NEW YORK / BEIJING — Experts and investors still believe Washington will reach a last-minute deal to avoid a default just four days before the deadline of August 2.

"A default is unlikely, eventually the adults will prevail. But there are some real issues at stake, it will take years to work all of them out, including how much to cut spending, and which programs to cut, and how much to raise taxes," said David Backus, an economics professor at the Stern School of Business at New York University.

Others, however, think even if a last-minute agreement is reached, enough damage has already been done.

"The damage is being done to the American reputation for stability by the political infighting even if they do figure out a last-minute deal or if the Treasury can figure out how to meet their interest payment obligations," said David Riedel, founder and CEO of New York-based Riedel Research, which provides equity research and analysis on emerging markets.

"The Treasury will certainly do everything they can to make sure they meet their interest payment obligations — deferring other payments as necessary," Riedel added.

The United States government hit its $14.3 trillion debt ceiling on May 16. Since then it has been using federal pension funds to give it room to pay its bills. The Aug 2 deadline was set by the Obama administration for the Congress to reach a deal to increase the borrowing limit.

Few, however, are sure about the ramifications of the Aug 2 deadline and how to prepare for a default if it happens.

"That (the deadline) has been out there for a while and there is some question as to why that date in particular. I think that if there is not a large package of spending cuts and tax increases there is a high risk of a ratings downgrade. And if that happens the interest costs for the US and for the states will rise and the value of the US dollar will fall," Riedel said.

"I am not sure how one prepares for a default since we've never had one in the history of our country," Clay Jones, CEO of Rockwell Collins Inc, told Reuters.

According to an earlier report by the Associated Press, some of the real consequences if no agreement is reached by that deadline include: On Aug 3, some $23 billion in social security benefit payments are due to be processed; on Aug 4, the Treasury Department must pay $87 billion to investors to redeem maturing Treasury securities; and on Aug 15, more than $30 billion in interest payments come due.

This week, Obama again addressed the nation and warned that if both sides do not come to an agreement the US risks "a deep economic crisis", calling on Americans to pressure Congress to decide on a reasonable compromise.

Last weekend's intense talks resulted in two separate proposals by Republican House Speaker John Boehner and Democratic Senate Majority leader, Harry Reid.

But a planned Wednesday vote on Boehner's spending cuts of $1.2 trillion over the next decade had to be postponed until Thursday because his projections were deemed to be inaccurate by the non-partisan Congressional Budget Office. However, even if it passes what is expected to be a close vote, the bill faces stiff opposition in the Democratic-controlled Senate.

Reid's plan calls for deeper cuts of about $2.7 trillion and for a longer extension of the borrowing limit, a provision supported by Obama.

Even if a default is avoided, the US government's top-notch triple-A credit rating could face a downgrade by leading credit agencies like Moody's and S&P, which would raise borrowing costs and slow down the economic recovery.

Foreign investors such as China and Japan are the largest customers of US bonds. Of the total foreign holdings of $4.5 trillion, China owns about $1.16 trillion and Japan owns $912 billion, according to the May data released by the US Treasury Department.

Mei Xinyu, a researcher at China's Ministry of Commerce, was quoted in China's People's Daily earlier this week as saying the deadlock reveals "the darkest, ugliest" aspects of the political system in the US.

"Apparently, the US government has lost its patience in recovering its economy gradually. Any further easing of US monetary policy will lead to an increasing inflow of speculative capital, a possible appreciation of the yuan and put more pressure on China's already huge foreign exchange reserves," said Lai Pingyao, a professor of economics at the University of International Business and Economics in Beijing.

While raising the debt limit seems to be primarily an internal issue, it draws the attention of the global financial markets and all investors of US bonds.

Riedel emphasized that the debt ceiling is actually "a global issue."

"Given that the US dollar and investments in the form of US Treasuries are the major currency of trade and store of value for reserves globally, this is a topic that impacts every country in the world," Riedel explained.

The issue impacts China, the largest holder of US bonds because it affects the value of the US dollar, he added. 

The reality is even if a last-minute deal is reached by Tuesday and a default is avoided, foreign investors to the US may take it as a red flag and rethink their investment strategy.

"The events of the past month on this topic have to cause concern about the ability of the US government to successfully manage the economy of this country," said Riedel.

Thursday marked the fifth straight day that the Dow Jones Industrial Average declined with the debt debate clearly weighing on the markets.

Reuters contributed to this story.