[Breaking news update
12:20 p.m. ET]
Senate leaders announced on
Wednesday that they have reached a deal to end the government shutdown and avoid
a possible U.S. default.
[Original story moved at
11:45 a.m. ET]
Senate leaders on Wednesday
worked out a deal to reopen the government and avoid a potential U.S. default as
soon as midnight, sources told CNN's Dana Bash and Ted Barrett.
Formal announcement of the
agreement will come at 12 noon ET on the Senate floor, a Republican Senate aide
told Bash.
Republican leaders convened the
Senate's full GOP caucus in the morning, and Sen. Kelly Ayotte of New Hampshire
said on her way in that the announcement would be coming.
"I understand that they've come
to an agreement but I'm going to let the leader announce that," Ayotte said.
Exact details of the Senate plan
were not known. Nor was it clear how the Senate and House would proceed in
considering the measure.
Both chambers would have to take
special steps to get the legislation passed and to President Barack Obama's desk
before the government's ability to borrow money expires on Thursday.
Legislators dropped hints on
their way home on Tuesday that Senate Majority Leader Harry Reid and his
Republican counterpart, Mitch McConnell, would quickly finalize an agreement in
the works all week.
U.S. stocks opened sharply
higher on expectations Washington would end its partisan fiscal impasse. The
benchmark Dow Jones Industrial Average jumped 200 points.
Short-term
plan
According to sources, the Senate
deal under discussion would reopen the government, funding it until January 15.
It would also raise the debt limit until February 7 to avert a possible default
on U.S. debt obligations for the first time.
It also would set up budget
negotiations between the House and Senate for a long-term spending plan, and
would include a provision to strengthen verification measures for people seeking
government subsidies under Obama's signature health care reforms.
The focus shifted to the Senate
after House Republicans failed on Tuesday to come up with a plan their majority
could support, stymied again by demands from tea party conservatives for
outcomes unacceptable to Obama and Senate Democrats, as well as some fellow
Republicans.
It remained unclear if the
congressional tea party wing led by Sen. Ted Cruz of Texas would continue
efforts to force its demands into a congressional deal, perhaps by trying to
filibuster or otherwise delay Senate action.
"It's up to him. I would hope he
wouldn't," Ayotte, who represents New Hampshire, told CNN's "New Day." "Senators
can cause to you run out the clock, but what's he trying to gain at this point?
I would hope that whatever comes forward, that we would allow a vote on it as
soon as possible."
Cruz, despite being in the
Senate, is credited with spearheading the House Republican effort to attach
amendments that would dismantle or defund the health care reforms known as
Obamacare to previous proposals intended to end the shutdown.
All were rejected by the
Democratic-led Senate, and Obama also pledged to veto them, meaning there was no
chance they ever would have succeeded.
Ayotte called the tactic of
tying Obamacare to the shutdown legislation "an ill-conceived strategy from the
beginning, not a winning strategy."
However, Republican Rep. Steve
King of Iowa advocated continued brinksmanship to try to change Obamacare, which
conservatives detest as a big-government overreach.
"If we're not willing to take a
stand now, then when will we take this stand?" he told CNN's "New Day," adding
that if "the conservative Republican plan had been implemented five years ago,
say at the inception of what is now the Obama presidency, we would have far less
debt and deficit."
Despite warnings by Obama and
economists that a U.S. default would spike interest rates and could have
catastrophic impacts at home and abroad, King said he's not too concerned if the
government passes Thursday's deadline to raise the borrowing limit.
"It's just a date they picked on
the calendar," he said, adding that the government will still be able to pay the
interest on its debt. "I'm more concerned about market reaction than I am of
default itself."
Thursday marks the day the
Treasury Department will run out of special accounting maneuvers to keep the
nation under the legal borrowing limit. From that point on, it will have to pay
the country's incoming bills and other legal obligations with an estimated $30
billion in cash, plus whatever daily revenue comes in.
The expectation is that the
Treasury will be able to pay bills in full for a short time after Thursday, but
exactly how long remains unclear. According to the best outside estimates, the
first day the government will run short of cash could come between October 22
and November 1.
Officials warn that an unknown
is whether creditors such as foreign countries that traditionally roll over
their U.S. bond holdings could decide to instead cash out, creating a
potentially major payout that the government would lack funds to fulfill.
A top GOP Senate aide said
Wednesday that leaders in that chamber remain "optimistic an agreement can be
reached," the same tone sounded Tuesday after lawmakers called it a night around
10 p.m. Senate staffers burned midnight oil to draft a framework bill.
A break from
tradition
If the Senate passes an
agreement, House Speaker John Boehner will probably face the decision of whether
to allow a vote that he knows can only pass with virtually all Democrats and
only a few of his fellow Republicans supporting it.
That would break a Republican
tradition known as the Hastert rule. The informal tenet, named after former
House Speaker Dennis Hastert, says that the House speaker does not introduce
legislation unless a majority of Republicans say they will vote for it
first.
It has served to keep proposals
off the floor, even if they have the prospect of passing via the votes of
Democrats combined with those of some moderate Republicans.
House Republicans have expected
Boehner to uphold the rule, which asserts the party's interests in the chamber,
and he has pledged to do so. However, Boehner has previously allowed votes on
measures lacking full Republican support at times of similar brinksmanship, such
as the fiscal cliff negotiations in late December and early January that raised
tax rates on wealth Americans.
"I believe that John Boehner
will likely be in a position, where he will have to essentially pass the bill
that is negotiated between Sens. McConnell and Reid," said Republican Rep.
Charlie Dent of Pennsylvania, who added that he would vote for the Senate
plan.
About 20 Republicans would have
to back the Senate plan for it to pass, assuming that virtually all of the
chamber's 200 Democrats also would support it.
Slow
process
Even so, it could take a day or
two more for a deal to make it through the legislative process. By then, the
nation will have run out of borrowing authority.
While tax revenues will continue
to stream in, that money will be enough to pay only part of the government's
obligations over time. The impact is unclear in the immediate short term, but
over days and weeks, it would mean that government officials would have to pick
and choose which bills to pay and which to leave for another day.
The prospect of the U.S.
government running out of money to pay its bills and, eventually, finding it
difficult to make payments on the debt itself, has economists around
the world prophesying dire consequences.
Mutual funds, which are not
allowed to hold defaulted securities, may have to dump masses of U.S.
treasuries.
Ratings agency Fitch
fired a warning shot Tuesday that it may downgrade the country's AAA credit
rating to AA+ over the political brinksmanship and bickering in Washington that
have brought the government to this point.
That could help raise interest
rates on U.S. debt, putting the country deeper into the red.
Rating agency Standard &
Poor's cut the U.S. credit rating from AAA to AA+ after the 2011 debt ceiling
crisis. Moody's still has the U.S. rated AAA.
Investors around the world
appeared to be sitting on the sidelines Wednesday waiting out the day's
debate.
Asian markets ended with mixed
results, European markets were down slightly Friday afternoon and U.S. stock
futures -- frequently taken as an indicator for how U.S. markets will open --
were up marginally before trading began Wednesday.
Emergency
brake?
Some scholars have suggested
that the 14th Amendment to the Constitution gives Obama an
emergency brake to stop the default by ignoring what Congress does and
borrowing in spite of having reached the debt ceiling.
Section 4 of the amendment states: "The validity of the public
debt of the United States, authorized by law, including debts incurred for
payment of pensions and bounties for services in suppressing insurrection or
rebellion, shall not be questioned."
Obama has
rejected such claims, the Congressional Research Service has said. And other
scholars say that by invoking the 14th Amendment in this way, the President
would risk breaking other laws.
But the same scholars who say
this say they believe that section 4 was
formulated to keep politicians from holding the debt hostage in order to
impose their political will on the natio
Muddled
plan
Disarray among House Republicans
caused confusion on Tuesday, with Boehner having to pull a proposed agreement
from the floor because conservatives found it too weak.
The House proposal dropped some
provisions on Obamacare but prohibited federal subsidies to the President and
his administration officials as well as federal lawmakers and their staff
receiving health insurance through the Affordable Care Act programs.
It also would have forbidden the
Treasury from taking what it calls extraordinary measures to prevent the federal
government from defaulting as cash runs low, in effect requiring hard deadlines
to extend the federal debt ceiling.
House Democrats opposed the GOP
proposal, which meant it couldn't pass without support from the 40 or so tea
party conservatives, who wanted more spending cuts.
"It just kicks the can down the
road another six weeks or two months," said Rep. Joe Barton, R-Texas.
Time running
out
Obama will meet Wednesday with
Treasury Secretary Jack Lew, who has been looking for creative ways to cover
U.S. financial obligations as the debt ceiling comes down.
On Tuesday, Obama called for
House Republicans to "do what's right" by reopening government and ensuring the
United States can pay its bills. "We don't have a lot of time," he said.
But he acknowledged Boehner's
difficulty in getting his fellow House Republicans on the same page.
"Negotiating with me isn't
necessarily good for the extreme faction in his caucus," Obama said, referring
to the tea party and its conservative allies. "It weakens him, so there have
been repeated situations where we have agreements. Then he goes back, and it
turns out that he can't control his caucus."
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