Scenario 1 (60% likelihood): The Federal debt ceiling is raised in time. There is a small bipartisan fiscal package. The US sovereign long-term rating is downgraded to AA.
Scenario 2: The Federal debt ceiling is raised in time. There is a large bipartisan fiscal package, which is backloaded and not credible (33% likelihood). The US sovereign long-term rating is downgraded to AA, but maybe not initially.
Scenario 3 (5% likelihood): The Federal debt ceiling is not raised in time and the US sovereign defaults.
Scenario 4: The Federal debt ceiling is raised in time. There is a large bipartisan fiscal package, which is frontloaded (1% likelihood). There is no downgrade.
Scenario 5: The Federal debt ceiling is raised in time. There is a large bipartisan fiscal package, which is backloaded and credible(1% likelihood). There is no downgrade.
But there is a Scenario 6 that Obama could pursue: unilaterally lifting the debt ceiling, citing the 14th Amendment, Section 4 as reason enough to raise the debt ceiling or even ignore it entirely:
Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.
You know what's ironic about the 14th Amendment? It also includes the Citizenship Clause in Section 1. You know, the one that overturned Dred Scott vs. Sanford. And today, there's the possibility of a half-African U.S. president having to cite the 14th Amendment to pull America's fat out of the fiscal fire. Ain't life grand?
