'World News' Political Insights: Washington Dysfunction Hits New Low

Markets will be a new political player in a drama that makes all sides look bad.

WASHINGTON, July 24, 2011— -- The only problem with talk of compromise is that it doesn't have a natural constituency. Until and unless, of course, it has a huge one.

The stand-off on debt negotiations declared late Friday begins to have real repercussions this week, as a new political player with even crasser motivations than Democrats or Republicans emerges: financial markets.

The market reaction injects an unpredictable element into a drama that's actually been quite predictable. Neither side is willing to move off of core principles because both sides are convinced that they're right and that the public backs them up on it.

Three consecutive "change" elections -- two favoring Democrats, one Republicans -- has created divided government. It's also exacerbated the divide in perceptions around public sentiment, making any middle ground even more elusive.

It isn't that politicians don't know that voters are angry. It's that both sides are convinced that they're only angry with the other side.

Few dynamics inside of Washington have pushed things toward resolution. Talk of a "grand bargain" between President Obama and House Speaker John Boehner exposed the stubborn fact that they face mirror-image political obstacles in achieving a deal that can actually pass.

Obama's willingness to entertain entitlement cuts, and perhaps delay revenue increases for now even while agreeing to immediate spending reductions, has infuriated elements of the Democratic base. They think they're right, and that voters who want to protect Medicare and critical services will back them up on it.

Boehner, meanwhile, has been facing the prospect of an insurrection in his own ranks. Even members of his leadership team have threatened to abandon him, depending on the type of framework that emerged out of negotiations with the White House.

They think they're right, too, citing the 2010 election as evidence that people want major spending cuts and a restructuring of the relationship between the federal government and its citizens.

Until now, the debate has been confined to Washington, where bickering could and has frustrated voters in the typical ways.

That may begin to change this week, if the debt-ratings agencies and the financial markets react the way everyone fears they might.

Already, the public frustration is palpable, even scary. Eighty percent of respondents in last week's ABC News/Washington Post poll said they were dissatisfied or even angry at the federal government.

That's up 11 points in just a month's time, and puts anger at the government higher than at any level since 1992, the year Ross Perot famously scrambled a presidential election. And if Washington continues along its current path, those numbers are likely to head in only one direction, with troublesome consequences for all involved.

Now, both sides retreat to their respective corners. Talks at the White House tonight involved only Democratic congressional leaders; Boehner and his team spent the evening previewing their plans to the GOP House caucus.

The likelihood is growing of Congress passing a temporary increase to the debt ceiling, an amount small enough that it would necessitate a second vote next year -- before the presidential election.

The president has been adamant in his promise to veto a short-term fix, and debt ratings firms have also warned against any deal that doesn't address structural imbalances. But this is one bluff that congressional leaders seem willing to call.

"I know the president is worried about his next election," Boehner said today on "Fox News Sunday." "But my God, shouldn't he be worried about the country?"

Similar sentiments will animate actions on both sides as Aug. 2 fast approaches. All involved will be professing to work on behalf of a country that's ready to give up on all of them.