Many on Wall Street are coalescing around the view that a deal to end the government shutdown will get rolled into a deal to raise the debt ceiling, with the two issues being resolved together at once.
However, in a note to clients this morning, Goldman Sachs economist Alec Phillips lays out another scenario, to which he assigns a 30% probability: the debt ceiling gets raised, and the government shutdown continues.
The debt limit is increased well before October 17 but the shutdown continues beyond that. It is possible that after attempting to merge the two issues, congressional leaders could find themselves still unable to agree on how to resolve the shutdown by the time the debt limit deadline has been reached. However, it appears fairly clear to us that neither Republican nor Democratic leaders are interested in allowing the Treasury to run out of cash.
In such a scenario, it is plausible that House Republicans could agree to bring up a "clean" or nearly clean debt limit increase, which would pass with more Democratic than Republican votes. Media reports indicate that Speaker Boehner has raised this possibility with some of his Republican colleagues. We assume that Senate Democrats would prefer to deal with both issues together, but since the White House's position has been that there will be no negotiation on the debt limit, it might be difficult for them to reject a clean debt limit extension simply because it did not also reopen the federal government. That said, while this is a possibility, this would only come about if the approach to combine the debt limit and the shutdown fails. We believe this outcome has a 30% probability.
Still, the most probable scenario, to which Phillips assigns a 60% chance: "If the shutdown continues into next week, both parties seem likely to agree to merge the discussion of these issues. This would make sense from a practical perspective since negotiating and passing a continuing resolution could take at least a week if there are procedural objections in the Senate, leaving little time for a debt limit negotiation before the October 17 deadline."
More From Business Insider