'It could be worse than after Lehman'

DW: Congress is busy trying to hammer out an agreement before the deadline passes. What happens if we don't get a House vote, or if we don't get it in time?

Alexander Privitera: If we don't get it in time, it wouldn't be so bad, as the deadline is of psychological value mainly - there won't be any defaulting on payments immediately. That would take a few weeks.

But we need a deal by the end of the month, otherwise the US will be in default. It's possible that the government could buy time by shifting a few things around, but it would be a very bad signal for the markets if there were no deal at all.

Treasury Secretary Jack Lew has done the maths - he says there are still $30 billion (22 billion euros) in the country's account, plus the daily tax payments. How long would that last the government?

Thirty billion sounds about right, but even the government doesn't know for sure how much it spends or takes in. Some of them are automatic and the amounts vary. So, it could mean he has a bit more time, but it could also mean he will run out of cash a lot sooner.

On October 31 at the latest, $6 million in interest on bonds will have to be paid. In theory, there are enough funds, but priorities surely have to be set - will the government pay creditors, say, in China, or soldiers in Afghanistan?

That's, of course, precisely the choice the government does not want to have to make. That's why Lew has made it clear to Congress that it's hard to pinpoint expenses down to the last dollar, meaning the administration doesn't want to prioritize.

And that's why raising the debt ceiling is crucial. As I said, Lew could shift things around. Interest payments are enormously important as the global financial system is based on short-term bonds denominated in US dollars.

Hence, if that market collapses or freezes because of the US's partial inability to serve its debt, the global financial system could come to a standstill.

So, once the first interest payments are not honored, we'd be heading for global disaster?

That's correct. Short-term bonds are the foundations of the money markets. They allow banks to gain access to funds quickly and flexibly, as short-term US government bonds - or Treasuries - usually serve as collateral. If those Treasuries are in default, the whole system collapses.

How will investors react if that actually happens?

I think US investors will not react immediately, as they will assume that, even if the deadline has passed, a deal will be reached eventually. I'm sure we will see increased volatility, but investors in the US will be patient for a bit longer.

But it also doesn't mean that Asian investors will start getting rid of US-dollar denominated debt, as that would only push up interest rates, which would hurt the global economy immensely, given its current state.

Could we see a global mega-crisis like the one in 2008?

It could be even worse! If the US defaults, not tonight or tomorrow, but in a few weeks' time, it could be a lot worse than what happened after the Lehman collapse.

If we do get the vote, but it turns out to be only another temporary fix and the whole debate starts again in the new year, how can Congress get out of that pickle?

Even if we do get an agreement, it doesn't mean the war is over. The battle will be over, but the war between Republicans and Democrats continues. And the civil war within the Republican party will also go into the next round. So, we may well have the same problem again in two months' time.

What can Barack Obama do to change this?

Obama can't force anyone's hand. Some believe that if there is deadlock in Congress, he could invoke the 14th amendment and raise the debt ceiling unilaterally via an executive order.

But there are differing views on that. And let's not forget - that's an instrument dating back to the American Civil War. So using it would certainly have political ramifications. And it certainly wouldn't be seen as a healthy solution to the crisis by the rest of the world.

Alexander Privitera is director of the Business and Economics Program at the American Institute for Contemporary German Studies at Johns Hopkins University in Washington.