Government Shutdown 2013 News Update: How Shutdown May Lead to Economic Crisis

With the U.S. government shut down for four straight days without an end in sight, there's a growing concern that the stalemate in congress will merge into a much more complex fight in mid-October over raising the federal debt ceiling.

The standoff between Tea Party-backed Republicans and Democrats may linger past the Oct. 17 deadline to raise the nation's $16.7 trillion debt limit. The ceiling needs to be raised to avoid a potentially catastrophic default on its bills.

On Thursday, President Obama stressed that failing to raise the debt ceiling will produce more significant consequences than shutting down the government. Distribution of Social Security and disability benefits would be delayed, pensions would be decimated and interest rates would skyrocket, Obama said during a speech.

"As reckless as a government shutdown is, as many people are being hurt by a government shutdown, an economic shutdown that results from default would be dramatically worse," Obama said, according to USA Today.

A Treasury Department report released Thursday also pointed out that "even the prospect of a default can be disruptive to financial markets and American businesses and families."

Raising the debt ceiling does not influence future government spending; it is the federal government's commitment that it will pay off its existing debt. Failure to raise the ceiling weakens the U.S. government's commitment to the bonds it sells investors around the world and could lead to a major sell-off of those bonds, stimulating a global financial crisis.

Despite the warnings, Obama and congressional Republicans are no closer to ending the shutdown. A meeting between Obama and congressional leaders late Wednesday failed to yield an agreement.

Obama and Democrats say they will only negotiate on the budget after Republicans agree to move a Senate-passed bill that pays for government spending through Nov. 15 and does not affect the Affordable Care Act. Obama also said Republicans must agree to vote to raise the federal debt ceiling.

However, Republicans are still fighting to derail or curtail Obamacare in addition to calling for more cuts in government spending and other changes as the calendar is forcing a combined vote to end the shutdown and extend the debt ceiling. Beyond Obamacare, Republicans have talked about seeking concessions on tax reform, approval of the Canada-to-Texas Keystone XL oil pipeline and a reduction in "sequester" spending cuts on the military.

On Thursday, House Republicans continued to pursue a piecemeal shutdown strategy to pass targeted funding bills for popular government services. However, the bills are being stonewalled in the Senate, where Senate Majority Leader Harry Reid has offered to negotiate with Republicans on a broader budget agreement only after they approve a stopgap spending bill to fully reopen the federal government.

The central problem is that congressional Republicans view the debt ceiling as their best chance to negotiate concessions from President Obama, while at the same time, Obama says he will not negotiate around the debt ceiling, as he did in 2011, reports Reuters.

This alone may lead to a stalemate.