On shutdown costs and the timing of a possible default

The furloughing of 800,000 Federal employees, as part of the government shutdown that began today, will reduce spending by roughly $155 million per day. Over a whole year, the cost would be equivalent to about 0.3% of GDP, which is manageable. If the current shutdown drags on, however, then once the debt ceiling limit begins to bite in the second half of this month, the economic and market impact would become much greater. In all likelihood, the Treasury would not have enough cash on hand to make a scheduled Social Security payment of nearly $25bn on 1st November. It would also be unable to meet a debt interest payment of roughly $30bn that will fall due on 15th November, potentially triggering a technical default.