The White House and top lawmakers scrambled on Monday to reach a deal to save the world's richest country from a disastrous default on its debt, amid fears that inaction could affect markets around the globe.
With global financial markets on edge, President Barack Obama met at the White House with Democratic Senate Majority Leader Harry Reid and Democratic House Minority Leader Nancy Pelosi Sunday to map their way forward in the standoff.
Reid said there was no progress with Republicans because of the rival party's "continued insistence on a short-term raise of the debt ceiling."
He said Democrats were working on a measure to raise the $14.3 trillion US debt ceiling, allowing Washington to pay its bills past an August 2 deadline, while cutting $2.7 trillion in spending over 10 years.
The strategy, detailed by a Democratic official on condition of anonymity, would also achieve Obama's goal of avoiding another politically painful vote on the issue before he faces reelection in November 2012.
Reid said the plan would include no new revenue or tax measures and "it will include enough spending cuts to meet or exceed the amount of a debt ceiling raise through the end of 2012."
According to The New York Times, Obama and the Democratic leaders decided at their meeting to hold firm against any short-term agreement that did not raise the debt ceiling beyond next year?s presidential elections.
Earlier, House Speaker John Boehner privately urged fellow Republicans to unite behind a new plan to impose steep spending cuts as the price for raising the US debt limit and promised to have more details Monday, two sources said.
"No one is willing to default," Boehner said on a conference call with his restive majority, warning that Republicans may have to make "sacrifices" in any final compromise to ensure passage in the House and Senate.
The speaker, who faces stiff resistance from many Republicans to any compromise with Democrats, told House Republicans a day earlier that he favored a two-step increase paired with $3-$4 trillion dollars in cuts.
The fate of the rival plans was unclear, but both chambers faced a time-consuming process to pass identical legislation and send it to Obama to sign into law with the clock ticking down to August 2.
But Reid said that Boehner's proposal was "simply a short-term plan, and is therefore a non-starter in the Senate and with the president."
Washington hit its debt ceiling on May 16 but has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally but can only do so another nine days.
Finance and business leaders have warned failure to raise the US debt ceiling by then would send shockwaves through the fragile world economy, while Obama has predicted a default would trigger economic "Armageddon."
Investors, starting with Asia, were set to have their first chance at rendering judgment on the political stalemate in Washington since negotiations between Obama and his Republican foes collapsed late Friday.
Tokyo shares opened 0.51 percent lower Monday as global markets tensely watched the talks over lifting the US debt ceiling, with no prospect in sight of an immediate breakthrough.
A spokesman for Republican House Majority Leader Eric Cantor, Brad Dayspring, sought to tamp down worries of an unthinkable default, insisting on his Twitter feed that "work is being done" toward a compromise.
As the stalemate dragged on, Obama's chief of staff William Daley braced for "stressful days" ahead for Washington, the US public, and world markets.
"But in the end there's no question in my mind the government of America will not default," he told CBS television.
Boehner told Fox News Channel as the day dawned that he aimed for a "bipartisan" plan but "if that is not possible, I and my Republican colleagues in the House are prepared to move on our own," he warned.
All sides agree cash-strapped Washington must close its yawning budget deficit but disagree on the size and blend of spending cuts and revenue increases as well as on how and whether to slice into the social safety net.
US Treasury Secretary Timothy Geithner said a default would be "unthinkable" and warned against a short-term debt ceiling hike that could force another standoff in the middle of the 2012 election campaign.
Meanwhile, US Secretary of State Hillary Clinton said Monday she was confident lawmakers would reach a deal to avert a debt default.