Goldman Sachs’ Alec Phillips nails it in a new note to clients today. You should want to see a government shutdown in Washington:
It would be a mistake to interpret a shutdown as implying a greater risk of a debt limit crisis, in our view. It would not be surprising to see a more negative market reaction to a shutdown than would be warranted by the modest macroeconomic effect it would have. We suspect that many market participants would interpret a shutdown as implying a greater risk of problems in raising the debt limit. This is not unreasonable, but we would see it differently. If a shutdown is avoided, it is likely to be because congressional Republicans have opted to wait and push for policy concessions on the debt limit instead. By contrast, if a shutdown occurs, we would be surprised if congressional Republicans would want to risk another difficult situation only a couple of weeks later. The upshot is that while a shutdown would be unnecessarily disruptive, it might actually ease passage of a debt limit increase.
Bottom line, as we argued earlier this week. A brief government shutdown is not that big of a deal. But a debt ceiling breach could be a catastrophe. A shutdown makes the latter less likely to happen. So pray for that.
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