Blackstone CEO Tony James warned of 'Armageddon' in the markets if the U.S. defaults on its debts, predicting 'the stock market would plummet'

Fitch put U.S. debt on 'ratings negative watch' over the 'political brinkmanship' that risks the strength of the dollar as the 'preeminent global reserve currency'

Billionaire Warren Buffet said it would be a 'pure act of idiocy' if the U.S. defaulted on its debts

Senate Democrats are back in control after last minute rival deal from House Republicans crashed and burned Tuesday night

Deal must be done before midnight or country risks crashing through midnight deadline, when US Treasury predicts their won't be enough money to pay country's bills

Senate Democrats claim a 'deal is basically done' to raise country's debt limit after a frenzied day on Capitol Hill

Senate Democrats claimed Tuesday night that they were back in control of debt-limit talks and are now scrambling to make a deal as the clock ticks down to the U.S.'s self-imposed midnight deadline when the country risks defaulting on its bills and sparking a global recession.

Majority Whip Dick Durbin said inside the U.S. Capitol Tuesday night that negotiators on both sides of the aisle were 'making good progress' toward an agreement to raise the debt ceiling and reopen portions of the federal government that have been shuttered for two weeks.

'They're still working out the details between Senators McConnell and Reid, and we're close,' Durbin told reporters. 'They had a basic agreement of what would be included ... all pointing in the right direction at this moment.'



'It's basically done,' a Democratic leadership aide told NBC News .

Any bill will have to be drawn up and pass the Senate before being passed by the Republican-led House of Representatives to stave off the predicted looming disaster. And moving the bill from one house of Congress to the other could tee up a fresh round of frenzied negotiations and recriminations.

But it is likely the legislative process will take longer than a day by which time the country will have already crashed through the deadline into perilous uncharted economic waters.

The breakthrough came after a day of high drama on Capitol Hill during which Senators and the Republican-led House played a game of high stakes poker with the country's economy and its reputation abroad.





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'Game, set, match': House Speaker John Boehner went down to defeat as conservatives in his caucus bolted from the idea of softening a proposal to reopen the government and dodge a debt-default bullet

Treasury Secretary Jack Lew last month set a deadline of Thursday for a deal to be done to raise the $16.7trillion debt ceiling. He said after that the U.S. will only have $30 billion cash reserves to meet its ordinary day-to-day debt obligations.

'The financial system could freeze up' and 'panic will ensue', he told CBS News .

While many believe the country has enough cash to pay its debts until the end of the month, no one doubts the seriousness of failing to reach a deal before the money runs out. Blackstone Group president and CEO Tony James said that 'the stock market would ... plummet' in the face of a genuine default on Treasury securities.



Fitch Ratings put U.S. debt on 'ratings negative watch' Tuesday because of the inability of Congress to reach a deal.



It is not a downgrade, but Fitch said the move came because of 'political brinkmanship that could increase the risk of a U.S. default' and 'risks undermining confidence in the role of the U.S. dollar as the pre-eminent global reserve currency'.

The deadlock has already driven up the cost of U.S. borrowing and hurt the strength of the dollar. The Dow Jones closed 133 points down last night.

The International Monetary Fund has said failure to come to agreement risks another global recession.

Meanwhile, billionaire investor Warren Buffet told CNBC this morning that it would be a 'pure act of idiocy' if the U.S. defaulted on its bills and damage the country's reputation for paying its bills that has been built up over 237 years.

Republicans in the House of Representatives abandoned a planned Tuesday night vote shortly before dinner after it became clear House Speaker John Boehner wouldn't get enough votes to pass a surprise rival bill he unveiled hours earlier.

At that point, Boehner's staff found there was nothing to do but order a massive stack of pizzas for dinner.



The surprise announcement of the GOP's rival plan Tuesday morning left Reid stunned and furious. California Senator Dianne Feinstein had lamented that bipartisan talks in the Senate were in disarray.

'It's all fallen apart,' she told Bloomberg News Tuesday afternoon. She lashed out as McConnell broke off negotiations with Reid while his House GOP counterparts worked to pass their bill.

Dinner time: An aide brings a cart stacked with pizza to the office of Speaker John Boehner, as movement toward ending the government shutdown was suddenly halted Tuesday night

Congressional staffers tapped Pizza Boli's, a popular D.C. delivery choice, for carts full of sustenance as tense talks went through dinnertime before the GOP effort stalled

But the Senate started up its processes again after dinnertime, following news that Republicans in the House couldn't reach agreement on the terms of their own proposal.

'It's game, set, match, I think,' a GOP aide to a centrist Republican House member told MailOnline. 'We should have seen this coming.'

'The only questions left are how much pain Harry Reid will want to inflict, and how much Mitch McConnell will let him get away with.'

'It's all over. We'll take the Senate deal,' another GOP staffer told the conservative National Review .

McConnell told reporters Tuesday night that with the House at a standstill, he would take over as the primary GOP negotiator.

'Given tonight's events,' McConnell spokesman Don Stewart said in a statement, 'the leaders have decided to work toward a solution that would reopen the government and prevent default. They are optimistic an agreement can be reached.'

And Reid's spokesman Adam Jentleson said that his boss and McConnell had 're-engaged in negotiations and are optimistic that an agreement is within reach.'

'It's all fallen apart,' complained Sen. Dianne Feinstein, angered that a Senate deal to beat the debt-ceiling countdown clock was sidelined by a Republican plan -- but hours later, Democrats were in charge again

Mortgaged to the hilt: Many Republicans are willing to take the talks to the wire because they want to see the soaring debt-limit cut and for the US to pay its own way

The GOP was unable to close the deal on its own proposal amid claims that Boehner couldn't satisfy enough of his caucus to push the deal across the finish line.

Pay up: Chart shows when major payments by the U.S. Treasury are due in the coming weeks

House GOP leaders spent Tuesday cobbling together a piece of legislation that would satisfy both hard-line tea party members, who want to chip away at Obamacare , and more moderate lawmakers who seek compromise with the Democrats who control the Senate.

Republican House Speaker John Boehner said he had heard 'are a lot of opinions about what direction to go,' and conceded in the afternoon that 'there have been no decisions about exactly what we will do.'

Lew will meet with President Barack Obama and Vice President Joe Biden on Wednesday in a closed Oval Office strategy session.



Also hanging in the balance is a chance to resolve the two-week-old partial government shutdown.



Lew hasn't publicly let on that there's any additional breathing room. And as a ping-pong game ricochets from Senate to House and back again, some observers are worried that the 17th will come and go without a final deal reaching President Obama's desk.

Senate Democrats are pressing for a deal that would make only token tweaks to the Obamacare law, the legislative touchstone that first generated angst among tea partiers threatening a government shutdown in late September.

Their proposal, which Senate Republicans have signaled they would support, aims to fund the government until Jan. 15 and raise the debt ceiling through Feb. 7. it would also set Dec. 13 as a deadline for longer-term budget negotiations in both houses of Congress.



Q&A: THE STATE OF PLAY IN WASHINGTON, D.C. What were the House Republicans offering?

House Speaker John Boehner and other GOP leaders wanted to raise the debt ceiling until Feb. 7 and end the shutdown by funding the government through Dec. 15. They proposed virtually no spending cuts but also no increases. Their plan would have canceled special Obamacare-related insurance subsidies for the president, vice president, political appointees, members of Congress, and all their staffers. They had already given up on demanding a repeal, delay or defunding of the entire Obamacare law.

What do Senate Democrats want?

Senate Democratic Leader Harry Reid wants the same debt-ceiling time-frame, but prefers to fund the government through Jan. 15. The Senate plan would also require a joint House/Senate committee to find a longer-term solution by Dec. 13. Reid wants to roll back the March 2013 'sequester' budget cuts, adding approximately $100 billion in new spending, mostly on entitlements. His proposal would also delay a 'reinsurance' plan that could cost labor unions $63 per year for each employee they cover, although one Washington, D.C. newspaper has determined this element of the deal was taken 'off the table' on Tuesday night.

What changed on Tuesday?

GOP efforts in the House stalled when conservatives announced they wouldn't support any deal that failed to cut government spending or significantly weaken Obamacare, two measures that would be 'dead on arrival' in the liberal-controlled Senate. President Obama had earlier told House Democratic leaders he would veto any bill that stripped Obamacare subsidies from senior government executives – including himself – and their staffers. Republicans also nixed their plan for a two-year delay on a controversial medical device tax slated to raise $30 billion for Obamacare.

What's likely to happen before the Treasury Department's Oct. 17 debt deadline?

House Republicans could still call a vote on their plan if conservatives back down or moderates beef up their offering with more tea party-friendly language, but that's unlikely. The Senate will likely vote to pass a package by Wednesday, dropping the hot potato back in Republicans' laps. Senate conservatives, however, could still block a vote in that chamber by refusing to end debate 'by unanimous consent.' If a tea party senate like Ted Cruz or Mike lee were to object, a super-majority of 60 senators would be needed to call a final vote. That scenario will depend on what's in the Senate's final bill.

Why would Senate Republicans go along with Reid and the Democrats?

Mitch McConnell and most other Republican senators believe Republicans should focus on the 2016 election and re-establish their majority before focusing on cutting government spending or derailing Obamcare. They tend to scoff at more strident Republicans who stir up controversy because polls generally show the public blames Republicans for the resulting fallout.

Why were Democrats so angry at Boehner on Tuesday?

Until Tuesday morning, the Senate's proposal was the only one with any momentum so Harry Reid believed the House would settle for making minor amendments to his plan. But on Monday night Texas Sen. Ted Cruz -- a tea-party darling loathed by liberals -- met secretly with a group of conservative House members and urged them to stand their ground. After that contingent spoke during a Republican policy meeting Tuesday morning, Boehner announced that he wouldn't be passive. Democrats understood that Cruz temporarily outflanked them by working with members of the other house of Congress, an unconventional move that they didn't anticipate.

Will the U.S. really reach economic Armageddon on Thursday of a deal isn’t reached?

The U.S. has actually been spending past its official debt limit since mid-May 2013, and few in Washington believe that the sky will fall on Oct. 17 if Congress fails to find a solution. Tax revenues are $240 billion every month, compared to just $18 billion in interest on the national debt. So the government will have what the Treasury Department needs to satisfy America's creditors for weeks, if not months, and conservatives like how the government shutdown has served as an illustration that some expensive government programs are 'non-essential.' Only the president can order the Treasury to skip interest payments. But if bond ratings agencies jump the gun and downgrade U.S. creditworthiness, the effect in the markets could be the same even if there's no real default.



'We're encouraged by the progress that we've seen in the Senate,' White House press secretary Jay Carney told reporters on Tuesday, 'but we're far from a deal at this point.'

Democrats would extract a major concession from the GOP with a one-year delay in an Obamacare 'reinsurance' tax, a three-year, $63-per-head levy against group insurance plans intended to help stabilize risk pools as insurers are forced to accept the sickest patients into coverage.

'Sabotage': House Minority Leader Nancy Pelosi said her Republican colleagues were trying to deep-six progress led by Democrats in the Senate

Labor unions have objected to that element of the Affordable Care Act, saying their large employee pools would generate massive tax burdens while gaining little benefit from the fee.

Roll Call reported Tuesday night that the tax rollback was 'off the table' as Reid and McConnell negotiated, but the final result remains to be seen.



Republicans have complained that easing the tax amounts to a carve-out for one of Obama's favorite interest groups. But they would secure one minor victory of their own in the Senate arrangement, a guarantee that Americans applying for health insurance subsidies under Obamacare would have to prove their income levels.



Conservative commentator Charles Krauthammer said Monday on the Fox News Channel that the Senate deal under consideration 'can work, and it would be a big defeat for the Republicans.'



An earlier GOP bugaboo, a medical device tax that some blame for job losses in the midwest, won't be touched in the Senate proposal. And earlier hopes of delaying or defunding the law's larger implementation have disappeared completely.

Rope-a-dope? Senate Minority Leader Mitch McConnell seemed on Monday to agree with a Democratic proposal that his right wing saw as weak. Now he'll have to put up or shut up

That has frustrated tea party-aligned Republicans including Texas Sen. Ted Cruz, who was spotted by chance Monday night huddling in a Capitol Hill restaurant with some of the House of Representatives' most conservative members.

Roll Call reported that House Majority Whip Kevin McCarthy happened to be dining upstairs at the eatery while Cruz's conservative cabal was meeting in the basement.

Tuesday morning it became clear what they were cooking up, when the House Republican Caucus green-lighted its own competing proposal after breaking into strains of 'Amazing Grace' behind closed doors.

Sensing stiff opposition to the Senate proposal, the GOP members quickly formulated their own competing plan .

The doomed GOP counter-proposal matched the dates in the Senate plan, opening the government until Jan. 15 and increasing the debt limit through Feb. 7. It also included the income-eligibility verification language for Obamacare subsidy recipients. But that's where the similarities ended.

House Republicans wanted to axe the Senate's call for a joint budget committee of House and Senate members to negotiate spending levels during the coming two months. Also gone was the union-friendly delay of the reinsurance tax.



A proposal eliminated special treatment of members of Congress and their staffers, who are scheduled to receive special health insurance subsidies as Obamacare requirements kick in.





Center of gravity: Senate Majority Leader Harry Reid is carrying the ball for President Obama, and claimed Tuesday that he was 'blindsided' by House Republicans after they tried to float their own rival plan

And the House bill would also have hamstrung the Treasury department by adding language prohibiting it from using some, but not all, 'extraordinary' mechanisms to prioritize spending and stave off default.

House Minority Leader Nancy Pelosi, the former speaker, accused Republicans on Tuesday of 'sabotaging a good faith bipartisan effort coming out of the Senate' and 'wasting the public's time.'

And in this case, time is money. Time is money. This is going to be very costly to our economy.'



Boehner told reporters on Tuesday that a host of options were still on the table, but bristled at the idea that the House should bow to the Senate.

Tea party darling Sen. Ted Cruz was spotted dining with conservative House members on Monday night, cementing his reputation in Democratic circles as the 'co-Speaker of the House'

'We're going to continue to work with members on both sides of the aisle to try to make sure that there's no issue of default and to get our government reopened,' he said.

Boehner also said he and his leadership team would 'try to find a way to move forward today' with a vote.



The White House scuttled a Monday afternoon Oval Office meeting with congressional leaders of both parties, which was expected to be a thumbscrew-tightening exercise against Boehner after Senate Majority Leader Harry Reid and his GOP counterpart Mitch McConnell made their deal.

In its place, President Obama scheduled a Tuesday afternoon meeting with only House Democrats. The move was clearly a reaction to news of the House Republicans' last stand.



'The president has said repeatedly that Members of Congress don’t get to demand ransom for fulfilling their basic responsibilities to pass a budget and pay the nation’s bills,' White House spokeswoman Amy Brundage said in a statement moments after the Democrats-only huddle was announced.