October 14, 2013 09:04 AM UTC

And Now, It Begins To Really Hurt

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• by: Colorado Pols

UPDATE: Rumors of a new deal are, as can be expected, turning markets around–Politico:

Senate Majority Leader Harry Reid has privately offered Senate Minority Leader Mitch McConnell a deal that would reopen the government until mid-to-late December while extending the U.S. debt ceiling until next year, according to several sources familiar with the talks.

The proposal would set up a framework for larger budget negotiations with the House over the automatic sequestration spending cuts and other major deficit issues, the sources said. Moreover, Senate Democrats are open to delaying Obamacare’s medical device tax and a requirement that those receiving Obamacare subsidies be subject to income verification — but they would have to get something from Republicans in return, sources said.

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CNN Money:

The Dow Jones industrial average, S&P 500 and Nasdaq declined about 0.5% in early trading Monday. The sell-off erased some of last week's huge gains, when the Dow rallied 460 points over Wednesday, Thursday and Friday.

"Just when you thought it was safe to assume progress on the budget impasse, the weekend has proved to be frustratingly slow in terms of positive developments," wrote Deutsche Bank analyst Gael Gunubu, in a client note. "Markets are responding accordingly … as last week's hope that we would see an early-week deal has evaporated."

As The Hill reports, the ongoing dual crises over the shutdown of the federal government and the upcoming expiration of the government's borrowing authority is creating an unlikely alliance between Wall Street and Democrats: 

The White House has sought to enlist the financial industry in its effort to convince House Republicans to back a clean hike to the debt ceiling.

But while the financial industry has strong ties to many GOP lawmakers, it has struggled to break through to those fighting against a debt-limit boost the hardest. Conservative Republicans who rode the Tea Party wave to power have few ties to deep-pocketed financial interests. [Pols emphasis]

Before the strong close at the end of the week, the Dow had posted steady losses ever since Boehner agreed to push to defund the president’s healthcare law during the government funding fight.

As soon as a deal is reached on extending the nation's debt limit, the markets will immediately stabilize–just the increased likelihood of that, based on reported progress in negotiations, was enough to fuel last week's rally. On the other hand, if a deal isn't reached right away, the financial markets are likely to punish American lawmakers even more than the last GOP-engineered default crisis in 2011. This is the part we had hoped would be avoided by the apparent capitulation underway within the GOP last week, as new polls indicated a disastrous loss of support for them. Unfortunately, the weekend passed without agreement–and now, every day's negotiations begin to have real effects on the wealth of individual American citizens.

Here in Colorado, most Republican members of Congress have paid lip service to ending the shutdown, increasingly aware that they are being lopsidedly blamed for it. That lip service has not translated to successful action. In particular the unsteadiness of Rep. Mike Coffman has both weakened the Republican position by his publicly repudiating it after helping bring it about, and also marginalized Coffman by his being unable (or unwilling) to back up his newfound words. Among Democrats we've talked to, there's a recognition that they can't make anything more than token concessions in the face of a government shutdown and threats of default. If they do, they will legitimize the practice of high-stakes budgetary brinksmanship, and everyone will suffer the more for it. But what pound of flesh will Republicans ultimately need to save face?

It's an easy prediction that something will give, and soon, but beyond that we all have to wait and see.