The US government avoided a shutdown – but what happens next?

The US government went into Thursday embroiled in a game of three-dimensional chess with time running out and trillions of dollars at stake.

The first dimension was a must-do: fund the government by midnight to avoid it shutting down. In a typical shutdown, hundreds of thousands of federal employees stop getting paid and many stop working; some services are suspended and numerous national attractions and national parks temporarily close.

Related: Pelosi delays vote on Biden’s infrastructure bill in defeat for Democrats

The second dimension is an even bigger must-do: raise the national debt ceiling, an artificially imposed borrowing limit, before an estimated deadline of 18 October. Failure to pay its bills would see the US default for the first time in history. The House speaker, Nancy Pelosi, has warned that the effects would be “cataclysmic” and cost 6m jobs.

The third dimension is not quite a must but it feels that way to Joe Biden and Democrats: pass a $1tn bipartisan infrastructure bill and a $3.5tn partisan package that expands social services and tackles the climate crisis. Both are stalled by divisions between Democratic centrists and progressives, along with Republican eagerness to deny Biden a win.

Why has it gotten so sticky?

The US government’s power is spread across the executive (the president), legislative (Congress), and judicial (supreme court and other courts) branches, which ensures checks and balances but can also get messy quickly.

While Democrats hold the presidency and both chambers of Congress, their margins in the latter are razor-thin. The Senate is evenly split 50-50, with the vice-president, Kamala Harris, holding the tie-breaker vote. Democrats have a 220-212 margin in the House of Representatives so can only afford a handful of defections.

Comparisons between Biden and Franklin Roosevelt’s New Deal in the 1930s were therefore somewhat fanciful since Roosevelt enjoyed much more comfortable majorities to rubber-stamp his priorities. Biden has the power of persuasion but not much else.

So first things first, will the government shut down at midnight?

No, so breathe a sigh of relief. Congress avoided a partial federal shutdown on Thursday when the Senate and House passed a bill to keep the government funded through 3 December.

The stopgap spending bill , which prevented the first shutdown since late 2018 to early 2019, provides aid for communities hard hit by hurricanes, wildfires and other natural disasters as well as money to help Afghan refugees. But it came at a price as Democrats were forced to remove language from the bill that would have raised the debt ceiling.

What about the debt ceiling?

Chuck Schumer, the Democratic majority leader in the Senate, said on Thursday: “Just as our Republican colleagues realise that a government shutdown would be catastrophic, they should realise that a default on the national debt would be even worse.”

Experts predict that the US would plunge into instant recession, millions of jobs would be lost, interest rates would soar and the stock market would plummet. Mark Zandi, chief economist at Moody’s Analytics, told CNN: “It would be financial Armageddon. It’s complete craziness to even contemplate the idea of not paying our debt on time.”

This nightmare, akin to a person running up charges on a credit card and then refusing to pay, can be avoided by giving the treasury department additional borrowing authority beyond the current statutory limit of $28.4tn.

But McConnell has argued that, since Democrats control Congress and the White House, they should pass a debt limit extension with the same budgetary tools they are using to try to pass the $3.5tn social and environmental package.

Democrats contend this is rank hypocrisy since the move would cover spending that Congress has already approved, not future investments. Historically both parties have voted to raise the limit and Democrats joined the Republican Senate majority in doing so three times during Donald Trump’s presidency.

Late on Wednesday, the House approved a bill suspending the debt limit through December 2022 but it is expected to be blocked by Senate Republicans. That would mean the threat of default continues to loom. Conventional wisdom holds that the politicians would not, surely, be willing to drive the country off a cliff. Would they?

What is the infrastructure bill and will it pass?

This is a cornerstone of the Biden agenda, investing $1tn in roads, railways, bridges, ports, airports, broadband internet and more.

On Thursday the House delayed a scheduled vote on the infrastructure bill that passed the Senate last month in a bipartisan vote (with 19 Republicans voting yes). But since then House Republicans have been backing away from the bill, in a move to deny Biden a victory.

Pelosi also faces a revolt from an influential group of progressive Democrats who warned she must hold it back until a bigger, $3.5tn social and environmental investment bill is nailed down.

The progressives want Pelosi to stand by earlier statements that both bills would move through Congress together. They fear that, once centrist Democrats have infrastructure in the bag, they will go cold on the bigger commitment.

Congresswoman Ilhan Omar, a leader of House progressives, said: “We are not blindly trusting that these bills are going to get done in the Senate, without actually having that be guaranteed.”

It is unlikely that Pelosi will go ahead with the vote unless she is assured of victory. The House speaker has postponed negotiations until Friday, giving Democrats at least another day to break the impasse.

What is the social and environmental bill and will it pass?

This would be a once-in-a-generation investment, drawing a line under 40 years of Ronald Reagan’s “trickle down” economics, and potentially transforming millions of lives.

The proposed legislation would extend the child tax credit, establish universal pre-K education and create a federally paid family and medical leave system. It also contains an array of programmes to combat the climate crisis and move the country toward renewable energy.

The $3.5tn plan over 10 years would be paid for by tax increases on the wealthiest Americans and corporations. But centrists are pushing for a smaller package and negotiations on it could stretch for weeks or longer.

It could pass the Senate without Republican votes through a process known as reconciliation, but two Democratic senators stand in the way. Joe Manchin of West Virginia and Kyrsten Sinema of Arizona object to the price tag. Manchin said on Wednesday that spending so much at a time of inflation and a ballooning national debt was “the definition of fiscal insanity”.

Biden has lobbied both senators but neither has publicly made clear exactly what they want, much to the frustration of progressives. Congresswoman Pramila Jayapal, chair of the House Progressive Caucus, said: “They need to come up with their counteroffer, and then we sit down and negotiate from there.”

Manchin indicated to reporters on Thursday that he would settle for about $1.5tn – less than half the progressive demands and unlikely to fly. So the stalemate continues.

What if both pieces of legislation fail?

Never bet against Pelosi, who pulled off Barack Obama’s Affordable Care Act despite internal divisions. But if it does all go wrong, it would be a political disaster for Democrats in general and Biden in particular, crashing the “build back better” agenda on which he ran for election against Trump last year.

It would also be likely to fuel the sentiment that Washington politicians cannot get anything done. Analysts have warned that Democrats would face a landslide defeat in the midterm elections in November next year and that Biden’s bid for re-election in 2024 would lie in tatters. His presidency would be all but sunk.