Goldman Sachs economist, Jan Hatzius, has delivered a grim prediction - he believes there is a 90% chance of a government shutdown on October 1. According to Hatzius, this shutdown could last for up to two or three weeks as political positions become more deeply entrenched.

The impact of such a shutdown would not go unnoticed, as it is expected to put considerable political pressure on Congress. With the pay dates for active-duty military personnel falling on October 13 and November 1, the fallout from a potential deterioration in essential operations, such as airport security screenings and border patrol, cannot be ignored.

Despite the looming shutdown, the White House has stated that service members, including 1.3 million active-duty troops, will continue working without pay. However, hundreds of thousands of civilian Defense Department workers would be furloughed. Hatzius warns that the decision to make the military work without pay may not sit well with voters and could have negative consequences for the responsible political party.

As Congress races against the clock to find a solution, it remains to be seen whether they can avoid a government shutdown. But if Hatzius is right, it looks like they have an uphill battle ahead.

Impact of Government Shutdown on Air Travel

More than 13,000 air-traffic controllers and over 50,000 Transportation Security Administration officers and workers would be forced to work without pay during a government shutdown. This would also affect thousands of Federal Aviation Administration employees. In the previous shutdown, this situation resulted in a surge of absences and resignations, leading to travel delays and even the closure of airport terminals.

A Possible Solution: The "Discharge Petition"

According to economist Jan Hatzius, there is a way for Congress to end a shutdown. He suggests that if a majority of the House signs a "discharge petition," they can bypass the Speaker and bring a bill to a vote. However, Hatzius acknowledges that this process requires more time for maneuvering, which may not be feasible within the deadline before the shutdown commences. Nonetheless, he believes that once the shutdown begins and political pressure builds, a discharge petition could be utilized as a means to bring it to an end.

Estimated Economic Impact

Goldman Sachs estimates that if a shutdown were to occur, it would result in a deduction of 0.2 percentage points from the fourth-quarter gross domestic product (GDP) for each week it continues. This estimation is contingent on the duration of the shutdown. The same impact is expected in the first quarter of 2024 if the shutdown is resolved by then. In addition to the economic consequences, federal employees and the private sector would also be affected by the shutdown.

Even if it all ends after two or three weeks, there is a possibility of additional shutdowns as the two parties involved in the negotiations remain far apart on spending proposals. It is worth noting that any agreement to reopen the government would likely expire before the end of the year, thereby risking another lapse in funding.

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