Briefing on government budget battle. Which govt’ ops cease in shutdown.

Stocks are trading in tight technical ranges, an ongoing theme this week week. The S&P 500 got as high as 1339 today but is now back to about 1332, and it hasn’t been able to close above this level since the February 18 high of 1343. And the last time the S&P was that high before February was June 19, 2008.

So if stocks can rise above this current 1332 level, we’d likely see a climb higher, which would result in a bond selloff that would also push rates higher. Rates rose yesterday as bonds sold off sharply (FNMA 30yr 4% -47 basis points) on inflationary concerns (China hiked rates again) and the trend continued this morning but as much (FNMA 4% -16bps). There’s no economic data today driving markets, and below are a few comments on the budget battle in Washington.

There are two issues in the budget battle: whether to fund the government for the next six months, and how to fundamentally reshape our government budget. The reason the short and long term battles are linked is because you can’t raise the short-term debt ceiling without cutting spending. So politicians use the short-term debt ceiling topic as a platform for presenting their long-term plans.

Politicians like to get creative with numbers, so it’s hard to know what to trust, but one of the more clear budget explanations comes today from money manger Barry Ritholtz, who used charts to show similarities and differences of democratic and GOP proposals.

Here’s which government operations will shut down if the short-term debate isn’t resolved, and the WSJ will update this list if necessary.

SOCIAL SECURITY: As an entitlement program funded through payroll taxes rather than annual spending bills, Social Security is likely to keep sending out checks, most analysts and government officials believe. But the White House has warned that a shutdown could affect new applicants.

MILITARY OPERATIONS: Pentagon Press Secretary Geoff Morrell said on Tuesday that Deputy Defense Secretary William Lynn III is preparing guidance for the military services and defense agencies in case of a shutdown. “I want to underscore that we would still have the authority and the ability to continue key national security activities, including the wars in Afghanistan and Iraq, operations in Libya, and humanitarian assistance in Japan, to name a few,” Mr. Morrell said at a Tuesday press conference. So far, though, Morrell said no decision has been made yet on how a shutdown would affect military pay.

POSTAL SERVICE: The U.S. Postal Service would see no interruption in service or shutdown of post offices, since it’s funded by customer payments.

AIR TRAFFIC: Air-traffic control continued without interruption in the prior shutdown. Transportation officials would not disclose contingency plans for a future shutdown. Passenger and baggage screening by the Transportation Security Administration would continue in a shutdown, an official said.

BORDER SECURITY: Border security is also listed in government documents as an exempted activity.

VISAS and PASSPORTS: Applications for U.S. passports and for visas to enter the U.S. went unprocessed in the 1995 shutdown, to the frustration of travelers, airlines and travel agents.

NATIONAL PARKS: These were closed during the 1995 shutdown, along with national monuments and museums.

FEDERAL RESERVE: The Federal Reserve, which does not rely on appropriations, would remain open with normal staffing.