I’ll keep this post as brief as I can. (Jim, in 10,000 words or less, is it true you are verbose?)
The history of government shutdowns suggests they have little short-term effect, and no long-term effect, on financial markets. The stock market decline to date is larger than during most prior shutdowns. Historical precedent suggests this is more likely to be a buying opportunity than the trigger for a massive selloff.
A default would be another matter, and there has been much loose talk of the possibility of default if Congress does not raise the debt limit by October 17. But the only way a default happens is if the Obama administration chooses it as an intentional strategy, for political purposes.
We do not run out of money on October 17, we run out of new borrowing authority. The government will still collect taxes, which are vastly larger than debt service costs. The 14th Amendment requires that public debts be paid — the debt comes first. So the United States will default only if Treasury Secretary Jack Lew chooses to spend tax revenues on something other than debt service. (More barriers around National Monuments?) Further, the Federal Reserve holds trillions of dollars of Federal debt, and is explicitly prepared to forego all interest and principal payments to avoid default.
So the U. S. will default only if Obama chooses, which he will not. He will use the threat of default to try to steer public opinion his way, in service of his policy goals. Just as the Republicans will refuse to raise the debt ceiling, in support of their policy goals, with an eye on public opinion.
One man’s prediction.