GM. This is Milk Road Macro, the newsletter that keeps you informed while Congress plays hot potato with the budget.
Here’s what we got for you today:
- ✍️ Everything you need to know about the government shutdown
- 🎙️ The Milk Road Macro Show: AI Juggernaut: The Biggest Bull Run Ever w/ Jordi Visser
- 🍪 Visa will test stablecoin deposits
Prices as of 8:00 AM ET.
EVERYTHING YOU NEED TO KNOW ABOUT THE GOVERNMENT SHUTDOWN
A shutdown of the US Government is looming.
Republicans and Democrats are squabbling over a spending bill.
And if it doesn’t pass in the next few hours?
Large parts of the Government freeze up.
Many services will stop, huge numbers of staff will be furloughed (suspended) and uncertainty will ensue.
So, what’s going on?
What does it mean for asset markets?
And what actually happens during a Government shutdown?
Let’s take a look…
So, what’s going on?
US Government shutdowns all have the same cause: Congress fails to approve new spending when previous spending bills expire.
It’s no different this time, with lawmakers wrangling over a new spending bill.
If it’s not passed by Wednesday October 1 - the US Government will “shut down”.
Democrats are insisting the bill must include an extension of health-care subsidies and a restoration of budget cuts to health care.
Republicans say negotiations for those issues can happen after averting a shutdown.
On Friday, President Trump said: “If it has to shut down, it will have to shut down. But they're [Democrats] the ones that are shutting down the Government".
Republican and Democrat leaders met on Monday - and left the meeting without a resolution.
“I think we’re headed into a shutdown because the Democrats won’t do the right thing”, Vice President JD Vance said.
“There are still large differences between us”, Senate Democratic leader Chuck Schumer added.
In the past, there have regularly been “shutdown scares” that go right down to the wire, with a last-minute deal reached.
However, this time it’s looking like there’s a good chance it might actually happen.
So, how likely is it that a shutdown occurs?
According to speculators on Polymarket, there is a 79% chance a Government shutdown occurs by October 1, at the time of writing.
And what does it mean for asset markets?
In the past 20 years, there have been three US Government shutdowns.
They have varied in length - ranging from 3 days to 35 days.
Here’s what happened with asset markets:
2013 - October 1 to October 16 (16 days)
- Triggered by disputes over funding the Affordable Care Act (“Obamacare”)
- About 800,000 federal workers were furloughed
- Cost the economy an estimated $24 billion (S&P estimate)
This was a relatively long shutdown, with a mixed reaction from asset markets.
For the duration of the shutdown, the S&P 500 rose (+1.57%), bitcoin rose strongly (+12.4%) and gold dropped a little bit (-0.5%).
2018 - January 20 to January 22 (3 days)
- Caused by disagreements over immigration policy (DACA protections) and budget caps
- Short but disruptive, ended with a temporary spending bill
This shutdown occurred during Trump’s previous term, and was a short-lived episode - that mostly took place over a weekend.
The S&P 500 rose marginally (+0.8%), bitcoin tumbled (-12.4%, this was right in the middle of a vicious bear market), and gold rose slightly (+0.4%).
2018–2019 - December 22, 2018 to January 25, 2019 (35 days)
- The longest shutdown in US history
- Caused by a standoff over funding for President Trump’s proposed border wall
- Roughly 800,000 federal employees went without paychecks
This drawn-out shutdown also occurred during Trump’s previous term, and lasted more than a month.
The S&P 500 rose quite sharply (+10%), gold also rose (+3.4%), meanwhile bitcoin fell (-10.5%).
All-in-all, looking at these previous shutdown episodes, there doesn't appear to be much of a pattern in terms of how it affects asset markets.
The S&P 500 rose on all three occasions, sometimes strongly, sometimes marginally - while gold and bitcoin saw mixed reactions.
My instinct is to say that “Government shutdowns generally shouldn’t matter that much” - the market understands that it will be sorted eventually.
The wider market context heading into the shutdown is probably more important.
So, what might happen if we see a shutdown?
US Government shutdowns have become so common in recent decades that every federal agency has a playbook for how to implement them.
However, they can still be disruptive.
Here’s what might happen if we get a shutdown this week:
- Vast swathes of Government employees would be furloughed
- Air travellers may face delays
- Most national parks and museums would be shuttered
- The IRS would stop answering calls
- Financial regulatory bodies like the SEC would freeze up
- Some courts might face disruption
- Government support for small businesses would be disrupted
However, this potential shutdown could be more disruptive than normal.
President Trump is ratcheting up the pressure by threatening to permanently fire - instead of temporarily furlough - non-essential federal workers whose positions are unfunded
In terms of economic impact, Goldman Sachs estimates suggest a hit of 15 basis points to GDP growth per week of the shutdown within the affected quarter, with a subsequent recovery in the following quarter (for instance, a three-week shutdown could result in a 45 basis point cut to GDP growth, followed by a boost in the subsequent quarter).
Probably the most consequential thing for financial markets is that the release of a big chunk of economic data would be delayed during the shutdown, the BLS has confirmed.
This could be important in the event of a long shutdown, because the Federal Reserve is due to meet for its next interest rate decision between October 28 and 29.
If the shutdown lasts that long, Fed members will not be able to study the latest wave of employment and inflation data, due to be released in the meantime.
This could make the October Fed meeting particularly interesting and potentially contentious.
Wrapping up
It’s looking likely we’ll see a Government shutdown starting on Wednesday.
But it’s not clear how long it might last.
It could be a matter of hours or a few days - but it could also be weeks.
Government services would be heavily disrupted in the event of a shutdown.
But markets?
History doesn’t provide many clues - although the S&P 500 has risen during each of the previous three occasions.
That’s it for this edition - catch you in the next one.
THE AI TSUNAMI IS HERE 🌊
In today’s episode, we sat down with Jordi Visser to talk about the AI-driven macro shifts reshaping markets, labor, and energy.
Here’s what you’ll hear:
- Why calling AI a bubble misses the point entirely
- The trillion-dollar energy bottleneck no one’s pricing in
- How AI could make traditional recessions obsolete
- Why Bitcoin might be the real AI trade
Don’t sleep on this one 👇
YouTube | Spotify | Apple Podcasts
BITE-SIZED COOKIES FOR THE ROAD 🍪
OpenAI, the firm behind ChatGPT, generated around $4.3bn in revenue in the first half of 2025, more than it generated in the whole of 2024, according to financial disclosures (not yet confirmed). The company had set out a full-year revenue target of $13 billion.
China’s factory activity improved slightly in August, but slump continues (longest since 2019). Hurting the outlook for Chinese factories is subdued domestic demand, while uncertainty around US tariffs creates risks for exporters.
Visa will conduct a test allowing businesses to use stablecoins instead of pre-depositing cash in local accounts. The move signals growing acceptance of digital tokens among major firms, who have been emboldened by the Genius Act, a law that set clear rules for stablecoin issuers.
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