The consequences of the debt ceiling standoff and government shutdown continue to reverberate. Markets are increasingly showing signs of nervousness, with excess volatility tracking news reports as they come out of DC.

I’ve been reviewing my posts and articles from the last time we went down the debt ceiling crisis road, and marveling a bit. Trillion-dollar coin indeed! That post proved to be prescient in a lot of ways, although 10 months early. The options I outlined there remain the most probable this time around, but no one has been trotting them out so far. Instead, the discussion has revolved around how to make payments once we run out of money.

I don’t like the spirit of despair that this kind of planning reflects, and I think I have a better idea about how to solve the problem. It requires no issuance of coins, no scrip rather than cash—although the difference is small—and no constitutional confrontation.

As we move into the second week of the shutdown—and another day closer to running out of room to maneuver around the debt ceiling—cracks are starting to appear.

On the political level, there’s an apparent disconnect between a White House potentially willing to accept a short-term rise in the debt ceiling and a Senate holding out for a longer-term deal on the Democrat side. In the Virginia governor’s race, the Democrat appears to be gaining an edge from the shutdown. The Senate Democrats are talking about passing a clean continuing resolution themselves, rather than waiting for one from the House Republicans—who have been taunting them about their unwillingness to force Democrat senators to make a potentially tough vote. In short, we’re seeing the usual political circus.

The government shutdown has gotten most of the press coverage so far, but there is a related and bigger issue pending in the next couple of weeks: the debt ceiling. Although the federal government has partially shut down, it continues to spend money on many items. Normal government financing requires regular additional borrowing, as we typically spend more than we take in.

I hate writing about politics, I really do. But, as we’ve seen repeatedly over the past couple of years, politics is now economics, and, therefore, it behooves us to get to grips with what that means for our country—and our investments.

One of the driving memes about Obamacare has been that it socializes a large section of the economy. The Republicans use this as an argument against, while the Democrats by and large see it as a feature, not a bug. The destination on the horizon, for both, is a more European polity. That means slower growth and stagnation for the Republicans and more social justice for the Democrats—in any event, a more European-style economy.

The market has bounced around without a lot of direction over the past couple of days, popping up this morning after a rough showing yesterday. What’s going on?

Ultimately, stock prices reflect corporate earnings per share, and the bouncing prices can credibly be tied to expectations about what the government shutdown and potential debt ceiling confrontation will mean for those earnings. The changes in prices reflect the market’s attempt to come to grips with what we can expect to see over the next couple of quarters.

With the government shutdown entering its second day—and apparently no negotiations under way between the Republicans and Democrats—the prospect of an early compromise agreement doesn’t look good. A headline in today’s Wall Street Journal, “Capital Digs In for Long Haul,” pretty much says it all.

The markets yesterday seemed to shrug off the shutdown. Much of the commentary has been along the lines that the shutdown is no big deal, a compromise will certainly be reached, and this is actually a buying opportunity. That may end up being the case, but I think it makes sense to at least consider the other possibility: that the stalemate continues until the Treasury runs out of accounting tricks to avoid the fact that the government is now at the debt ceiling, which should be in the next couple of weeks.

For the first time since 1995–1996, the U.S. government has been shut down in a dispute over the federal budget. Now that it has happened, we can start to assess the damage, as well as evaluate how the dispute is likely to play out.

Before we do, there are a couple of important things to keep in mind. First, we made it through the 1995–1996 shutdown, and we will make it through this one. Second, although there will be damage, it will be limited. Just as with the sequester spending cuts, the damage will be absorbed and the economy will return to growth. This too will pass.

Here we go again. I’ve written something to that effect several times over the past couple of years, what with the 2011 debt ceiling debate, the 2012 fiscal cliff, and now this. Governmental dysfunction has been normalized.

The phrase that comes to mind is “defining deviancy down,” from a 1993 paper by Daniel Patrick Moynihan, one of the great statesmen of American politics. The idea is similar to the boiled frog theory I described last month: with every ratchet down in behavior, the new low becomes somehow normal, and any subsequent changes are perceived as being less bad (compared with the new “normal”) than they would have been otherwise. Another way to describe it is a behavioral downward spiral—that is, behavior that formerly would have been thought absolutely disgraceful is now seen as somewhat embarrassing.

I have to be honest: I’ve been putting off writing about this for the past couple of days, for both good and bad reasons. One good reason is that, really, there hasn’t been much news. Congress is playing games, everyone is shouting at each other, and nothing is getting done. The other good reason is that there’s not much we can do to prepare, given the level of uncertainty that prevails. No news, no action items, no need to comment.

The bad reason I have for putting this off is that, quite frankly, it’s depressing. We’ve been through this before, in both 2011 and 2012, and the fact that we’re going through it once again is just ridiculous. Be that as it may, though, here we are, so let’s deal with it.