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Senate Majority Leader Harry Reid during a news conference about the negotiations with Senate Republicans in Washington, Oct. 12, 2013. With the House negotiations falling apart, hope for a potential deal rested with Reid and his Republican counterpart, Mitch McConnell. (Gabriella Demczuk/The New York Times)

Senate Majority Leader Harry Reid during a news conference about the negotiations with Senate Republicans in Washington, Oct. 12, 2013. With the House negotiations falling apart, hope for a potential deal rested with Reid and his Republican counterpart, Mitch McConnell.

(Gabriella Demczuk/The New York Times)

U.S. edges closer to reaching debt ceiling as Senate leaders try to end impasse Add to ...

Harry Reid and Mitch McConnell have until Monday morning to forestall an economic storm.

Mr. Reid, the Democratic majority leader in the U.S. senate, and Mr. McConnell, the Republican minority leader, took over negotiations to end Washington’s budget impasse Saturday as earlier optimism that an agreement was at hand began to evaporate.

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The two men have been here before. They have known each other for years and have negotiated many times. Nor would it be the first time in President Barack Obama’s tortured budget dealings with House Republicans that senators have swept in at the last moment to avoid the worst-case outcome.

There’s every reason to think global financial markets are poised for a volatile open Monday unless Mr. Reid and Mr. McConnell can come up with a convincing way to reopen the U.S. government and avoid a previously unimaginable debt default.

Financial markets surged on Thursday and Friday as the leaders of the Republican’s majority in the House of Representatives opened a dialogue with the White House, proposing a six-week increase of the U.S. borrowing limit in exchange for the promise of formal talks on reducing the debt and deficit.

But that effort failed after Mr. Obama decided to hold out for an agreement that would bring budget peace for months rather than weeks. House Speaker John Boehner brought that news to his caucus at a meeting on Saturday morning.

The information wasn’t well received and no counteroffer was forthcoming. Mr. Boehner sent his members home for the weekend and the House wasn’t scheduled to reopen until Monday evening. Mr. Boehner and other House leaders said they would stay in Washington to take part in any negotiations.

An apparent willingness by all sides to keep talking be could the one thing that kept the U.S. capital from sliding into a state of despair. Mr. Reid revealed at a press conference that he and Mr. McConnell had a “very cordial” meeting on Saturday morning. Unlike House Republicans, Mr. McConnell’s caucus tends to agree with Democrats that the government’s spending and borrowing authority should be extended for a relatively longer period.

“I hope our talking gives some solace to the American people and the world,” Mr. Reid said. “This should be seen as something positive,” he added. “We’re trying to figure out a way forward.”

The standoff is the result of an attempt by House Republicans to use two budget deadlines as leverage. They allowed the federal government’s fiscal year to begin on Oct. 1 without renewing spending authority, putting a stop on all non-essential services.

More serious is what could happen after Oct. 17, which is when the Treasury Department says is likely will run out of way to stay below its legislated debt ceiling. Without the legal ability to issue debt, the administration would have to forgo payment of its obligations or cut spending dramatically. Either scenario could cripple the U.S. economy, which would sow chaos around the world.

Because the U.S. has never defaulted, its bonds are the bedrock of the global financial system. There’s no way to know what would happen if global investors suddenly lost confidence in Treasuries, which are the most basic form of collateral in the trillions of dollars of loans that are daily transactions in global financial markets. Most would rather not contemplate the potential fallout.

“It would ripple through the global economy in a way that you couldn’t possibly understand,” Jamie Dimon, chief executive of New York-based JPMorgan Chase & Co., one of the world’s largest banks, told an audience in Washington Saturday. “We can’t have a default.”

World Bank President Jim Kim, whose institution seeks to alleviate poverty, reminded lawmakers that they weren’t only playing with the U.S. economy, but also with the fortunes of the globe’s poorest people who rely on a healthy global trade and financial system to sell their goods and obtain credit.

“We are now five days away from a very dangerous moment,” Dr. Kim said at a press conference at the end of the World Bank’s annual meetings in Washington. “If this comes to pass, it could be a disastrous for the developing world.”

While Mr. Reid assured reporters that he was hopeful, he was unable to describe a path to an agreement. Mr. Reid failed to win enough votes Saturday to begin debate on bill that would raise the debt ceiling through 2014. Democratic leaders in the Senate huddled with Mr. Obama for more than an hour at the White House on Saturday afternoon, but none of the participants said anything about the outcome of the meeting.

Democrats and Republicans were at odds over how much spending to sanction in a new budget that would reopen the government, the Washington Post reported, citing Richard Durbin, the Senate's No. 2 Democrat.

There had been interest, both at the White House and in Senate, in a proposal drafted by Susan Collins, a Republican from Maine. She suggested reopening the government and granting borrowing authority through the end of the year. In return, Democrats would have to accept a handful of measures favoured by Republicans, including a two-year repeal of a tax on medical devices.

However, Ms. Collins apparently was asking for too much. Mr. Reid told reporters that the only thing in the proposal with which most Democratic senators agree is reopening the government and raising the debt limit. Mr. Reid insisted again Saturday that he will not engage in substantive talks with his opponents until those two conditions are met.

“They aren’t doing us a favour by reopening the government. They aren’t doing us a favour by raising the debt ceiling,” Mr. Reid said. “That’s their job,” he added. “We need to have that before we have any agreement.”

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