As Kevin McCarthy made clear this week while doing his best Ronald Reagan impression at the NYSE, the risk of a debt ceiling “accident” in the US in 2023 is very high.

“Accident” is something of a misnomer. Any US default would be intentional — a voluntary default. The US can’t default on dollar debt involuntarily because the US issues dollars. In one way or another, all debt is payable in dollars so, generally speaking, the US can’t default on anything involuntarily. The “accident” bit thus refers to the risks around political brinksmanship and miscalculation.

In any case, we’ve seen this movie before, and notwithstanding the fact that partisan rancor is more acute now than it was during previous episodes (and that’s really saying something, by the way), it almost surely won’t end in an actual US default. As Goldman’s Dominic Wilson and Vickie Chang noted, “the Treasury will have the revenues to make debt payments and will prioritize those, if needed.”

The risk, then, is actually around other government outlays, which Janet Yellen would have to suspend so she could keep making interest payments. That, in turn, means failing to resolve the situation could result in a material hit to growth expectations given that, as Goldman wrote, the impacted payments are “worth around 10% of annualized GDP.” So, even a fleeting crisis could trigger a material reset in the growth outlook, which could conceivably be deteriorating by then anyway given the lagged impact of rate hikes and credit tightening in the banking sector.

In 2011, that’s generally how the market traded the debt ceiling impasse. Goldman’s factor models reflected a big shift in US growth views, and only “modest shifts in funding metrics and other indicators of purer financial stress.”

To gauge the potential cross-asset reaction, the bank conducted a pair of analytical “exercises,” one of which used the 2011 experience as a guide and the other simulated a bigger growth shock using existing models. The table summarizes the results.

The biggest takeaway is that stocks would drop fairly sharply, as would bond yields and volatility would spike. The assumed bond rally underscores the notion that there are no concerns about America’s credit — this is about growth and institutional credibility.

To be sure, the institutional credibility point is important. But the US is unique in that a credibility crisis doesn’t necessarily mean the country is less creditworthy. Eventually, overlapping credibility crises should be expected to have severe consequences, but in the meantime, the dollar is the dollar.

Goldman also thinks the risks around a debt ceiling-related growth shock are mitigated this time by a still resilient US economy. “We think the medium-term risks to growth from fiscal tightening as part of a debt ceiling deal are lower than in 2011 — where the growth backdrop was weaker than it is now,” Wilson and Chang went on to write. “So, it is the chances of a very sharp, but relatively short-lived, shock that seem highest currently.”

As for hedges, Goldman said those looking to guard against a “mistake” (so to speak) should prioritize liquidity over spreads, which just means that trying to get too cute (i.e., sophisticated) is likely to be expensive and difficult to implement, and that’s assuming you can conjure any actionable ideas at all. Instead, more pedestrian implementations (e.g., lower stocks, the yen, etc.) may be preferable.

Finally, Wilson noted that, “Hedges may need to be monetized quickly. Although the prospect that the Treasury could be forced to redirect scheduled government payments would likely trigger a sharp market reaction, it would also quickly increase the pressure for a resolution.”