GOLDMAN: Here's What Happens When The Government Shutdown Meets The Debt Ceiling

ongoing government shutdownis only the appetizer to this fall’s real fight — the debt ceiling.

As the shutdown drags on, it seems increasingly likely that the two debates will become one.

Analysts have long warned that the debt ceiling has higher stakes than the shutdown. The latter may prove a drag on quarterly GDP, but the former could spell economic catastrophe if handled incorrectly.

The question now is: Will House Republicans be more willing to bend over the debt ceiling than the budget? Here’s Goldman Sachs’ Alec Phillips:

Our first reaction is that it is probably a negative compared to where things seemed to stand heading into the shutdown. At that point, it initially appeared that the duration would be reasonably short — perhaps a few days — and that this would allow Republicans to demonstrate their commitment to blocking implementation of Obamacare without risking major negative consequences.

If the two issues are combined, Phillips writes, the “consequences of a mistake are much higher.”

Though, Phillips believes congressional leaders will get their act together before letting the U.S. government default for the first time in history.

“The debt limit is the main risk and we remain confident that while congressional leaders have been unwilling to compromise on the less risky shutdown question, they will do what is necessary on the debt limit,” he writes. “In fact, it is our sense that part of the reason the shutdown has taken place is because congressional leaders knew a showdown would occur on one of the fiscal deadlines, and it was less risky to have a dispute on the spending bill than on the debt limit.”

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