Getty Images/Spencer Platt
- Evercore ISI's Krishna Guha says investors are too relaxed about a potential debt ceiling crisis.
- The White House and Republican-led House can't agree on raising the government's borrowing limit.
- "Politicians need the market to throw a tantrum at the last minute so that they have an excuse to compromise," Guha said.
Investors are too relaxed about the debt ceiling right now – and a "market tantrum" might be needed to break the deadlock in Washington, according to Krishna Guha.
The Evercore ISI chairman said Monday that traders aren't sufficiently worried about the potential crisis from the US failing to repay its debts. A cross-asset sell-off could push lawmakers into voting to lift the nation's borrowing limit, she noted.
"It's a very big risk event ahead," Guha told CNBC's "Closing Bell." "Look, the market, I think, is approaching this right now as if this is a play where everyone acts their part but at the end of the day we don't get a default."
"I think that's a reasonable baseline, but it does omit one key thing – the market has a role to play in this drama, too," he added. "The politicians need the market to throw a tantrum at the last minute so that they have an excuse to compromise and calm down."
"I worry that the market has been too relaxed about this, too relaxed to want to throw that big tantrum, which of course, makes it more likely that we would go over the cliff – so not a base case, but a real risk here."
The debt ceiling, set by Congress, limits how much the government can borrow.
The US hit its $31.4 trillion debt limit in January – meaning it could run out of money to pay its bills as soon as July if lawmakers don't vote to raise the ceiling, according to the Congressional Budget Office.
But the White House and the Republican-led House of Representatives can't agree on how to resolve the looming crisis.
President Joe Biden said in January that the US failing to repay its debts would be "a calamity," worse than "anything that's ever happened financially in the United States," with his administration arguing that Congress must raise the government's borrowing limit.
House Speaker Kevin McCarthy backed a bill that would raise the debt ceiling by $1.5 trillion in exchange for tighter spending controls last week, but he holds a thin majority and some Representatives in his own party oppose the plan.
The cost of insurance against the US failing to repay its debts rose to its highest level since the financial crisis last week, with traders worrying the deadlock will lead to a default.
One-year government credit default swaps – a form of insurance against borrowers not making scheduled debt repayments – traded at their highest level since 2008 on Saturday, according to the Financial Times.