Let’s check in on the debt limit negotiations. Last night’s meeting at the White House was short and somber, with Administration aides still discussing elements of a big deal, even though that looks all but dead, as it includes tax changes. There is no meeting today; the President instructed the Congressional leadership to go back to their caucuses and determine what can actually pass both chambers. He wants to hear back in the next 24 to 36 hours. Both parties in Congress and the President are holding news conferences today, with the President’s coming up at 11am ET. This will be Obama’s second press conference of the week.

The President still acts like there are three options on the table, but it looks increasingly that the best chance of avoiding default comes from McConnell-Reid, a hybrid approach that takes what Mitch McConnell offered, essentially a clean debt limit bill with some unpalatable political implications, and adds $1.5 trillion in spending cuts and a Catfood Commission II on entitlements. There was earlier talk that there would be a separate commission on tax reform, but that appears to have been dropped. There also may be some stimulus involved, though a paid-for payroll tax cut extension was rejected.

What is emerging as the most likely outcome is a plan based on Messrs. McConnell and Reid’s work, a Democratic official familiar with negotiations said. It would include roughly $1 trillion in deficit reduction, but would not come with tax increases or Medicare savings, the official said. It could include an extension of unemployment insurance, the official said, which costs $40 billion and would be offset by spending cuts.

Mr. Obama suggested in Thursday’s meeting that leaders end tax breaks for ethanol producers, oil and gas companies and corporate jet owners, and offset those tax increases with an extension of the payroll tax credit for employees, a Democratic official familiar with the meeting said, but Republicans said they would not support it.

Mr. Obama said he still prefers a larger plan, but the only way to get even to a $2 trillion deal is to include tax increases, which Republicans flatly oppose, or Medicare cuts, which Democrats oppose without concessions from Republicans on taxes.

There’s also talk about putting some Pharma givebacks into the deal, but House Republicans are fighting that and it would seem to fall under Medicare cuts, so with a Medicare-for-revenue swap out of McConnell-Reid I’m doubtful. Yesterday’s entire meeting seemed like a waste, because it focused on Medicare and revenue.

The other two developments were this: Obama had no problem with the political implications of McConnell-Reid, saying he was happy to take full responsibility for raising the debt limit. “If Senator McConnell wants me to wear the jacket for that, I’m happy to wear the jacket,” Obama said. And John Boehner signaled more openness to something like McConnell-Reid.

I’ll get into the policy implications in a different post. The key data we don’t know is: 1) What cuts would be in McConnell-Reid; 2) How big are the spending cuts, as I’ve heard anywhere from $1 trillion to $1.7 trillion; 3) When do they hit the budget – are there immediate, job-destroying cuts, or is it backloaded? Keep in mind that, if this is roughly flat, you’re talking about $100 billion in deficit reduction in the first year. That’s roughly equivalent to the Republican 2011 budget, which Mark Zandi said would cost the country 700,000 to 1 milllion jobs. The fact that McConnell apparently wants spending caps in FY 2012 and 2013 attached to his agreement does not bode well.

Another hurdle is that Democratic moderates in the House, who may be key to any deal, don’t want to walk the plank:

These centrist Democrats, who are used to being political targets for Republicans and irritants for their own party, were critical to keeping the government open in the shutdown debate back in April — 81 Democrats helped push the spending resolution across the finish line after dozens of conservatives bailed on the deal.

But this time around, moderate Democrats are starting to sour on the process, arguing that the intractability among Republican rank and file is threatening their support.

“I’ve been for cutting the deficit for a long time, that’s what the Blue Dog mantra is about — but not in a radical way and not in the way that harms the economy. These folks are hijacking the issue as a way that is very unfortunate, and they’re voting ideology versus what I think is in the best interest of the country,” said Rep. Dennis Cardoza (D-Calif.), a member of the moderate Blue Dog Caucus. “I’m hearing my colleagues talking about putting their money in mattresses. That’s a very scary proposition.” [...]

“Getting a lot of votes from the Blue Dogs will be difficult, because we’re in these districts where we have difficult elections. Why would we give a tea party person a pass when we’re having to take the tough vote? The Republicans need to get their votes in line,” said another senior Blue Dog member. “This is a scary proposition. I think a deal is unlikely.”

Considering that you would only need 1/3 of the House on the McConnell plan, I’m not sure that one Blue Dog vote would be required. But that could be an irritating element to this.

About the scariest thing here is that the Administration is quietly reaching out to banks and investors to try to mitigate the consequences of default. It’s not working.