The threat of a sudden, large reduction in government outlays comes as the world’s largest economy is struggling to gain momentum. Growth in the first two quarters of 2013 averaged 1.8 percent, lower than the 2.2 percent average pace since the recovery began in June 2009.
“A 4 percent shock in a 2 percent-growth economy is very much recessionary,” said Michael Hanson, senior U.S. economist at Bank of America Corp. in New York.
Forecast Reduced
Consultant IHS already has reduced its forecast for economic growth in the fourth quarter to 1.6 percent from 2.2 percent to reflect a partial government shutdown that began on Oct. 1 after Congress failed to authorize government spending for the new fiscal year, said Behravesh.
Crandall and Phillips calculate that the Treasury will, for about a week after its Oct. 17 deadline, have enough money to meet the government’s obligations. After that, it becomes increasingly dicey, they said.
A $6 billion interest payment is due on Oct. 31, the day Crandall reckons the government will run out of cash. Bills totaling about $67 billion are due the following day, for Social Security benefits for retirees, Medicare payments to hospitals and other health-care providers, and military pay and benefits.
Interest Payments
Behravesh and Phillips expect the Treasury to do everything it can to avoid a default. “We do believe that the Treasury could ensure that enough cash was available to make interest payments on Treasury securities,” Phillips and his fellow Goldman economist Kris Dawsey wrote in an Oct. 5 report.
Net interest payments amounted to an estimated $223 billion in the fiscal year that ended Sept. 30, or less than $1 billion per day, based on CBO figures.
Interest payments could be facilitated because they are made separately from other government disbursements through Fedwire -- the Federal Reserve’s electronic network that allows financial institutions to electronically transfer funds among themselves, Phillips said.