Why markets should pray for a government shutdown
Markets should probably start praying for a government shutdown next week. Because if that doesn't happen, and conservative Republicans in the House move their fight over defunding Obamacare to the debt ceiling, the chances of a real default crisis will rise.
The week in Washington ended with House Republicans hopelessly befuddled over strategy for the fiscal fights with each idea presented by GOP leadership shot down as not conservative enough.
The House will have to decide what it wants to do with a clean continuing resolution from the Senate that funds the government past Oct. 1 and does not delay the president's health care law.
(Read more: Senate passes funding bill, preserves Obamacare )
The House could send that measure back with new Obamacare changes unacceptable Democrats possibly forcing a shutdown next Tuesday. That could then lead to some kind of deal that both reopens the government and raises the debt limit before the Oct. 17th deadline. That's probably the best-case scenario.
The GOP could also send back a temporary government funding bill that pushes a shutdown back a couple of weeks, tying it directly into the debt limit bill. That's not a good scenario for investors as it creates even more uncertainty and risk of a shutdown and a default.
(Read more: DC's autumn chill means heated political battles)
Or Republicans could swallow the Senate bill and move on to the debt limit, thinking the White House will have to move off its no negotiations stance and give major concessions on spending and Obamacare.
But this theory is likely wrong.
There is no scenario under which the White House will agree to a debt limit hike with Obamacare provisions attached. The administration is also very serious about not setting a historic precedent for turning the debt ceiling into a political weapon the opposition party can use to force big concessions they could never otherwise get.
The White House says while debt limit bills have often included other provisions to make the medicine go down (no one LIKES voting for a borrowing authority increase) never before has an opposition party threatened default in such a serious manner.
House Republicans reportedly fear getting blame for a shutdown more than a debt ceiling crisis. This is based on polls showing Americans generally don't like the idea of raising the nation's borrowing limit without some added spending restraints. But that's a long way from supporting a disastrous debt ceiling breach that crushes the economy over a GOP attempt to shut down Obamacare.
Once people figure out exactly what the debt limit is (covering spending Congress already approved) and why we might flirt with economic disaster, you can bet the polls are going to be disastrous for Republicans. .