Briefly: we face a "bloodbath" in April when a large enough group of Republicans will hold out for policy concessions in exchange for voting to raise the U.S. debt ceiling.
To add my own comments, even if the Dems cave (and seal their electoral fate thereby), it merely forestalls the inevitable. I have been arguing since 2004 that current trends are ultimately unsustainable because our economy has developed fundamental problems that grow worse regularly. We are tottering toward an Argentine-like economic collapse. We nearly went down that rat-hole in 2008. We pulled back from the abyss, but are doing nothing about the underlying problems. Our biggest policy debates are now about removing the palliative care and accelerating the same trends that got us here previously.
Fun times ahead.
UPDATE: Here is an issue brief from the Center for American Progress on what happens if we don't raise the debt limit. http://www.americanprogress.org/issues/2010/10/big_freeze.html