Goodbye 11th hour. Hello 12th hour and 1 minute. According to MF Global's Chris Krueger, the probability that congress fails to raise the debt ceiling by August 2 is now 55%. Which means at least a 1 if not more notch downgrade by the rating agencies, which means massive and completely unpredictable spillover effects in money markets, structured finance, muni and all other financial products, which means the military will soon have to conduct many more urban exercises to prepare for "Tehran" (because the Iranian capital's downtown has at least 3 John Hancock center replicas). In the meantime, the market still thinks that Bernanke can fix this.
Bloomberg All News summarizes the key points in Krueger's note:
- "Getting the deal was the easy part; passing a deal in the Congress is a challenge”
- Chances Congress fails to raise debt ceiling if House doesn’t vote on Boehner plan tomorrow, 45%
- Chances Congress fails to raise debt ceiling if House passes Boehner plan, 25%
- "Don’t focus too much time on a future downgrade, default is the immediate fire and could answer the downgrade question much sooner than is appreciated"