Economic Outlook: The Gang of Five

In Washington, compromise is made in small rooms, away from the glare of flashbulbs and the self-righteous hum of television cameras.

Much of the enormous Dodd-Frank Wall Street Reform and Consumer Protection Act was forged in the Senate in rooms with one Democrat and one Republican going head to head on various parts of the bill and with Dodd directing a tag-team approach when various teams hit an impasse.

Similarly, the cameras in Washington have been focused of late on Rep. Paul Ryan, R-Wis., chairman of the House Budget Committee, who took the first shot at a serious budget reduction plan and President Barack Obama, who took the second shot.

In the background, however, three Democratic and three Republican senators have been hosting their own, out-of-earshot meetings on the federal budget with the aim of reducing the deficit by $4 trillion over the next 10 years.

The group, dubbed the Gang of Six, included Sens. Mark Warner, D-Va., Kent Conrad, D-N.D., Richard Durbin, D-Ill., Saxby Chambliss, R-Ga., and Mike Crapo, R-Idaho, and Tom Coburn, R-Okla.

But Tuesday, Coburn threw in the towel.

"We can't bridge the gulf of where we need to go on mandatory spending. I don't see that there's going to be any fruition in continuing them at this time," Coburn said after leaving a Gang of Six meeting 10 minutes after he had arrived.

The group had gotten stuck on entitlement issues, The Hill newspaper said.

For Coburn, there was no sense talking about deficit reduction without Social Security reform as part of the mix. For the Democrats in the room, serious changes to Social Security should wait for another day. Simple as that.

That meant Washington's best ploy, deals made in small rooms, was no longer available, putting more pressure on the second-best bet, a bipartisan committee led by Vice President Joseph Biden.

Early reports from that committee are not encouraging. Biden, for his part, says the meetings have been productive, while House Speaker Tom Boehner, R-Ohio, says that's not the case.

If the two leading spokesmen for their parties on the committee cannot agree on whether or not progress is being made, chances are progress is not being made. Further, if someone on this committee tosses in the towel, as Coburn did, the government will face a day of reckoning on Aug. 2 that the Treasury Department says will be "catastrophic," as the government would fall into default, in which case a second recession would be just around the corner.

In international markets Wednesday, the Nikkei 225 index rose 0.99 percent, while the Shanghai composite index in China added 0.7 percent. The Hang Seng index in Hong Kong gained 0.48 percent, while the Sensex in India lost 0.28 percent.

The S&P/ASX 200 index in Australia rose 0.21 percent.

In midday trading in Europe, the FTSE 100 index added 0.58 percent, while the DAX 30 in Germany gained 0.29 percent. The CAC 40 in France advanced 0.58 percent, while the Stoxx Europe 600 was flat, rising 0.05 percent.