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White House Debt Talks Breaking Down -- Senate Leaders Work on Plan B

With talks all but broken down at the White House, with finger-pointing becoming practically an Olympic sport in the Capitol Wednesday night and Thursday, aides on both sides of the aisle conceded that no grand bargain with $4 trillion or even $2.5 trillion of deficit reduction was possible.

Another credit rating agency, Standard and Poor's, warned Thursday of a possible downgrade of the country's credit raiting. And if there is no agreement at the White House by Friday, "We will have no other choice" but to go with an alternative plan to increase the debt ceiling, said Sen. Dick Durbin, D-Ill.

Durbin offered a stark warning for Republicans if Congress fails to raise the nation's debt ceiling and the federal government defaults on its debt obligations after the Treasury Department-set deadline of August 2.

"My message to Republicans..if they bring this economy down, they broke it, they own it," the No. Two Democrat warned, clearly trying to deflect the political fallout that many expect would ensue.

Tensions were downright raw on Capitol Hill, with gloom and doom predictions of what will happen if a default is realized, particularly after the president warned earlier this week that seniors might not receive their Social Security checks.

A group of Senate GOP freshmen, led by Sens. Ron Johnson of Wisconsin and Florida's Marco Rubio, sent an extraordinary letter to the president chastising him for joining the negotiations late and "scaring seniors."

"Your late entry into negotiations regarding the debt ceiling and the financial future of our nation reveals your lack of serious attention to this issue," the letter reads. "A responsible leader would have been fully engaged and negotiating in good faith months ago...It's time to tell the American people the truth. It's time to seriously address the financial future of America. It's time to stop scaring seniors and the American people. It's time to pass a Constitutional Amendment that will limit the size of government and balance America's budget."

But Treasury Secretary Timothy Geithner, who met with Senate Democrats for an hour Thursday behind closed doors, echoed the president's dire warnings.

"By (August) 4th, as I understand what he said, he, because of other prepayments on debt and those kinds of things, shuts down...because of principal payments. It is a most serious situation," Sen Dianne Feinstein, D-Calif, recounted.

To reporters, Geithner was equally bleak, "We've looked at all available options, and there's no way to give Congress more time to solve this problem," adding, "The eyes of the world are upon us."

Indeed, financial ratings agencies have warned this week that a downgrade in the nation's AAA bond rating is possible. S&P said Thursday the chance is 50 percent. Moody's Investors Service also said it was looking for deficit-cutting actions, as well.

"It's time for Plan B," said one senior Democratic leadership aide with a sigh. "We've got a ways to go on what that will look like, but there's no way that group at the White House, with (House Majority Leader) Eric Cantor at the table, is going to find a way forward."

Senate Democrats spent much of Thursday skewering the Virginia Republican, who said Wednesday that President Obama, in their fourth meeting of the week, blew up at him when he insisted on a short-term deal, this according to aides on both sides of the aisle who are close to the talks. At one point, Cantor said the president tersely said to him, "Don't call my bluff. I'm going to the American people on this," after which he abruptly left the room. Cantor, who has held the line against tax increases in the talks, said he was "somewhat taken aback" by Obama's move.

Senate Majority Leader Harry Reid, D-Nev., called the House leader "childish" and added, "House Majority Leader Eric Cantor has shown he shouldn't be at the table, and Republicans agree he shouldn't be at the table."

But Senate Democrats wasted no time in sending out a fundraising letter, trying to use the Cantor-Obama exchange as a way to rake in some cash. "The president and Democrats are holding strong against this obstinacy, but in no time, the GOP will go on the attack. If a debt ceiling deal is not reached, they will spend millions blaming Democrats. And we will need to fight back against every single lie," the fundraising letter read.

All of the whiplash-inducing back and forth across the Capitol Rotunda served to underscore - with a bright line - the fact that no grand bargain was to be had.

Senate leadership and staff are already hard at work making changes to a fall-back plan proposed earlier this week by Senate Minority Leader Mitch McConnell, R-Ky, a three-step process by which the president would get to a $2.4 trillion debt ceiling increase, in exchange for spending cuts along the way, though the cuts would not have to pass for an increase to occur.

A top McConnell aide told reporters that members are considering adding a deficit reduction commission, along the lines of one created to close military bases, which would find savings in the budget. Any plan the panel approved would have to receive a vote in each chamber.

And though McConnell wants to force Democrats to take three separate votes to gradually increase the debt ceiling by $2.4 trillion, Democrats said that was blatantly political and needed to change. The McConnell aide said details were still in flux, but that he was certain Republicans would not allow simply one vote on a $2.4 trillion increase.

As for whether or not House leaders are on board and could muster the necessary 217 votes for passage, as many members of their rank-and-file savaged the McConnell plan, the Senate leader's spokesman would only note that McConnell talks to House Speaker John Boehner, R-Ohio, "on a regular basis."

And despite Republican leaders saying the U.S. would not default, Senate Democrats painted as grave a picture as possible on Thursday.

"What would default mean to Main Street?" Sen. Chuck Schumer, D-Ny, asked reporters. After saying Social Security recipients and U.S. troops would be paid, the senator warned that there would be "no money for the FBI, no money for cancer research, no money for IRS refunds, no money for border patrol." Schumer continued to add to the list, saying food inspectors and FAA air traffic controllers would be off the job. "America would come to a grinding halt," Schumer predicted.

"We better solve this...or it's going to have a ripple effect that will last for years," said Sen. Mark Begich, D-Alaska.

Meanwhile, Republicans on both sides of the Capitol continued to push the "Cut, Cap, and Balance" bill which would impose strict spending cuts, future caps on spending, and enact a Balanced Budget amendment to the Constitution, something that is all but certain to die in the Senate when it comes up for a vote next week, though McConnell signed on as a co-sponsor on Thursday.

There are Republicans who insist that the August 2 deadline is false and that drastic consequences do not have to happen after that date, but one senior Senate Republican leadership aide told Fox, "We are not going to default," adding that the House is certain to come together to pass legislation that extends the debt ceiling.