The Treasury is not going to default on interest payments on US debt but, as we saw in August 2011, the Congress and the White House are still doing their best to undermine waning credibility in their ability to govern. The irresponsible “default” language coming from the president and Treasury Secretary Jack Lew is even more irresponsible than the horror stories circulated in March by the president’s unprincipled Cabinet members. The “default” babble has already got the rating agency Fitch to put the US on a downgrade watch. So much for protecting the full faith and credit moniker for US obligations.
October 17 will come and go with no default as many are conceding today. That said, if you grant that the probability of a Senate bill by tomorrow is better than even, say at about 0.6 (Ted Cruz), and the probability of a House vote by Friday is better than even, at 0.6 ( the probability that Speaker Boehner will allow a House vote that passes), then the joint probability of both outcomes required for passing a debt ceiling bill before markets close on Friday is only 0.36, almost as low as only one in three.
Those aren’t good odds against a serious market meltdown in front of the weekend, notwithstanding absence of actual default. The president could do the math and offer some crucial leadership here, but the probability of that happening is 0.0.
Get ready for a scary Sunday night, and I don’t mean Homeland. And don’t even think about growth during the fourth quarter.