One of the reasons why Ben Bernanke decided to delay his earlier plan to reduce monthly bond purchases by the US Federal Reserve was the threat of fiscal battles in Washington, DC. US has now moved closer to a government shutdown by Tuesday, as Democrats and Republicans remain in a deadlock, with the latter refusing to allow for continued funding of the federal government unless Democrats pull back from a healthcare law the Republicans say is needlessly expensive.

This showdown brings back memories of the battle over raising the US debt ceiling in 2011. And it was way back in 1995 when funding for the US government was indeed stopped for some time during Bill Clinton’s term. Few investors realize that US politics today has many dysfunctional features that can threaten the fragile global economic recovery.

The high-stakes political battle in US on the edge of a fiscal cliff will be watched closely by equity, bond and currency  markets in the coming weeks.