As much as 4.2 percent of the annualized U.S. gross domestic product could vanish if Congress doesn't raise the $16.7 trillion debt ceiling this month—potentially knocking the U.S. economy into a quick downward spiral, Goldman Sachs Group Inc. warned investors over the weekend.
The U.S. Treasury Department will run out of cash by October 31—if not sooner—if Congress doesn't increase the debt limit by October 17, according to a Goldman Sachs report released Saturday, "The Debt Limit: How, When, and What If" [PDF]. Failure to raise the debt limit before Treasury exhausts its cash balance would force the agency to rapidly cut its spending in an effort to avoid hitting the debt ceiling, possibly triggering the pullback of more than 4 percent of GDP, the report says.
"The effect on quarterly growth rates (rather than levels) could be even greater," the report says. "If this were allowed to occur, it could lead to a rapid downturn in economic activity if not reversed very quickly."