What Goldman Sachs is saying about the US government shutdown and debt ceiling

Summary:

(1) ...the Treasury expects to exhaust its borrowing capacity by October 17. We expect the Treasury’s cash balance to be depleted no later than October 31 and possibly quite a bit sooner.

(2) After October 17, the Treasury can keep conducting auctions to roll over maturing securities, but it cannot increase outstanding debt.

(3) ...we do believe that the Treasury could ensure that enough cash was available to make interest payments on Treasury securities.

(4) ...fund redemptions might broadly increase due to end-investor concern, prompting liquidations of Treasuries by money market mutual funds.

(5) If the debt limit is not raised before the Treasury depletes its cash balance, it could force the Treasury to rapidly eliminate the budget deficit to stay under the debt ceiling. We estimate that the fiscal pullback would amount to 9% of GDP. If this were allowed to occur, it could lead to a rapid downturn in economic activity if not reversed quickly.

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