The US government shutdown shenanigans pose a threat that investors are missing

Mike Segar/Reuters

A man with a megaphone announces the closure of the Statue of Liberty, a U.S. National Park, due to the U.S. Government shutdown to tourists at the ferry dock to the Statue of Liberty in Battery Park in New York, October 1, 2013.

• Investors expect a fairly subdued short-run impact on markets and the economy from a possible US government shutdown, which now looks increasingly likely.
• The dysfunction of brinkmanship politics is further bruising America's already dented image as a global leader.
• Standard & Poor's estimates a government shutdown would cost $6.5 billion per week

The US economy will keep humming along at a decent but unspectacular pace regardless of the outcome of this week's widely-watched budget negotiations in Washington aimed at averting a government shutdown. But that doesn't mean the long-term effected in nil.

"These developments are more of a backburner risk hence market disruptions are limited," Brittany Baumann, macro strategist at TD Securities, told Business Insider. "We expect that Congress once again will kick the can and extend the deadline to February."

Still, the shenanigans, mirrored by the debt ceiling negotiations that cost the United States its AAA credit rating in 2011, are a reminder of a gradual corrosion of American institutions that were once trusted but are increasingly viewed with deep suspicion by the American public and the country's allies overseas.

That damage, while subtle, should be measured in the country's long-term global standing, not quarterly gross domestic product figures or immediate market reaction.

To put the issue in stark terms: the two major US political parties cannot agree to keep the government open over such basic things as immigration, health insurance for children and military spending. How can such a country be trusted with trade deals and military alliances?

The Senate needs 60 votes to keep the government running, and Democrats have opposed a move by Republicans to tie broader government funding to stipulations related to border security and the construction of a controversial border "wall."

Rising chances of a shutdown

The chances of a shutdown over the weekend appeared to rise after GOP Sen. Mike Rounds of South Dakota said he plans to vote against the short-term government funding bill put forward by Republicans. Making matters worse, Rand Paul, the influential Kentucky senator, added his own opposition to the mix.

Congress has until the end of Friday to pass a funding bill or the federal government will enter a partial shutdown, including the possible furlough of hundred of thousands of federal workers.

"While the consensus remains that Congress will pass another four-week continuing resolution in order to hammer out a comprehensive budget agreement, the risk of a government shutdown is not negligible," Deutsche Bank economists wrote in a research note.

A report from credit rating firm Standard and Poor's estimates a government shutdown would cost the economy around $6.5 billion a week.

"If a shutdown were to take place so far into the quarter, fourth-quarter GDP would not have time to bounce back, which could shake investors and consumers and, as a result, possibly snuff out any economic momentum," S&P said.

Gary Rose, who chairs Sacred Heart University's politics department in Fairfield, Connecticut, told Business Insider the absence of short-run market and economic effects should not cloud longer-term investors' perceptions of American dysfunction as a significant consideration.

He said the acrimony and infighting precedes Donald Trump's presidency but has intensified under the former reality TV star's brash, uncompromising demeanor.

"It is sending quite frankly very troubling signals to our allies and the world in general," he said. "The United States is supposed to be sort of the beacon of good government. These shutdowns show we are now entering this era of uncertainty instability it calls to question the nature of our own political system."