From Real Time Economics:
A brief government shutdown is expected to have only a modest direct impact on the U.S. economy. The furloughs
are likely to knock 0.1 to 0.2 percentage point off the annualized rate
of fourth-quarter economic growth for each week that it lasts. (That
excludes any hit to the private sector and overall confidence.)
But the larger threat is the looming debt-ceiling deadline, which
the Treasury Department has set as Oct. 17. Without action by
lawmakers, the Congressional Budget Office says the government might not
be able to pay all of its bills by the end of the month. Economists and
analysts weigh in:
Inside the beltway this
may look like a “zero-sum game” where one party’s win is the other
party’s loss. However, outside the beltway, we believe this is very much
a negative-sum game: the odds of a major shock to the economy and a
full-blown correction to the stock market have risen. Ironically, we
think this also puts upside risk to the budget deficit – due to shutdown
costs and reduced revenues – and it does not slow implementation of the
Affordable Care Act . –Ethan Harris, Bank of America Merrill Lynch
Overall, we believe the market is too complacent
about the risks of a technical default. … The signs of more trouble
ahead are everywhere. The GOP caucuses in the House and Senate are in
complete disarray; no one is negotiating; Democrats are leaking private
email exchanges between top staffers in Boehner’s and Reid’s offices,
making any future negotiation even more difficult; and President Obama
and top administration officials are keeping their distance. It is still
not the base case, but the conditions are ripe for a debt ceiling
debacle. –Andy Laperriere and Roberto Perli, Cornerstone Macro LP
Although the shutdown has generated urgent headlines,
the economic impact may not be as dire as some predict, as long as it
is not a protracted stalemate. Spending should be restored
retroactively, and the markets are likely to be sanguine as they have
priced in, and almost expect, congressional dysfunction around these
matters. The shutdown may create volatility, but should not change
market direction. –Tim Hopper, TIAA-CREF
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