The Street still thinks this will end peacefully. The Street — you know, Wall Street, where money flows, where collective wisdom incorporates all there is to know every nanosecond, where expectations are often more important than reality.
This is, of course, the great hostage taking of 2013, where the full faith and credit of the United States is being held ransom by people who got elected as Republicans, but see themselves more as conservatives.
"How is this going end?"
The easiest scenario is still the one where Boehner folds and goes home. This suggests an end time of around 11:59 p.m. on October 16, right before the U.S. formally goes into default. There's no sense in him throwing in the cards before he has to. He might even extract some concessions from Democrats, in the form of legislation passed by the Senate that will be awaiting House action, perhaps agreeing to some sort of significant entitlement revision. (President Obama has said he won't negotiate, but would he actually veto a clean bill that kept the government open for a few months and raised the debt limit? The way around this is simply to pass two bills sequentially.) The votes are there for Boehner to do this; he'd get a fraction of his conference and most Democrats. Enough of his Republicans could vote no as cover too.
Within this scenario, there are several pathways, including one in which the GOP agrees to fund the government for a few weeks, or agrees to fund the government subject to its own will. But it would be a complete capitulation for President Obama to sign legislation that essentially extends the cliff for a few more feet. There is no reason for Republicans not to keep demanding significant concessions from him.
Of course, Obama could start to negotiate. What this looks like is unclear, because it's not clear what Republicans would be happy with. If he verbally promises to sign a one-year postponement of the Affordable Care Act's individual mandate, what's to stop Republicans from demanding something else at every significant budget juncture? No one has ever used the budget like this before, so we shouldn't assume that the GOP will simply stop. And this is why Obama insists that he won't negotiate. It is also why he really does not want to sign a short-term extension of either budget authority or the debt limit. If Boehner refuses to negotiate, Obama will have to accept that Republicans have won; that the hostage-takers get their getaway car.
The most likely scenario is one where Boehner folds but pretends he didn't, and Obama negotiates, but only in words. Privately, Boehner would prefer this solution because it would not actually concede any significant ground to the Tea Party, and if the optics are right, he could emerge from this fracas with roughly the same amount of power as before it started. What would this look like? A play, consisting of three acts:
Act 1: Republicans promise to pass a clean CR and debt ceiling increase in exchange for specific words from Obama to which he can be held.
Act 2: Obama proclaims publicly that he has said all along that he has been willing to negotiate with Republicans, and then says something like, "and I look forward to talking to them right after the the government opens, on subjects ranging from tax reform to reducing the burden of entitlements."
Act 3: Boehner seizes on that sentence and tries to sell it to his conference. An unofficial whip count confirms this, but he says publicly that he will do the honorable thing and not allow the nation to go into default so that Republicans can hold Obama accountable on his promise.
Finale: The votes pass.
Doomsday is a possibility too. If Boehner cannot bargain down the expectations of his own conference and insists, based on his own internal logic, that he cannot stop being the leader of his party, then I do not believe, as Wall Street apparently does, that Democrats might be forced to concede something significant at the last moment. The moment they concede something significant is the moment that they lose, completely, their power to do anything. Government effectively is ceded to a minority of a party that aims to destroy government.