Stocks may fall 30% if U.S. ... (ext. CNN)

Jul 28 2011 2:08 PM ET

In the dubious scenario that lawmakers fail raise the debt ceiling and ultimately lead the country to default on its payments for the first time in history, U.S. stocks could tumble 30% over the following six months to a year, according to a Credit Suisse report.

While stocks have been sliding and investors remain on edge, Credit Suisse analysts think a default scenario has less than a 1% chance of actually playing out.

But if there is a default, the U.S. economy could contract a total of 5% during the next six months to a year as well, said Luca Paolini, a research analyst at the Swiss investment bank and an author of the research report.

"If the U.S. does default, there are massive ramifications," Credit Suisse analysts said in the report. "The fallout would be far worse than after Lehman's default. Back then, the U.S. government could at least spend and do the 'right thing," while now the only backstop would be the Fed."