GM. This is Milk Road Macro, the newsletter that tracks markets tighter than Congress clings to a shutdown threat.
Here’s what we’ve got for you today:
- ✍️ Everything you need to know about the looming government shutdown.
- 🎙️ The Milk Road Macro Show: The Passive Bid Explained: How Markets Move Now w/ Michael Green.
- 🍪 Trump is hiking tariffs on South Korean goods.
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Prices as of 10:00 a.m. ET.
EVERYTHING YOU NEED TO KNOW ABOUT THE LOOMING GOVERNMENT SHUTDOWN
Another U.S. government shutdown?
Really?
Didn’t we just have one?
Yes, we did - the longest shutdown in history (43 days).
But another one might be looming.
Politicians are squabbling again - meaning a new spending bill could be in doubt.
And if the bill doesn’t get passed this week - it’s back to shutdown we go.
The previous shutdown in October and November last year caused widespread disruption, stalling asset markets.
So what’s going on?
And what does this mean for asset markets?
Let’s take a look…
What’s the latest?
A fatal shooting by ICE agents in Minnesota on Saturday quickly led to a Senate Democratic revolt against funding the Department of Homeland Security (DHS) without new safeguards.
Funding for several other agencies, including Defense, Health and Human Services, Labor, Treasury and Education, could become casualties of the dispute as a January 30 funding deadline nears.
Unless Democrats back down, averting at least a partial shutdown would be extremely difficult by the funding deadline on Saturday.
How likely is another shutdown?
According to speculators on Polymarket - very likely.
Odds of a shutdown were relatively low up until the Minneapolis shooting over the weekend.
Democrat anger following the incident saw odds of a shutdown surge from less than 10% to 80%.
What would happen during a shutdown?
There’s nuance here - and things depend on whether DHS funding can be decoupled from other funding before the deadline.
If it can be decoupled, a potential new shutdown will likely be much less disruptive overall because it may only include the DHS, with other funding likely to be passed.
If it can’t be decoupled, a potential new shutdown will likely be much more disruptive, and likely affect many other agencies.
This second scenario would have widespread negative effects.
“Non-essential” federal workers (hundreds of thousands of people) are likely to be furloughed (not working + not getting paid).
Contracts, grants, and new projects will pause, approvals will slow, and backlogs will build fast.
There would be potential delays at the Internal Revenue Service as tax season starts, and Small Business Administration loans would also be put on hold along with Pentagon contracts.
It would also likely delay next week’s unemployment report from the Bureau of Labor Statistics and leave other future government economic data releases in doubt.
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EVERYTHING YOU NEED TO KNOW ABOUT THE LOOMING GOVERNMENT SHUTDOWN (P2)
What does it all mean for asset markets?
There have been many government shutdowns over the years.
Traditionally, they only last for a few days - and have a minimal effect on asset markets.
While the base case is that a potential new shutdown should only last for a few days - we’ve just come out of the longest shutdown in history, so it’s possible we could see another prolonged one.
A government shutdown is a drag on the economy - and the longer it goes on, the more of a drag it becomes.
According to Goldman Sachs estimates prior to the previous shutdown, every week of a shutdown contributes to a temporary 15 basis point hit to GDP growth.
Constraining economic growth is no good for risk asset markets.
Around the time of the previous shutdown, the S&P 500 essentially traded sideways for two months, while bitcoin slipped lower.
While it’s debatable how much the previous shutdown directly affected asset markets, it obviously wouldn’t be ideal to be heading into another one so quickly.
U.S. economic growth momentum has only just started to recover from a slump in Q4 2025 - and is currently accelerating strongly.
If growth momentum rolls over again - this would be a bad sign.
The previous shutdown also had a big effect on dollar liquidity.
When the government is shut down, it spends less money, but takes in the same amount of money - so cash piles up in the Treasury General Account (the government’s bank account) at the Federal Reserve.
This is effectively a “liquidity drain” from markets and the economy, and can cause issues in the banking world.
In late October 2025, bank reserves fell too low.
On one day in late October, at least one financial entity was left with a “liquidity hole” and the Federal Reserve had to hand out $50bn in “emergency cash” to fill the gap.
Issues with liquidity can be a drag on risk asset markets like equities and crypto.
Bank reserves have since moved higher again - but if we see another prolonged shutdown, reserves may start to fall back towards danger levels.
Wrapping up
Things are still very much up in the air.
While a shutdown currently looks likely - the extent of any disruptive effects depends on what kind of shutdown we see.
If DHS funding can’t be decoupled from other funding - we’ll see a shutdown broadly similar to the previous shutdown (but probably not quite as disruptive).
The length of any potential new shutdown is also in question.
While it could be just a few days - it could also drag on… and on… and on… like the previous monster 43-day shutdown.
The current macro backdrop is improving - but continued shutdowns are not ideal and are a negative factor for risk assets on the margin.
That’s it for this edition - catch you in the next one.
THE PASSIVE BID, UNPACKED 📉
In today’s episode, we sat down with Mike Green, Chief Strategist at Simplify Asset Management, to talk about how the passive bid is reshaping markets and why so many families now live on a financial knife’s edge.
Here’s what you’ll hear:
- Why the official poverty line is outdated and how the real precarity line is now north of $140k for families.
- How benefit cliffs and the Valley of Death quietly punish rising incomes and suppress family formation.
- What the passive bid actually is and how index and ETF flows mechanically move markets.
- Why growing passive dominance could increase systemic risk and set the stage for sharp dislocations.
Tune in and see for yourself. 👇
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BITE-SIZED COOKIES FOR THE ROAD 🍪
The price of gold and silver continues to rip higher, with gold smashing through $5,000 an ounce. “Gold in the long term is a very good protection against debasement and a good way to maintain some purchasing power”, Vincent Mortier, Amundi’s chief investment officer, said.
President Trump revealed he’s boosting tariffs on goods from South Korea, accusing the country of “not living up to its deal” with the U.S.. Tariffs will jump back to 25%, from 15%.
Chipmaker Micron plans to build a $24B factory in Singapore as it races to boost output in the face of an acute global shortage of memory chips. The news comes amid an industry scramble to build out AI infrastructure.
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