.2 Percentage Points. The New York Times cited Mark Zandi, the chief economist for Moody's Analytics, to explain how even a brief government shutdown would harm the economy:
Q. How would the American economy be affected?
A. According to Mark Zandi, the chief economist for Moody's Analytics, a partial shutdown would trim annual economic growth by 0.2 percentage points in the fourth quarter, even if it ended within four days. An impasse of a month could cut growth by 1.4 percentage points, about half of that from the lost pay of government workers. An interruption longer than two months, he said, "would likely precipitate another recession."
In the event that there is no shutdown, Mr. Zandi has projected fourth-quarter growth at an annualized rate of 2.5 percent, a relatively weak rate of recovery. [The New York Times, 9/29/13]
WSJ: "Even A Short Government Shutdown Would Harm The Economy." From a Wall Street Journal article on a possible government shutdown, headlined, "Washington's Budget Standoff Poses Threat To Recovery":
Even a short government shutdown would harm the economy. Economists at Morgan Stanley estimate that every week of a shutdown would shave 0.15 percentage point from the quarterly pace of gross domestic product. (GDP grew at an annualized 2.5% pace in the second quarter, according to the latest government estimate.) That doesn't account for indirect damage to markets or confidence.
The stock market's relative calm in recent weeks may be masking potential damage ahead. Investors, who tend to focus on shorter-term concerns, often don't react until the last minute. [The Wall Street Journal, 9/29/13]
Wash. Post: Shutdown Lasting More Than A Few Days "Would Affect The Economy In Numerous Ways." A Washington Post article on the effects of a government shutdown noted that cutting spending on contracts and salaries would likely lead to a "wide range of indirect" negative effects on the economy:
Much of the government will close Tuesday without action by Congress. If the shutdown lasts more than a few days, it would affect the economy in numerous ways, most clearly by cutting spending on contracts and salaries.
But there are likely to be a wide range of indirect effects as well, because government operations provide the launching point for key activities driving economic growth, according to independent economists.
For example, the closure of national parks and museums may hurt hotels, restaurants and the people who work for them. The process of getting approval for a home loan could take much more time, slowing a housing recovery that is one of the few bright spots in the economy.
Headlines about dysfunction in Washington could also sow consumer and business fears even in parts of the economy not directly affected by a shutdown, leading individuals and businesses to cut back on spending and investment.
Economists estimate that the cumulative effect of a prolonged shutdown could trim economic growth in the final three months of the year by up to 1.4 percentage points. Under that scenario, the economy would hardly expand at all -- at a time that is usually one of the most important economic periods of the year.
"That would mean a hit to employment and income as we approach the critical holiday season," economist Diane Swonk of Mesirow Financial wrote in a recent analysis. [The Washington Post, 9/29/13]
NYT's Krugman: Government Shutdown "Would Amount To A Further Economic Hit" To The Weak Economy. From Nobel Prize-winning economist Paul Krugman's New York Times column:
After the government shutdowns of 1995 and 1996 many observers concluded that such events, while clearly bad, aren't catastrophes: essential services continue, and the result is a major nuisance but no lasting harm. That's still partly true, but it's important to note that the Clinton-era shutdowns took place against the background of a booming economy. Today we have a weak economy, with falling government spending one main cause of that weakness. A shutdown would amount to a further economic hit, which could become a big deal if the shutdown went on for a long time. [The New York Times, 9/29/13]