Merrill Lynch: Downward Revision to Forecast "Breaking Bad"

From Ethan S. Harris at Merrill Lynch: Macro viewpoint: Breaking bad

We have changed our call: our base case is now for either a two-week shutdown or for more than one shutdown. With weak growth momentum and more damage from Washington, we are lowering 3Q growth to 1.7% and 4Q to 2.0%. We are also pushing Fed tapering to Jan 2014.

There has been no change in rhetoric despite public opinion polls that strongly oppose the shutdown and that are particularly critical of Republicans. ... Most respondents also disagree with the strategy of shutting down the government over the health care law: basically by 3-to-1 in polls by Quinnipiac University, CBS News and CNBC.

The Affordable Care Act (ACA) continues to be in the center of the battle. In our view, this is an issue where there is no compromise. We believe it would take truly extraordinary circumstances for the President to agree to undercut his proudest legislative achievement; even a small concession would likely lead to further demands at each budget deadline.
...
Our new baseline assumes a two week shutdown, but no violation of the debt ceiling. ... We also continue to fear a much worse outcome. Recall that the failure to pass a continuing resolution cuts government spending by roughly one percent of GDP, while failure to raise the debt ceiling requires balancing the budget – a 4% of GDP cut in spending. ... Failure to raise the debt ceiling by the end of October would be catastrophic, in our view.
emphasis added

It is time for the House to end the shutdown.