We're either at the beginning of the successful conclusion of the debt ceiling negotiations, or the beginning of the collapse of the debt ceiling.

The case for the first is that there are now five plausible deals on the table: The $4 trillion deal, the $2 trillion deal, a smaller deal -- think around $1.5 trillion -- that doesn't include taxes or cuts to health spending, the McConnell deal, and the Reid/McConnell deal, which combines McConnell's mechanism for raising the debt ceiling with about $1.5 trillion in spending cuts and an expedited process for considering further spending cuts. The House Republican leadership and elements of the conservative base have voiced support for the McConnell deal as a last resort, and they'll presumably like the Reid/McConnell deal even better. But talk to the players in the process and the worried comparison you often hear is TARP: that was also must-pass legislation, and the first time it came to the floor, it failed. Many experts believe that failure played a significant role in worsening the financial crisis.

Which brings us to the case for collapse. Some in the political system have sought to convince themselves that blowing through the debt ceiling won't be painful. Rep. Mo Brooks, for instance, said "our credit rating should be improved by not raising the debt ceiling." The people who tell the market what to think are doing everything they can to tell politicians like Brooks that this is dangerously, catastrophically wrong.

It's not just the recent warnings from Ben Bernanke ("a calamitous outcome") and Tim Geithner ("catastrophic"). We're used to those. It's the credit rating agencies like Moody's and Standard & Poor's. They're telling us, slowly, clearly and with terrifying detail, what they will do if we don't raise the debt ceiling. Moody's, for instance, warned that they won't just downgrade our debt -- though they will do that. They'll automatically downgrade 7,000 municipal bonds, and put many, many more on review. The havoc, in other words, will spread. Not to be outdone, Standard & Poor's announced that they thought a downgrade in the United States's credit rating could happen before the end of July -- which is one of our first warning that the market may not wait for midnight on AUgust 2nd. Even China, which holds more than $1 trillion of our debt, is warning us to "guarantee the interests of investors."

So here's where we are: There are at least five viable debt-ceiling deals on the table. Four of them include significant deficit reduction. We've had a variety of credible warning about the economic catastrophe that will result if we don't raise the debt ceiling by the deadline. Which means we know we need a deal and we have a variety of ways to get to one. If we fail anyway, then the credit rating agencies are right: we don't deserve our good reputation any longer.

Five in the morning

1) The Senate is leading parallel, and perhaps more promising, debt deal negotiations, report Lori Montgomery and Paul Kane: "President Obama prepared Thursday to bring bipartisan talks over the debt to a close, as Senate leaders worked across party lines to craft an alternative strategy to raise the nation’s $14.3 trillion debt limit and avert a government default. 'It’s decision time,' Obama told congressional leaders after meeting at the White House for a fifth straight day. Obama gave Republicans until early Saturday to tell him whether any of three options for trimming the federal budget would win GOP support...A breakthrough in the White House talks looked unlikely, however, leaving the Senate framework as the chief option for raising the debt limit before Aug. 2, when the Treasury will be unable to pay its bills without additional borrowing authority."

My take: The Reid/McConnell deal is a bad one for Democrats, but that's exactly why it might pass.

2) John Boehner now says he's open to the McConnell plan, reports David Rogers: "With White House debt talks at a make-or-break stage, Speaker John Boehner signaled Thursday that he’s open to new options to avert a default next month, including a novel Senate plan that would surrender much of Congress’s power over Treasury’s borrowing to the president. It would be a remarkable shift for House Republicans -- something like telling Pickett’s charge to go around Cemetery Ridge and not up it. And Boehner’s remarks may be a ploy as he keeps throwing out options to his rank and file in hopes that they come around to the merits of the $4 trillion grand bargain he attempted with President Barack Obama last week -- before being pulled down by the right."

3) S&P could downgrade US debt as soon as this month, report Zachary Goldfarb and Renae Merle: "Standard & Poor’s said late Thursday that it could downgrade the U.S. credit rating as soon as this month, and there is a 50 percent chance it will do so within three months, if Washington fails to come to an agreement over the nation’s debt. In a statement, S&P indicated a 'substantial likelihood' of downgrading the U.S. credit rating, citing a stalemate in Washington over raising the federal limit on borrowing. S&P managing director John Chambers said in an interview that the downgrade could come by the end of the month if Congress has not voted to raise the $14.3 trillion debt ceiling...All three major credit rating agencies have now threatened the United States’ coveted status as the world’s most secure economy."

4) The administration is privately trying to prevent a market freakout if the debt limit is not increased, reports Zachary Goldfarb: "Obama administration officials have been privately exploring with major banks and foreign investors whether the government could devise a way to avoid a severe disruption in financial markets if the federal debt ceiling is not raised, according to several people familiar with the matter. Officials have discussed suspending some domestic spending in order to make payments to investors in U.S. bonds -- which include domestic pension funds and the Chinese government -- and possibly selling assets such as gold. But the message back from the market has been discouraging: The failure to pay any significant obligations would scare away investors and undermine the financial system."

5) Some Republicans deny that not raising the debt ceiling will cause default, reports David Fahrenthold: "On Thursday, several House Republicans said they didn’t believe predictions that economic calamity would result from a missed deadline. That opinion -- held despite a stream of warnings from both parties’ leaders -- could make it difficult for the House to pass a debt-ceiling deal...'There should be no default on August 2,' [Rep. Mo] Brooks said. 'In fact, our credit rating should be improved by not raising the debt ceiling.' That stands in contrast to a warning from Moody’s. The rating agency said Wednesday that it might downgrade the U.S. government’s top-notch credit rating, 'given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default.'"

Airy pop interlude: Seapony plays "Blue Star" live.

Got tips, additions, or comments? E-mail me.

Still to come: Ben Bernanke says raising the debt ceiling is the only option; Eric Cantor is protecting the pharmaceutical industry from a proposed debt reduction measure; the GOP wants to prioritize Social Security and military spending if the debt ceiling isn't raised; the House will try again to block EPA light bulb regulations; and a ten year old becomes a certified sake expert.

Economy

Ben Bernanke says there's no alternative to raising the debt ceiling, reports Cezary Podkul: "Federal Reserve Chairman Ben S. Bernanke on Thursday rejected various alternatives to raising the country’s borrowing limit and urged Congress to come up with a 'strong, credible plan' for doing so while cutting spending -- or risk a making 'self-inflicted wound' to the fragile economic recovery...Two Republican senators, Patrick J. Toomey (Pa.) and Mike Johanns (Neb.), pitched the idea that the government could avoid default simply by prioritizing debt payments over less important things...Sen. Charles E. Schumer (D-N.Y.) asked whether it would still result in a downgrade of the country’s credit. 'Yes,' the Fed chief answered. 'I do not think this is a direction we want to go.'"

The Gang of Six is kicking back into gear, reports Alexander Bolton: "Talks among the remaining members of the Senate’s Gang of Six have gained new momentum as negotiations between President Obama and congressional leaders have faltered. The five active members of the gang met for two and a half hours in the office of Sen. Mark Warner (D-Va.) Wednesday evening for a pizza and pasta dinner and to make a push for a deal. The sixth member, Sen. Tom Coburn (R-Okla.), who had taken a hiatus from the group, says he is thinking about returning, and has given the group a new round of deficit-reduction proposals to consider Aides to the Gang of Six participants -- who have taken to calling the members 'Five Guys' since Coburn left -- worked late into the night to put their progress into writing."

Elizabeth Warren explained the consumer bureau's scope in a Congressional hearing, reports Maya Jackson Randall: "White House adviser Elizabeth Warren said Thursday the Consumer Financial Protection Bureau isn't seeking to ban certain financial products, addressing Republicans' questions about the scope of the consumer-watchdog agency set to open its doors this time next week. Banning fraudulent financial products and services 'is a tool in the toolbox, and that's where it should stay,' Ms. Warren told lawmakers at a congressional hearing. 'We don't have any present plans' to use that tool. Ms. Warren before hadn't been as explicit about the scope of her agency's powers. U.S. House Republicans pressed Ms. Warren, a longtime banking-industry critic, for details about how the bureau will regulate financial products. Many GOP lawmakers fear the bureau will use its broad power to outlaw certain products. ."

The Republican Congress has gone mad, writes Paul Krugman: "The modern G.O.P. fundamentally does not accept the legitimacy of a Democratic presidency -- any Democratic presidency. We saw that under Bill Clinton, and we saw it again as soon as Mr. Obama took office. As a result, Republicans are automatically against anything the president wants, even if they have supported similar proposals in the past...Put it this way: If a Republican president had managed to extract the kind of concessions on Medicare and Social Security that Mr. Obama is offering, it would have been considered a conservative triumph. But when those concessions come attached to minor increases in revenue, and more important, when they come from a Democratic president, the proposals become unacceptable plans to tax the life out of the U.S. economy."

Clinton's negotiating strategy won't work this time, writes Robert Reich: "So will Barack Obama pull a Bill Clinton? His real problem is one Mr. Clinton didn't have to contend with: a continuing terrible economy. The recession in 1991-92 was relatively mild, and by the spring of 1995, the economy was averaging 200,000 new jobs per month. By early 1996, it was roaring--with 434,000 new jobs added in February alone...So Mr. Obama's challenge in 2012 has nothing to do with Mr. Clinton's in 1996. Most Americans care far more about jobs and wages than they do about budget deficits and debt ceilings. Even if Mr. Obama is seen to win the contest over raising the debt limit and succeeds in painting Republicans as radicals, he risks losing the upcoming election unless he directly addresses the horrendous employment problem."

This is not simply a cyclical downturn, writes Michael Spence: "A recent (admittedly partisan) study by the US Congress’s Joint Economic Committee documents the relative weakness of the current recovery. Indeed, the differences between the current situation and other postwar US recoveries are so large that the term 'recovery' in today’s context is dubious. But US leaders nonetheless accept the cyclical view of the economy, see a weak recovery, and blame it on post-crisis policy failures. But, while that might play well politically, the sensible conclusion is that this is not just a cyclical recovery, but rather the beginning of a delayed process of structural adaptation to a rapidly shifting global economy, to emerging economies’ growth and shifting comparative advantage, and to powerful technological forces."

Amusement park interlude: Why teenagers shouldn't go on the self-propelled teacup ride.

Health Care

Eric Cantor is fighting a debt reduction proposal centered on prescription drugs, reports Matt Dobias: "An on-again, off-again proposal that forces pharmaceutical companies to essentially discount drugs for Medicare's poorest seniors is back on-again --despite fierce opposition from the drug lobby and one of their staunchest defenders, House Majority Leader Eric Cantor. The pairing of Cantor and the powerful Pharmaceutical Manufacturers Association could prove more than enough to squelch the White House-endorsed proposal...Obama pitched the drug rebate idea in April as part of a broader blueprint to tame federal spending, and Capitol Hill denizens Rep. Henry Waxman (D-Calif.) and Rep. Rob Andrews (D-N.J.) turned that proposal into legislation hoping it would influence the debt talks."

IPAB should not be repealed, writes Henry Aaron: "No one knows how to bundle payments to provide incentives for high-quality, cost-efficient care. Comparative effectiveness analysis is needed because, rather surprisingly and very distressingly, most of what doctors and hospitals do has never been subjected to careful evaluation. When the results are in, many health care providers will discover that they should do things differently. Many are likely to respond promptly to the new findings. But people often resist change -- even physicians and hospitals...That is where the IPAB comes in. The law specifically authorizes the advisory board, among other things, to recommend changes in relative payments under Medicare for different forms of care."

Our health policy should accept that death is natural, writes David Brooks: "This fiscal crisis is about many things, but one of them is our inability to face death — our willingness to spend our nation into bankruptcy to extend life for a few more sickly months. The fiscal crisis is driven largely by health care costs. We have the illusion that in spending so much on health care we are radically improving the quality of our lives. We have the illusion that through advances in medical research we are in the process of eradicating deadly diseases. We have the barely suppressed hope that someday all this spending and innovation will produce something close to immortality. But that’s not actually what we are buying."

Domestic Policy

A group of Republicans want to prioritize military and Social Security payments if the debt ceiling is reached, reports Marin Cogan: "Rep. Robert Aderholt (R-Ala.) and several freshmen and upper class colleagues are asking the president to prioritize interest payments on the nation’s debt as well as Social Security and military benefits in the event that leaders don’t reach a deal to avert default on the national debt by August 2nd...Several of the members who signed onto the letter sent to the president Thursday had previously cosponsored a bill that would require him to prioritize the principle and interest payments on the debt in the event that it reached its statutory limit. Democrats hammered them for putting payments to China over Social Security benefits."

Attacks on the National Labor Relations Board undermine due process, writes Fred Feinstein: "Since issuing a complaint against The Boeing Co., the National Labor Relations Board’s acting general counsel -- and the board itself -- has been the target of intense political attacks. The board alleges that Boeing unlawfully retaliated against employees by taking work away because they went on strike...Ssomething different is going on in this case: The controversy surrounding this small federal agency’s prosecutorial decision is raising concern that today’s heated political rhetoric is undermining the constitutional right of due process. Numerous public officials have attacked the NLRB’s general counsel for issuing the Boeing complaint. There have been requests from Congress to see confidential investigatory files related to the complaint."

Adorable children with questionable accomplishments interlude: The world's youngest sake expert.

Energy

The House is trying again to roll back EPA light bulb rules, reports Pete Kasperowicz: "The House appears likely on Friday to accept an amendment to the 2012 Energy and Water Appropriations Act that would deny funding for the implementation of funds to implement a 2007 law that Republicans say will ban incandescent light bulbs. The House on Tuesday rejected a bill to repeal parts of the 2007 law that set bulb efficiency standards. However, a majority of members favored the bill by a 233-193 vote, and the only reason it failed is because a two-thirds majority was needed. On Thursday evening, Rep. Michael Burgess (R-Texas) proposed an amendment to the energy and water spending bill that would prohibit funds in the bill for use in enforcing the 2007 law."

Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.

newsletters@email.washingtonpost.com

July 15, 2011