By Tom Cohen and Matt Smith, CNN
As night fell over the Capitol on Monday, Senator Majority Leader Harry Reid struck a tone of optimism.
Talks with his Republican counterpart, Mitch McConnell, to end the partial government shutdown and avoid a U.S. default had made tremendous progress, he said.
“Perhaps,” he added, “tomorrow will be a bright day.”
That, indeed, is the hope among investors, world leaders and regular Americans weary of the government stalemate.
Financial markets that began the day Monday with falling stocks ended higher at day’s end, with Wall Street heartened by news of a possible deal.
The negotiations are also being closely watched by other nations, which would also feel the impact of a U.S. default.
John Cunliffe, who will become the deputy governor of the Bank of England, told British lawmakers over the weekend that banks should begin planning for contingencies.
As Reid and McConnell negotiated Monday, the White House announced that it was postponing a meeting between President Barack Obama and congressional leaders.
Most political experts took that to be a good sign — that Obama was stepping back as the two leaders made good progress on an agreement.
Any agreement that Reid and McConnell reach will likely pass muster in the Senate. But the big question is whether the Republican-dominated House will play ball.
Mindful that the Thursday debt deadline is days away, House Republican leaders are considering all their options, said a GOP leadership aide, speaking on the condition of anonymity.
During a visit Monday to a local food pantry, Obama warned of what he called continued partisan brinkmanship by House Republicans who “continue to think that somehow they can extract concessions by keeping the government shut down or by threatening default.”
“My hope is a spirit of cooperation will move us forward over the next few hours,” Obama said.
The finer points
Reid and McConnell have to reach a resolution on two critical issues: end the partial government shutdown that began October 1; and raise the debt ceiling so the U.S. can borrow more money to pay all the government’s bills.
Democrats want an increase in the debt ceiling to last for several months — to avoid similar showdowns in coming months.
At the same time, they want a spending plan to reopen the government, but one that will be temporary. This will allow them to work toward a longer-term agreement that can negate the impacts of the forced sequestration cuts.
Republicans, on the other hand, want the opposite.
They want a longer spending proposal that would lock in the planned sequestration cuts in coming months. And they want a shorter debt ceiling extension in order to negotiate further deficit-reduction measures.
“We’ll get this done. We’re gonna get this done. I feel real confident,” said Joe Manchin, D-West Virginia.
‘Solve this problem today’
During his visit to Martha’s Table in Washington, Obama said the congressional leaders could “solve this problem today.”
He warned that a default, in which the government would lack enough cash on hand to pay down its debt obligations as well as other daily bills such as Social Security checks, “could have a potentially devastating effect on our economy.”
“We’ve already had a damaging effect on our economy because of the shutdown,” he said. “That damage would be greatly magnified if we don’t make sure that government’s paying its bills, and that has to be decided this week.”
The Treasury Department said it will be unable to pay the government’s bills unless the debt limit is increased by Thursday.
Democratic sources told CNN that the proposal under consideration by Reid and McConnell would fund the government through January 15, allowing it to reopen for at least three months or so.
At the same time, negotiations on a budget for the full fiscal year would have a deadline of some time in December, the sources said.
Meanwhile, the debt ceiling would be increased through February 7 to put off the threat of default for almost four months, according to sources in both parties.
The budget negotiations were expected to address deficit reduction measures and therefore could impact when the debt limit would need to be increased again.
In addition, provisions involving Obama’s signature health care reforms could be included, such as strengthening verification measures for people seeking federal subsidies to help them purchase health insurance required by the 2010 Affordable Care Act, the sources said.
Another possible change to the health care reforms would delay a fee on employers, unions and other plan sponsors that raise money to compensate insurance companies for taking on high-risk customers in the early years of Obamacare.
CNN political analyst John Avlon said Monday that Democrats wanted to press what they perceive as an advantage over Republicans on how the public is perceiving the latest round of Washington budget and deficit brinkmanship.
“What’s behind it (are) poll numbers that saw Republicans getting their butt kicked because of this whole gamesmanship,” Avlon said.
CNN’s Dana Ford, Greg Clary, Deirdre Walsh, Mark Preston, Chelsea J. Carter, Dan Merica, Brianna Keilar and Janet DiGiacomo contributed to this report.
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