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Here are the latest developments in the GOP shutdown/default saga:

There were a number of conflicting reports and misguided headlines as to what took place in the world of politics over college and pro football games this weekend, but some things did come into focus per the latest articles in WAPO and the NYT on Sunday evening.

http://www.nytimes.com/...

http://www.washingtonpost.com/...

- The action is in the US Senate.  Harry Reid appears to be very much in control.  Reid and Chuck Schumer appear to be using the GOP's own tactics against them, and it seems to have scared the crap out of the Senate GOP.  That's why we heard a lot of complaints from Lindsay Graham, John McCain, Bob Corker and others on cable and network political shows lamenting the strong arm tactics of the Democrats demanding capitulation (when was the last time you heard that concept associated with Democrats?!).

- It boils down to this:  Reid and Schumer took an idea floated by none other than the dark lord himself, Paul Ryan: to end the sequester.  Now, Ryan offered that in exchange for entitlement cuts, and Obama rejected that part, but what Reid/Schumer (w/Obama's backing) fixated on is that since the House GOP was ready to give up the sequester in one of its own proposals, why not explore that option a bit further with the less insane GOP Senators and force that concept into the discussion?  In other words, the Democrats issued some of their own tacit demands and dared the GOP to accept, negotiate or bear the risk of default and a continuing government shutdown.

When McConnell heard that demand from Reid, he complained and attempted to hold the line, but a bit later he basically punted back to the Susan Collins proposal which had earlier been rejected by Reid, but which had a bipartisan basis as some Democrats had provided input on the initial draft. Reportedly some Democrats, like Joe Manchin, seemed sympathetic to McConnell's point of view, but after an internal meeting, Reid convinced them that the Collins proposal as drafted was a bad deal and the group of Senate Democrats who had worked with Collins issued a statement that they could not accept the Collins proposal as drafted. (Manchin did not sign that letter but he is on board with Reid).

However, rather than reject the Susan Collins proposal outright a second time, Reid got his crew together (which includes some of the more conservative Democratic Senators like Manchin, Donnelley, Pryor, Angus King (I) and Heitkamp plus liberal Senator Klobuchar (D - MN/medical device industry (just kidding...Klobuchar is great)) and is having them re-write the Collins proposal almost entirely, including all of the proposed GOP 'concessions' like the medical device tax and income verification on the ACA.  Details are not available yet, but Collins seemed exasperated, complaining that the Democratic leadership has strong control of its caucus and that the Democrats are moving the goal posts.   Collins also reportedly said in response to the Democrats' aggressive re-writing of her proposal,

“What am I getting?” ....... “I’m serious. I’ve bent over backward.”
The issue is about the length of the debt ceiling increase and the length of the CR.  Reid has not actually proposed a formal repeal of the sequester, but is using it to determine the length of the CR extension.  Reid wants a shorter CR to expire by January 15th, the date that the next round of sequester cuts is supposed to hit.  During that time he expects a new budget agreement that will replace the sequester.  He wants a longer debt ceiling increase, to essentially provide certainty to the markets that this will not be used as a political pawn in any future discussions during the current Congressional term (i.e., we're taking the keys and the camaro away from Paul Ryan and the House GOP).

- House of Representatives - Paul Ryan Blinks?:  Late Sunday came word of a new House GOP proposal that would increase the debt ceiling and pass a CR to end the government shutdown for 6 weeks each with a number of poison pills:  the Vitter amendment (to screw over Congressional staffers by preventing them from receiving an employer subsidy to buy insurance in the exchange); income verification under the ACA (to reduce eligibility for subsidies); and the Lankford Government Shutdown Prevention Act - which would essentially trigger a CR at current levels and impose a sequester cut of 1% across the board every 90 days commencing after an initial 120 day negotiating window if a deal cannot be reached. In other words, the GOP would never have an incentive to work out a deal because there would be a sequester in place to cut spending across the board on a rolling 90 day basis.  Given the prior GOP proposals, this one is not likely to get much traction with the WH, but what is notable is that it comes a day after Paul Ryan had whipped the GOP House caucus into a frenzy to rejecting any Senate compromise and invite a default. Sounds like Paul Ryan isn't quite so sure he wants to be blamed for a default. This proposal, while complete garbage, is a step down in ransom demands from prior proposals.  There are no entitlement cuts, ACA repeals, employer mandate delays, or medical device tax repeals in the latest House GOP proposal.  

Additional Observations:

- The Senate GOP appears to be wary of the markets, the debt ceiling deadline and their own role in letting the government shutdown happen.  They seem more prepared today than at any other time this year to capitulate to President Obama's demand for a debt ceiling increase and an end to the shutdown without a material ransom payment.  The demands first offered by Collins are being re-written by the Democrats, and McConnell is only willing to hold the line on maintaining the sequester for a short period time, but he seems to know that he cannot dictate new terms to the Democrats in the manner that Paul Ryan has attempted.  No condition that Collins has proposed is worth defaulting over and McConnell knows it.  They just don't want their faces rubbed in it by the Democrats but people as thin skinned as John McCain and Lindsay Graham will always feel aggrieved when they are on the losing side of anything.

- The House GOP is a pile of confusion.  However, the Dark Lord Ryan appeared to blink today when the House submitted a new (still unworkable) offer to the White House.  I still believe Ryan wants to take the country to a default, but there doesn't appear to be an ironclad consensus behind him. The House GOP caucus may be feeling a little gun shy of following Ryan obediently and obsequiously into another dangerous game of chicken.  John Boehner may still yet have some life in the House GOP to steer his party away from the path of default.  For its part, the tea party was attempting to protest its own shutdown of public war memorials, which represents a new level of projection theory as a severe personality disorder. Of course, who better than to lead such a parade of stupidity than Ted Cruz and Sarah Palin.

- President Obama is in the background.  He is letting Harry Reid run the show and sent Joe Biden to Camp David (at Reid's request, apparently). By delegating this matter to the US Senate, Obama can remain above the fray and position himself to agree to a Reid brokered compromise that excludes ransom, and dismiss any relatively small concessions as part of the normal legislative process inherent in the workings of the US Congress.  President Obama's point is to get the Congress to do its job without requiring extortion from the Executive Branch.  If Reid is successful in re-writing the Collins proposal to the liking of the Senate Democrats, he can fairly claim to have achieved that result even if it offers an olive branch to the GOP to save face.

As of today, default is still a strong possibility, but I do feel that there were subtle changes among the Senate and House Republicans that could suggest a willingness to surrender now and save their fight for the budget discussions but with only the sequester to threaten the Democrats, not a government shutdown or default. Given that the next round of cuts falls mostly on the US military, the Democrats probably have more leverage to achieve their goal of replacing the sequester.

The wildcard remains what the House will do if and when the Senate agrees upon a deal to end the shutdown and increase the debt ceiling.  Will they defeat the legislation?  Will Boehner allow it to come for a vote?  Will Boehner encourage blue state and other vulnerable GOPers to vote for the Senate plan even if the Ryan wing and tea party wings oppose? Stay tuned, but exhaustion and a sense of futility regarding the current path might finally be setting in for the GOP. This could change tomorrow of course, so let's just see what happens.

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