Business World Unafraid of 2014 U.S. Shutdown

Former Senator Judd Gregg says shutdown possible in 2015.

Former Sen. Judd Gregg, R-N.H., talks with reporters about the possibility of the use of reconciliation to pass health care reform legislation at the U.S. Capitol on March 11, 2010 in Washington, DC.
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Business analysts and financial advisors predict Congress will agree on a short-term measure to avoid another federal shutdown, but former Sen. Judd Gregg, R-N.H., says a government shutdown is possible in 2015.

President Barack Obama signed an agreement to return the government to work in October. The law funds the federal government in place of an annual budget through Jan. 15, and lifts the debt limit through Feb. 7. A congressional committee is working on a bipartisan budget plan with a target deadline of Dec. 13, but some members outside the committee are concerned whether it is realistic to expect a budget deal for the 2014 fiscal year to replace the billions in mandatory spending cuts known as sequestration.

The 16-day government shutdown in October may have eliminated the creation of 120,000 private-sector jobs, according to the Obama administration. Politicians are likely going to work hard to avoid the criticism another shutdown would bring from the business community - at least until after the 2014 election, says Gregg, who is now the CEO of the Securities Industry & Financial Markets Association trade group.

[READ: White House: Shutdown Cost 120,000 Jobs in October]

"I suspect any deal they will reach on the continuing resolution will carry them past the next election in November 2014," Gregg says. "By then there will be a new Congress, it may be made up differently and that will determine whether we have another continuing resolution fight."

The Financial Services Institute also published a poll on Thursday citing that 77 percent of financial advisors who responded to the survey believe that a short-term fix will be passed to avoid another shutdown early next year.

Spending on entitlement programs will likely not be resolved in a substantive way both because Obama is not involved enough in the deal making process and Republicans fear that appearing to cooperate too much would get "killed in the next election, " Gregg says.

"I don't think much is going to happen besides a modified punt," Gregg predicts.

The realistic worst case scenario for the budget debate is for Congress to extend the continuing resolution for a fiscal year, and allow some sequestration cuts to impact defense spending, says Paul Edelstein, director of financial economics at IHS Global insight market research firm. It is unlikely that sequestration could be postponed through a deal that could instead make cuts on agricultural or Medicare subsidies that would not limit benefits for retirees, Edelstein predicts.

[ALSO: Distorted Jobs Report Shows Unemployment Rate Up to 7.3 Percent]

"A shutdown is still a possibility in this environment," Edelstein says. "Every 15 or 20 years one or two of the parties has to learn not to shut down the government because of the political ramifications. I think that will last for a while."

The fight to postpone extending the debt ceiling could have risked a default on national debt, which would have endangered U.S. Treasury bonds as a cornerstone of the global economy, so Congress is "unlikely to do anything that foolish again," but the debt ceiling will likely remain a point of debate, Gregg says.

"The debt ceiling is and remains a legitimate pressure point for the discussion of fiscal policy, the deficit and the debt," Gregg explains. "Although it should always be extended, every time it comes into focus it highlights the underlying problem and how we should fix it."

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