So Harry Reid is drafting a plan to "put our fiscal house in order" by cutting, cutting, cutting with no revenues. And he's tackling what sounds like a counterintuitive plan by taking aim at the Pentagon budget, factoring in the cost of ending the wars, and other spending which is not spending on Medicare and Social Security.

As Matt Yglesias points out, Reid is calling the Republicans' bluff.

In the debate over the debt ceiling, for example, Republicans have sought to portray themselves as having two bottom lines. One is that any increase in the debt ceiling must be met dollar-for-dollar with spending cuts. The other is that no revenue increases can be part of the deal. What Harry Reid did yesterday was essentially call the GOP’s bluff by outlining a plan that raises the debt ceiling by $2.7 trillion and includes $2.7 trillion in spending cuts, a healthy share of which comes from winding down the wars in Iraq and Afghanistan.

Republicans are rejecting this even though it nominally meets their demands. Why? Because it doesn’t achieve either of their two real objectives. In particular, the plan doesn’t cut Medicare, which means that Democratic party candidates for office in November 2012 and 2014 can accurately remind voters of the content of the Republican budget plan. In case you forgot, this plans repeals Medicare.

Of course, if you listen to the Republicans talk on cable TV, they all shake their heads in very serious ways and insist that they are, first and foremost, all about getting the spending down. Doesn't matter how, just that it happens. Never mind that Paul Ryan included some of Reid's proposed cuts in his own budget that killed Medicare, that doesn't matter. They'll tell you ending the wars aren't really cuts in the budget or spending because they are not "entitlements"

Let's review the bidding. Ezra Klein does it quite well:

Originally, the Democratic position was that we should simply raise the debt ceiling. Republicans said "no." There would have to be a deal that reduced the deficit by at least $2.4 trillion -- which is the size of the debt ceiling increase needed to get us into 2013.

Then the Democratic position was that we should raise the debt ceiling through a deal that reduced the deficit by about $2.4 trillion, with $2 trillion of that coming from spending cuts and $400 billion coming from taxes. Republicans said "no." There would have to be a deal that disavowed taxes.

Then the Democratic position was that we should raise the debt ceiling through a deal brokered by Barack Obama that reduced the deficit by $4 trillion, with about $3 trillion of that coming from spending cuts and about $1 trillion coming from tax increases. Republicans said "no." There would have to be a deal that disavowed taxes, and it would have to be cut between the congressional leadership of the two parties. Obama couldn't have this as a win.

So here we are with a deal that satisfies (sort of) the "no revenues" requirement alongside the "cut dollar-for-dollar" spending requirement. And as you'll see from Stuart Varney, the answer will still be "no", just as it has been all along.

Varney: That's why I say, the likelihood of this downgrade -- let's be clear -- a downgrade means you lose your financial reputation, you're not the gold standard any longer.

Doocy: But it's different than default.

Varney: It is different from default. I am now saying a downgrade now looks very likely, bearing in mind this chaos over the weekend and this Harry Reid plan which means absolutely nothing to investors.

Killmeade: It seems as though they'd say if we do something drastic enough that shows people that we're on a fiscal sustainable path -- something Titanic -- we could avoid that, don't you agree?

Varney: I would agree with that. If we got our house in order and said we're going to tackle entitlements, we'll go after this, we'll do something concrete. If you did that, the likelihood is that the stock market would go up.

Unspoken but implied: The likelihood is that you'd get a deal on exactly the terms Republicans want. Destruction of the social safety net in exchange for an unchanged credit rating and raised debt ceiling. Our banker overlords are decreeing it, you know.