It's pretty binary now.
You can write whatever you want, but in a default it is going to be game over and right now the stance from both sides -- not the president and not the GOP alone -- would definitely take us over the cliff. If it is not possible to dislodge the president from his view of no negotiations and it is not possible for the speaker to call for a majority-rule vote, then it is hopeless and we will have a default and there is no way this market can handle a default without giving up a huge chunk of gains.
Given the rhetoric, once again it seems odd that Treasuries aren't going down in price and up in yield. But there is a complacency -- and there has been a complacency -- that seems a little unrealistic considering the stances that both sides are taking.
What's odd for me is that if the president truly believes that it's the constitutional duty of Congress to raise the debt ceiling, then why isn't he preparing a constitutional initiative with the Supreme Court? If he truly believes no negotiations should occur, then he definitely believes that there is a constitutional imperative. It simply can't be anything else, can it? If the speaker has said point blank that he does not have the votes for a clean debt bill then the president must know that his debt ceiling non-negotiable stance will cause a constitutional crisis. Unless he, too, doesn't believe that a default is a constitutional issue.
Ironic, but we know that the 14th Amendment has a clause that says the bills must be paid. Sure, it is tied to the notion of an intransigent block that has seceded, but it is still in and it is a totally viable argument.
In the meantime we know the Oct. 17 date is looking specious given how much Treasury has been taking in from Fannie/Freddie and TARP, so it would help to know the real date, even as we know that a real date will be the date we get to plus one.
Also confounding me is what's the plan for a default? We know now that the plan seems to be that federal employees look to be paid for their time off. Does that mean there is some clause that will allow the president to pay bills in lieu of failure to raise the debt ceiling? Is there scrip? Is there a promise of some sort that would make it so a default is not catastrophic? Or do we now begin the process of deciding which companies don't need credit to operate their businesses and so therefore don't need the full faith and credit of the U.S. to stand behind Treasuryies. Do we just eliminate all banks from the equation? We just can't own their stocks? Do we have to eliminate owning all retailers because they need credit? Do we dust off the Lehman playbook? Wouldn't that be smart?
I think these are the issues that now will dog us. There's not much else to say other than a second playbook is needed given the binary nature of the ceiling debate.
To operate as if one isn't needed is to insist that a constitutional crisis is NOT on the table, just a political one. If that's the case, then a political one, at least right now, leads to debt downgrades, no credit to be given to anyone of any substance and a ripple around the world that can't be imagined.