President Obama is still insisting that he will never negotiate over raising the federal government's debt limit, but in reality those negotiations began yesterday with an exchange of letters between Congress and the White House

Sky's the limit?

Early Wednesday, Treasury Secretary Jack Lew sent a letter to Speaker John Boehner, R-Ohio, informing him that if the federal government's legal borrowing limit was not raised before Oct. 17, then the Treasury would be unable to meet all of its financial obligations. Later. the Congressional Budget Office released its own report pegging that same drop-dead date as Oct. 22.

Senate Republicans responded with their own letter, asking Obama to specify just how high Obama wanted the debt limit raised.

"We ask that the president begin discussions now to combat our long-term debt through meaningful entitlement reforms," the letter signed by nine Senate Finance Committee Republicans read.

The letter puts Obama in the awkward position of either asking for permanent, unlimited borrowing authority, or entering into negotiations with Republicans over the debt limit, thus caving on his no-negotiations position.

What do Republicans want?

But it isn't at all clear what Republicans want from the debt limit showdown, either. House Republican leaders will unveil legislation Thursday to suspend the debt limit for one year in exchange for: 1) a full year delay of all of Obamacare; 2) expedited tax reform; 3) increased energy production including the approval of the Keystone pipeline and the end of carbon regulations; 4) regulatory reform; 5) entitlement reform; 6) ending the Dodd-Frank Wall Street bailout fund; 7) means testing Medicare; 8) chained CPI; 9) and other stuff.

Republicans know they won't get everything, or even most things, on the list, but House leadership wants to be able to walk away from the debt limit debate with something.

The key will be selling the more conservative wing of the party on taking anything less than a full defunding of Obamacare.

Will House conservatives trade the debt limit for the Keystone pipeline? Probably not. For a one year delay of the individual mandate? Maybe.

With the clock ticking fast on the separate government shutdown debate, the real action will be on the debt limit. Either the House will rubber stamp whatever the Senate passes and a shutdown will be avoided, or the House will reject what the Senate sends over, the government shutdown will begin, and the government funding debate will be immediately rolled into the debt limit debate.

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