Debt Ceiling Decision Tree: How To Figure Out If Washington Is Going Blow It

Societe Generale’s analyst team have come through with this nifty decision tree on the U.S. debt ceiling crisis.

It allots only a 30% chance of a deal being reached before mid-July, but less than a 1% chance of no deal before August 2.

But what happens if there is no deal?

From Societe Generale:

If political ideology prevails and more radical elements of the Republican Party are able to swing its leadership, we could see no increase in the debt limit by August 2. Such an event would appreciably increase the risk that the US enters into technical default. As a result, we would likely see the US Treasury step into action to delay such a credit event. While not impossible, we view the risk of this outcome occurring as very small.

Even in this scenario for SocGen, there’s an “almost zero” chance of actual default on August 2.
Presumably, if we get to this less than 1% scenario, then a sizable chance of default will emerge.

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Photo: Societe Generale

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