US Shutdown - Whats Happening?

Now that I've finally got some time from studies and travelling,I thought of taking the opportunity to begin my first post with something that's been hitting the news lines - The US Shutdown.

The US Administration in "Sleep"  mode.

What?
So what exactly is the US Shutdown?Basically, the US Financial Year(FY) ended on 30 September 2013.Without the agreement and preparation of a budget in time for the opening of the next FY,there exists no budget and no legal requirement to pay or fund the government basically.So why doesn't the entire US administration shut down?There are emergency provisions in place to ensure that legislation exits for essential services and core functions of the government, however services that are determined to be "not-essential" are currently suspended.And will remain so till a new budget is agreed upon.

How?

How does this affect us? What repercussions could possibly arise?Lets assume two scenarios.

Scenario 1(Short Run)
Lets assume the budget issue gets resolved in a week or two weeks(more likely).While two weeks is by no means a small period of time for a government shutdown,it would limit the impact to more of people being put of of work for a while.It would also send a signal to the international markets that although this could happen again in the future,it would probably last about the same duration( Of course more conservative market watchers would forecast a larger duration at the next possible occurrence).

Thus in a short run scenario,we could expect the staff being put out of work to reduce their expenditure to essential items,cut down on luxuries like the year end holiday,shopping etc.US investor confidence would probably take a hit,but it would be minimal - negligible in the short run.

Scenario 2 (Long Run)
As the days drag, the situation gets worse,and the world continues to watch as democrats and republicans bicker over the budget.This would be no more just a suspended employment issue,but will start to impact the US economy.In addition to what would already happen in the Short run scenario above,we would expect the US economy to be hit in terms of reduced spending,that would invariably lead to a lower demand for imports.This would have significant impact on top exporters to USA.We could also expect share prices of US listed companies to take a possible hit and a drop in the USD.

The other big issue related to the debt ceiling.As the US administration approaches its legally permissible debt threshold,the US administration needs to agree to raise the debt limit.If this does not happen in time,The USA would run out of borrowing room,and thus lead to a default.You could imagine the implications of this to both the US economy and the global economy. Mass market panic,shifting of funds out of USA etc....

Lets hope a resolution is reached soon.