U.S. Senate to meet as solution to fiscal impasse still elusive

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The Senate will hold a rare Sunday session as U.S. politicians grapple with how to reopen the shuttered government and avoid a potentially calamitous failure to pay the country's debt obligations.

With Republicans in the House of Representatives blaming President Barack Obama for the collapse of talks on extending U.S. borrowing authority, the Senate's Republican and Democratic leaders scrambled to piece together a bipartisan exit strategy.

The top senators showed an intensifying desire to end the two-week government shutdown and ease the threat of default with just three working days next week before the U.S. Treasury's October 17 deadline for raising the debt ceiling.

Democratic Senate Majority Leader Harry Reid, Obama's top wingman in Congress, said he held “extremely cordial but very preliminary” talks Saturday with top Republican Senator Mitch McConnell.

“Nothing conclusive” emerged from the pair's first face-to-face discussion about the twin crises, Reid told reporters, downplaying hopes of a quick fix.

McConnell suggested a bipartisan offer spearheaded by moderate Republican Senator Susan Collins as a workable template, but Reid rejected it.

The measure would extend borrowing authority into 2014 and fund the government for six months, but it would also repeal a medical device tax introduced under Obama's health care law.

Democratic leaders were most concerned, however, with the proposal to keep the existing automatic spending cuts, a move that would put agency spending at $70 billion below what Democrats have proposed for fiscal 2014.

World Bank chief Jim Yong Kim urged policymakers to avert the crisis.

“If this comes to pass, it could be a disastrous event for the developing world, and that in turn will greatly hurt the developed economies as well,” Kim said at the close of the annual World Bank-International Monetary Fund meetings in Washington on Saturday.

International Monetary Fund chief Christine Lagarde compared the effects of failing to raise the debt ceiling and reopen the government to the 2008 global financial meltdown.

“The standing of the U.S. economy would, again, be at risk,” Lagarde said on NBC's Sunday show “Meet the Press.”

“If there is that degree of disruption, that lack of certainty, that lack of trust in the U.S. signature, it would mean massive disruption the world over. And we would be at risk of tipping, yet again, into recession,” she said, according to an advance transcript of the show.

With negotiations with the Republican-controlled House of Representatives in tatters, Obama called a snap meeting at the White House with the Senate's Democratic leadership to regroup.

“Their conclusion was that while Democrats remain united, Republicans have yet to coalesce behind a clear negotiating position,” a Senate Democratic leadership aide said after the Saturday talks.

“Democrats are willing to negotiate on anything Republicans want to discuss as soon as we reopen the government and pay our bills.”

Obama on Saturday made clear that he wanted a long-term deal, rejecting a proposal floated by House Speaker John Boehner suggesting a six-week extension to U.S. borrowing authority.

“It wouldn't be wise, as some suggest, to just kick the debt ceiling can down the road for a couple of months, and flirt with a first-ever intentional default right in the middle of the holiday shopping season,” Obama said in his weekly broadcast address.

House Republicans fumed over the change of heart.

“They felt they were duped,” Congressman John Fleming said of the House leadership as he exited from a Republican caucus meeting.

“They were led to believe that the president did want to negotiate in good faith and now they find out that that was never in the cards.”

House Republicans have argued for any budget deal to include concessions on funding Obama's health care reforms, while Senate Republicans are more willing to reopen government without such conditions.

Some lawmakers were adamant that the House -- which does not meet again until Monday, when world markets might start seriously digesting Washington's impasse -- remains the linchpin for any agreement.

“At the end of the day, whatever they do (in the Senate) still has to come through here,” said Republican Representative Tom Cole.

On Friday, the framework of a possible deal appeared to be forming.

The government, shuttered since October 1, would be fully reopened, possibly on an interim basis.

Both sides would also commit to work toward an elusive deal to tackle the deficit, rein in spending and possibly reform social programs and some aspects of the tax code.

But, perhaps sensing that it now has the upper hand in the fight, the White House has rejected the idea of extending the borrowing authority by just six-weeks.

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