* Debt ceiling increase needed by Thursday
* Talks seen continuing into early next week
* Road to a deal looks difficult
By Thomas Ferraro and Tim Reid
WASHINGTON, Oct 12 Congressional negotiations to
end a U.S. fiscal crisis gripping Washington and spooking
financial markets hung by a thread on Saturday after bipartisan
talks broke down in the House of Representatives and shifted to
Senate Majority Leader Harry Reid, a Democrat, held an
initial session with Senate Republican leader Mitch McConnell.
But uncertainty remained about their ability to reach an
agreement quickly to end a partial government shutdown and
increase the nation's borrowing authority.
Thursday is the deadline for raising the debt ceiling,
necessary to avoid a possible government default. The Senate was
set to meet on Sunday, but the U.S. House of Representatives was
not, so Congress will be cutting it close.
"Economists say it won't be long before financial markets
react negatively to this continued uncertainty," Reid said on
the Senate floor.
"The life savings of ordinary Americans are at risk."
Among the unresolved issues is the duration of the debt
ceiling increase. House Republicans were pushing a boost that
would last only six weeks, producing another potential showdown
in the middle of the holiday season. Democrats want to push the
next debt ceiling deadline at least well into the new year.
Also at issue were government spending levels and Republican
concerns about President Barack Obama's signature healthcare
law, popularly known as Obamacare. Republican demands for
defunding Obamacare led to the shutdown on Oct. 1.
Reid and other Senate Democratic leaders went to the White
House to confer with Obama in the afternoon, but said nothing to
reporters as they left after an hour and 15 minutes.
At the meeting, Obama and Senate Democratic leaders agreed
that talks should continue between Reid and McConnell, a senior
party aide said.
"But Democrats' position remained the same: Democrats are
willing to negotiate on anything Republicans want to discuss as
soon as we reopen the government and pay our bills," the aide
Lawmakers are also scrambling to put hundreds of thousands
of federal employees back to work after their failure to fund
the government resulted in the partial shutdown.
Dick Durbin, the second-ranking Democrat in the Senate,
said the goal was to reach a bipartisan deal in the Senate
before financial markets reopen on Monday.
But the road to a deal appeared difficult, as Reid dismissed
Republican Senator Susan Collins' plan to extend the U.S. debt
limit until Jan. 31 and fund the government for six more months.
That plan had given some moderate lawmakers hopes for a
quick compromise, but Democrats said it was saddled with too
many objectionable add-ons.
Collins expressed disappointment, but said she remained
hopeful "that a bipartisan solution to reopen the government and
prevent a default is within our reach."
The "preliminary" Reid-McConnell negotiations - at 9 a.m. on
Saturday in Reid's office - were launched one day after Obama
rejected a proposal by House Republicans for a short-term
increase in the debt limit to Nov. 22.
Democrats warned that such a small increase in borrowing
authority would simply lead to another round of bitter
confrontations in Congress and could choke off consumer
confidence just as the Christmas buying season was starting.
The flurry of action in the Senate came as House Speaker
John Boehner informed his fellow Republicans in a private
meeting that the White House had rejected its proposals and
there likely would be no more ideas delivered to Obama now that
attention was shifting to Senate negotiations.
Although McConnell initiated talks with Reid, the Republican
has maintained a relatively low profile as he faces a tough
re-election campaign back home in Kentucky.
"We had a good meeting" was all McConnell would say to
questions shouted by reporters in a Senate hallway.
While some senators were hopeful now that Reid and McConnell
were negotiating, no clear path to a deal was evident.
"Senator Reid and Senator McConnell are talking to each
other for the first time and that's good," Republican Senator
Roy Blunt said.
Even if senators craft a proposal to end the government
shutdown and raise the debt ceiling, at least some Republican
support will be needed to pass it in the House. That support is
far from guaranteed, especially if the Senate deal does not
include any new attacks on the healthcare law.
As Senate leaders tried to craft a deal, many House members
headed to their home districts, having been informed there would
be no votes before Monday evening.
With every passing day, according to opinion polls,
Americans' patience has worn thin with Republican tactics that
led to the government shutdown, enhancing prospects of a deal.
"Markets rose on hope for a deal, so markets are likely to
fall as reality check alters sentiment," said David Kotok,
co-founder and chief investment officer at Cumberland Advisors.
Kotok said he believed there would be no deal before Thursday,
adding, "This fight is a long way from over."
Companies and trade associations have been stepping up their
efforts on Capitol Hill as the debt ceiling deadline approaches.
"I was optimistic yesterday morning," David French, the
chief lobbyist for the National Retail Federation, told Reuters
on Saturday. "I'm a little less optimistic today and so are
folks I've talked to" on Capitol Hill.
Retailers are particularly concerned about going into a
holiday season with debt ceiling jitters hanging over the
Beyond that, French said: "They're concerned about
Washington. They're concerned about the level of dysfunction.
Our members do not like lurching from crisis to crisis without
hope of a resolution."
Scott DeFife, top lobbyist for the National Restaurant
Association, said his industry was "extraordinarily concerned
with the debt limit."
For his members, he said: "Consumer confidence is critical.
Any financial issue like this can really put a damper on