The most pressing question of today: Will the US government shutdown? Actually, this question has been asked before; it’s just that it was never addressed to anyone’s satisfaction, because the US political system allow one party, which is dominated by extremists at the moment, to hold the nation in hostage for an indefinite amount of time or until they get what they want.
If no agreement is reached by 04:00 GMT, part of the US government will “shutdown", because the Congress does not allow the government to pay its bills, its workers, and for the programs the Congress itself has signed into effect, as it has also passed a law to enforce a debt-ceiling that prevents the federal government from issuing further debts.
Should the US government shutdown, it will not be able to honor its debts, and this would amount to a default followed by a credit crunch. In an economy facing high unemployment, such withdrawal of credit would deal a heavy blow to the already shaky recovery, and no amount of QEs can repair such damage in this magnitude. The world would likely go into recession again, or even depression, should shutdown happen.
One way out of this, arguably the best way, is to let the Treasury mint a couple Trillion Dollar Coins, so the federal government will have the money without raising it through debts. This may sound ridiculous, but it is a legitimate “loophole", and it is fitting that a ridiculous political crisis be resolved with an equally ridiculous solution. We will see if Obama will man up to go with it this time.
What will happen in a couple hours is as good as anyone’s guess. To those who would use this example to say, “democracy will result in economic chaos", no, this is not a matter with democracy but a problem with a peculiar two-party presidential system. A better designed democratic system can prevent this from happening. Furthermore, non-democratic systems did and will experience serious economic downturns from time to time. China is having one right at the moment we speak, and it had a big one 30 years ago. Totalitarian dictatorships cannot insulate themselves from this round of economic disturbance, and they might fall along with their economies. In this sense, the shutdown of US government has the potential to bring some good to the world; perhaps we should just let it happen.
Correction: Shutdown and debt-ceiling are similar but not the same type of crisis.