Why I think the debt ceiling IS a big deal in the short term (please tell me why I’m wrong)

I was speaking with my Congressman recently, and asked whether there were really 218 votes in the house to refuse to raise the debt ceiling and thereby tank the economy. His answer surprised me:

· He said, “no,” but that his fear was that there are only 10 votes needed in the House of Representatives to stop the debt ceiling from being raised.

· To get elected speaker, McCarthy agreed to a process whereby only one Representative could start the process of removing him from speaker (making a motion to vacate)—which could then kick off a process that would make it difficult to get much done.

· In sum, McCarthy has far less wiggle room to negotiate than Boehner did in 2011 and 2013 (Boehner had larger majorities, and could lose more of his caucus and still pass something).

· McCarthy could barely come up with the votes to pass the recent bill that would lift the debt ceiling (217-215) – which is a non-starter for the democrats. Still McCarthy may not be able to get the votes to do much more than that.

· As a result, McCarthy is fairly limited in what he can do, or agree to, in negotiating a resolution to the debt ceiling crisis, even if he personally would want to. He literally has no “room” to negotiate further.

· A discharge petition is somewhat of a pipe dream. Not only would it be difficult to get the 218 signatures, to pass any bill that comes up through a discharge petition, the Senate would likely have to do with a filibuster-proof majority (or find a way to get rid of the filibuster). Unlikely.

· Either the trillion-dollar coin or the President declaring the debt ceiling unconstitutional under the 14th amendment would quickly face court challenges, which, given the makeup of the current SCOTUS, would cause uncertainty in the market.

· McConnell does not have nearly the support/clout to negotiate on behalf of Republicans as he did in negotiating solutions to other stand offs, and he has decidedly taken a hands off approach letting McCarthy sink or swim regarding any negotiations. McConnell finding a solution, or helping substantially won’t happen.

· Many in the know have been just a bit too exuberant/optimistic that a solution will be found (nothing to see here, whistling past the graveyard). It almost seems as though they are posturing to say they did the best they could if things fall apart.

· There is uncertainty as to what the real default date is (which will depend, in part, on minimal tax revenue coming in May, whether that can get us to the June 15 tax deadline, how much more we can get out of the extraordinary measures and accounting tricks we began in Feb., etc.)

· In sum, he thought that resolving the debt ceiling standoff will be “very challenging” even (and especially) given the optimistic tone coming out of Washington.

Also, I’ve heard through other channels that many members of the House are starting to take some or all of their money out of the market (but these transactions do not need to be reported for 30 days, so you may not hear about this until early-mid June).

All of the above is available through public articles/news sources, none of this is new or confidential.

My bottom line, while I don’t think there will be a prolonged default, I do think there is a somewhat good chance that a deal will not be reached by June 1. Especially now that Trump and those who follow him seem to be making more noise that a “default” may not be entirely bad. The bond market seems to be pricing in the possibility of a default more and more, but it does not appear to me that the stock market is doing so sufficiently.

Depending on how much cash the treasury has on hand in late May/early June, and what the real “default date” turns out to be, I believe there is a decent chance the stock markets could take a future, short term hit around that time until the standoff is resolved (which may be shortly before social security payments are impacted, or maybe even shortly after). This assumes the market will, in fact, react negatively if we approach the brink of a default.

This seems to contradict conventional wisdom on this sub (ie the debt ceiling is not a big deal because the US will never default – buy the dip). So before I spend my hard earned money betting that stocks could be lower in late May early June than they are now, I would like to fire test my theory. What am I missing? What is the bullish case (beyond just, “the government would never let this happen” – the “government” may not but 7-10 Republicans in the House may.

Thanks in advance for any thoughtful responses. (Edited for formatting only)