Partisan calculation continues to take precedence over reassuring financial markets, as Democrats and Republicans in Congress seek separate avenues out of the debt stalemate that threatens the stellar U.S. credit rating.
Despite the risk of investors flinching without a weekend resolution to the political impasse that has left the U.S. Treasury days away from defaulting, the parties could still not agree on a plan by late Sunday.
"We are now getting to a point where markets around the world will question whether the political system in Washington can come together and compromise for the greater good of the country," White House chief of staff Bill Daley lamented on NBC's Meet the Press.
President Barack Obama has repeatedly called for a "balanced approach" to cutting the swollen U.S. deficit, which is expected to top $1.4-trillion during the current fiscal year, as he courts moderate voters on the road to seeking re-election.
With barely a week left before the Aug. 2 deadline by which Congress must act, however, Mr. Obama's prospects for engineering a "grand debt bargain" that would shrink the deficit by up to $4-trillion over the next decade and establish his centrist credentials are fading fast.
"The challenge here is that Republicans want a deal done completely on their terms," former Al Gore aide and Democratic consultant Jamal Simmons said in an interview. "They don't want to do anything that appears to help Barack Obama, even if [their actions] harm the country."
Republican House of Representatives Speaker John Boehner was reportedly proposing a two-part deal that would have Congress approve a short-term increase in the $14.3-trillion (U.S.) debt ceiling, then spend the next several months negotiating a longer-term road map for deficit reduction.
Such a plan would not meet President Barack Obama's demand that Congress lift the Treasury's borrowing limit by at least $2.5-trillion, or enough to avoid a second debt ceiling vote before the 2012 election.
Mr. Obama has insisted he would veto any bill that fails to pass that test, a threat Mr. Daley reiterated Sunday. But Republicans may be prepared to call his bluff.
The President met Sunday evening with Harry Reid and Nancy Pelosi, the top Democratic leaders in the Senate and House, for less than an hour to discuss a new idea from Mr. Reid for a $2.5-trillion debt limit increase, accompanied by an equal-sized package of spending cuts over 10 years.
The Reid plan, which might rally enough Republican votes to pass in both chambers if Mr. Boehner agrees to bring it to a vote in the House, would be tough to swallow for many congressional Democrats and the President since it involves no tax increases. But it shows just how few options remain as the anti-tax Tea Party ties Mr. Boehner's hands.
While a so-called grand bargain would be seen as a huge victory for Mr. Obama, showing he could bridge the partisan divide and make Washington work, it would also boost confidence among investors in the ability of Congress to tackle the country's fiscal problems.
If anything, the past weeks have reinforced the opposite impression.
Even if Congress and the White House are able to come to an agreement to raise the debt ceiling by next week, the U.S. could still lose its vaunted triple-A credit rating if the deal fails to make a dent in the country's structural deficit.
Standard & Poor's warned July 14 that it saw Washington's "inability to timely agree and credibly implement medium-term fiscal consolidation policy as inconsistent with a [triple-A] sovereign rating."
While bond yields have continued to reflect faith in U.S. Treasury securities as among the world's safest investments, a credit downgrade would ripple throughout the global economy. Interest rates would rise, threatening the fragile U.S. recovery.
For Mr. Obama, a downgrade could be politically disastrous.
"Can anyone envision a more devastating [campaign] line than 'Barack Obama, the man who lost America's AAA credit rating and brought you to 9 per cent unemployment?'" Politico columnist Glenn Thrush mused.
Though he first shelved the report of his own deficit reduction commission, Mr. Obama's motivation for seeking a big deficit deal became increasingly clear in recent weeks. He even offered to "take significant heat" from liberal Democrats by proposing about $650-billion in cuts to Medicare, Medicaid and Social Security over 10 years.
The offer was part of a $3.5-trillion deficit reduction plan Mr. Obama was negotiating with Mr. Boehner. But the Speaker backed out of the talks on Friday, accusing the President of "moving the goal posts" by seeking $400-billion in tax increases on top of the $800-billion already on the table.
The real deal-breaker, however, was likely not the $400-billion figure. It had become evident by Friday that Mr. Boehner, an old-school Republican who had urged his members to compromise, could have faced mutiny within his caucus for agreeing to any tax increase at all.
With the default threat hanging in the clammy capital air, the Tea Party holds its grip on Washington.
Konrad Yakabuski