Government Shutdown Odds: 40%, Nomura Estimates

In a world in which everyone has become an ultra-short term pathological gambler, and every outcome is a zero-sum prop bet, it was only a matter of time before someone tried to quantify the probability of the event that the market (for some inexplicable reason) is so transfixed on: the government shutdown (inexplicable, because anything more than a few day shutdown risks a full blown mutiny by the tens of millions of government workers). So without further ado, here is Nomura, with its "estimate" of a government shutdown on October 1: 40%.

From Bloomberg, citing the Japanese bank:

  • Not obvious how gap between House, Senate proposals will be closed, and time for negotiations is short, Nomura strategists led by Lewis Alexander wrote in note.
  • Shutdown for a couple of weeks won’t have much of an impact on economy; impact of failure to extend debt ceiling "unknown, potentially very large and long lasting"
  • Contentious and potentially chaotic fiscal negotiations over next few weeks likely to generate volatility, biggest threat to economy
  • If govt shuts down for one week, assuming 36% of non-postal federal employees furloughed, temporary loss of wages, benefits would reduce annualized real GDP by ~0.1ppt
  • If shutdown lasts longer, decision on back pay for federal employees likely decisive for consumption
  • Week-long shutdown would delay Oct. 4 jobs report
  • If debt ceiling becomes binding, Treasury may have to pay debts in order of due date, may not be able to prioritize debt payments

The good news, and we use the term loosely, is the flip-side: the government has a 60% chance of continuing to serve on behalf of the 1% oligarchy on October 1 and well beyond.