Despite daily meetings at the White House and a flurry of press releases from negotiators, a deal to raise the debt ceiling effectively died over the past several days. On Saturday, House Speaker John Boehner pulled out of talks that might have produced a “grand bargain.” President Obama was reportedly willing to raise the Medicare eligibility age from 65 to 67, tinker with Social Security’s cost-of-living formula, lock in tax rates below a full repeal of the Bush-era cuts, and enact $4 trillion in spending cuts. The catch was that he also insisted on raising government revenue, which prompted Boehner’s walkout.

Revenue and recalcitrant Tea Party members stand as seemingly immovable obstacles to a deal. There are at least sixty or seventy Republicans in the House, mostly Tea Partiers, who will vote against any deal that comes before them—either on principle, because they simply don’t believe the debt ceiling should be raised at all (John Boehner admitted this on Fox News yesterday), or because they will only approve a deal that includes a balanced budget amendment, which is not making it into any package.

These holdouts mean that any deal will need significant Democratic votes to pass the House. But minority whip Steny Hoyer has vehemently insisted that a bill that doesn’t raise revenue won’t get a single Democratic vote, and he’s probably right. Meanwhile, majority leader Eric Cantor has said that any deal that does raise revenue won’t get Republican votes—also probably correct. This impasse isn’t likely to be resolved. The Rubik’s cube, as Boehner calls it, is basically unsolvable.

Faced with the very real possibility of a federal default, Senate minority leader Mitch McConnell opened the escape hatch yesterday. He floated a plan that would give Obama the authority to raise the debt limit all by himself. There’s a catch, of course—Obama has to request the increase three times before the end of next year, with the final request coming only months before the presidential election.

Under McConnell’s plan, when Obama requests a debt limit increase, $100 billion is given to him automatically. He must also outline spending cuts commensurate to the increase. Then Congress has to consider his request to raise the debt limit, and either chamber can pass a “resolution of disapproval” by a simple majority vote. That freezes the increase, but only temporarily—Obama can veto that resolution, meaning Congress would need to muster two-thirds of members to overturn that veto, which will not happen.

It’s a stunning de-leveraging of their position—after spending much of 2011 threatening to execute the economy unless they get their way, McConnell is now proposing to just release the hostage without one scrap of policy concessions from Democrats. Obama will propose spending cuts, but there’s nothing guaranteeing anything happens with that proposal.

One certainly wonders if McConnell was pressured to act by his Big Business backers once negotiations hit a wall. In his remarks yesterday, McConnell said that it was “extremely important that the country reassure the markets that default is not an option.” A large coalition of Wall Street and Main Street business leaders stepped up public pressure to find a deal this week, and there is increasing concern over market potential market reactions even before August 2.

For progressives concerned about contractionary spending cuts or damaging changes to social welfare programs, news of McConnell’s proposal was welcome. “I think it’s great,” said Dean Baker, co-director of the Center for Economic and Policy Research. “It shows that Wall Street would never let the Republicans default on the debt, as I had been saying all along. Now they need cover to back down, and this plan is all about cover.”

Baker said he is not worried about the $2.5 trillion in cuts Obama must propose, since the president simply has to make them unpalatable to Congress, and then nothing will happen. “If Obama can’t just blow off the cut proposals—suggest cutting all spending in Kentucky and Ohio—then he isn’t competent to be running a corner grocery store, much less the country,” Baker said.

He remained equally unconcerned about the political ramifications. “People are going to vote based on jobs. No one cares about this idiocy other than the Washington press corps,” Baker said.

So there it is—the debt limit standoff has been defused without a single damaging policy outcome. But it is worth at least pausing to consider how the staggered increases Obama must request might influence the upcoming elections.

Imagine it’s July 2012, and the election is in full swing. Polls show an extremely tight race between Obama and Mitt Romney, and the two candidates jockey for slight advantages through a relentless grind of carefully calibrated stump speeches and attack ads. The media devotes days of coverage to minutae, like the tire-pressure gauges or “lipstick on a pig” incidents of summer 2008.

Then President Obama must leave the campaign trail, return to Washington and ask Congress to increase the nation’s debt limit so he can keep borrowing money—$900 billion, to be exact. After two days of fiery floor speeches from Republicans, the House of Representatives dramatically rejects his near-trillion-dollar borrowing request.

Attention turns to the Senate, where—much to the delight of political reporters everywhere—nobody knows how the vote will turn out. Democratic Senators in red states who are themselves up for re-election in the fall, like Sens. Claire McCaskill, Jon Tester, Ben Nelson and Joe Manchin announce they will vote against their president and their party. This puts centrists like Mark Warner and, alas, Joe Lieberman in the driver’s seat. Crossroads GPS blankets the airwaves in the state of any Democratic Senator up for re-election, pressuring them not to vote for deeper national debt.

Perhaps the Senate doesn’t end up passing a disapproval resolution, and the kabuki ends there. But if it does pass, it sets up yet another vote in the House and Senate. Republicans once again take their time on the floor, denouncing the president’s profligate ways and urging an overturn of the veto. There isn’t anything close to a 2/3rds majority needed to overturn it, but along the way a bunch of vulnerable Democrats are put in an incredibly difficult position.

Meanwhile, Romney gleefully crisscrosses Florida and Ohio, denouncing the borrow-and-spend president to every microphone put near his face.

If these events suck up media oxygen for even a couple weeks, it’s a nightmare scenario for the Obama campaign, not to mention the campaigns of vulnerable Democrats across the country. But is that a worthwhile tradeoff in order to avoid a debt deal that would almost certainly damage the already fragile economy?

That’s the White House’s choice now, but McConnell’s deal first has to pass. And so we return to the House of Representatives. Boehner said he supports McConnell’s plan, but he will have to convince his party to accept a concession-less deal. One GOP House aide told National Review Online yesterday that it’s a non-starter there.

This is the true nightmare scenario. If McConnell and the GOP leadership can’t open the escape hatch, what then?