In the very unlikely event that the United States defaults on its debt obligations, the country's economy would contract by 5 percent and stocks would fall by nearly a third, according to Credit Suisse.

While Andrew Garthwaite and the global strategy team at the Swiss bank see a 50-50 chance of a ratings downgrade of U.S. debt by the major ratings agencies, they remain confident such an outcome would not lead to disaster.

“We think there is a 50 percent chance of a ratings downgrade on U.S. sovereign debt.

This could happen even if the debt ceiling is raised,” Garthwaite, the head of global strategy at Credit Suisse, said in research note.

“We doubt it will have much effect," he continued. "Japan has a 1.1 percent yield and an AA- rating, many U.S. Treasury funds do not have credit-rating limitations and national bank regulators would probably keep risk weightings for U.S. sovereign debt at zero.”

If no budget deal is struck, but the U.S. does not default, Garthwaite predicts a bad time for stocks and the economy.

“As our economists point out, each month of no rise in the ceiling could easily take 0.5-1 percent off GDP.

In this case, equity markets would drop by 10-15 percent, prompting Congress to find a solution, and bond yields would fall to 2.75 percent.” If that proved to be the case, investors would in Garthwaite’s opinion need to get into defensive stocks and out of the dollar.

However, the worst case scenario is clearly an outright U.S. default. That is where things could get nasty, according to the Credit Suisse team.

“This is very unlikely, but if it occurs, GDP could fall 5 percent plus, and equities by 30 percent,” Garthwaite said.

In the event of such a disastrous outcome, Garthwaite predicts the only place to hide would be in cash-rich stocks.

“Worries about the U.S. public finances will likely bring investors to focus on ultra-safe equities: companies with [credit default swap] spreads below that of G7 sovereigns, yet offering dividend yields above government bond yields: Centrica, Sanofi, Novartis, Compass, Pfizer, Philip Morris, Merck.” With fiscal tightening in the cards no matter what the outcome of talks in Washington, Garthwaite is worried about the effect on growth, but not that worried.

“Our main concern is that, on IMF estimates, fiscal tightening in the U.S. will be equivalent to nearly 2.5 percent of GDP next year.” Garthwaite’s economics team predicts that most of that tightening estimated by the International Monetary Fund will not actually take place, and predicts only half a percent of GDP growth being lost as result.

© 2011 CNBC.com