WASHINGTON (AFP) - President Barack Obama on Tuesday warned world leaders were nervous Republicans would "blow up" the US economy, and vowed not to budge on his demand for the debt ceiling to be lifted without conditions.
But House Speaker John Boehner insisted there would be no "unconditional surrender" from Republicans and said Congress would only allow more US borrowing if Mr Obama agrees to cut spending.
There was one glimmer of hope for progress in the bitter showdown that has closed the US government and sparked fears that Washington could default on its debts if the debt ceiling is not raised by Oct 17.
Mr Obama said that if necessary he would accept a short-term deal to raise borrowing and reopen the government - a move that would effectively postpone the crisis for a number of weeks.
But the president was adamant that he would not compromise on his refusal to cede ideological concessions to Republicans in return for receiving more authority to borrow money to finance US obligations.
"What you haven't seen before, I think, from the vantage point of a lot of world leaders, is the notion that one party in Congress might blow the whole thing up if they don't get their way," Mr Obama said, in a White House press conference designed to hike pressure on Republicans.
"They've never seen that before. And that does make them nervous." Mr Obama spoke a day after China, which is sitting on a vast pile of US Treasury bonds, warned that the time was running out for the United States to prove its creditworthiness and the credibility of the world's reserve currency.
Stocks dipped for another day on Tuesday, with investors increasingly concerned that the government will not get its act together in time.
The Dow Jones Industrial Average fell 159.71 points (1.07 per cent) to 14,776.53 and the tech-rich Nasdaq Composite Index plummeted 75.54 (2.00 per cent) to 3,694.83.
Investors also sold off short-term bonds, sending the yield on the one-month Treasury note to 0.31 per cent, its highest level since the crisis year of 2008, up from 0.15 per cent Monday.
Mr Obama said Congress had two basic jobs - passing a budget and "making sure that America's paying its bills." He warned that lawmakers did not get to demand a ransom, and reiterated his position that he would only negotiate with Republicans once the debt ceiling was raised and the government, now shuttered for a week, is opened.
"We can't make extortion routine as part of our democracy. Democracy doesn't function this way," he said.
Mr Boehner appeared on television soon after Mr Obama's press conference to dig further into his own position.
"The long and short of it is there is going to be a negotiation here," Mr Boehner said.
"We can't raise the debt ceiling without doing something about what's driving us to borrow more money and to live beyond our means." "What the president said today was if there's unconditional surrender by Republicans, he will sit down and talk to us," he said.
"That's not the way our government works." Mr Obama, who spoke to Mr Boehner earlier by phone, argues that raising the debt ceiling is vital to America's most valuable asset, its creditworthiness, which should not be prey to political uncertainty.
Mr Boehner counters that presidents have always bargained with lawmakers over raising the debt ceiling, and is unwilling to give up an area of prime political leverage.
If the US$16.7 trillion (S$20.8 trillion) debt ceiling is not raised by Oct 17, the United States will be unable to borrow more money and will begin defaulting on its obligations, in a scenario that could tip the economy back into recession and trigger global chaos.
The president said that a default would be, in the words of economists he quoted, "insane, catastrophic, chaos." But he also sought to assure investors, US bond holders and others that the US remained good for its debts, even as he acknowledged "a cloud" over America's economic credibility because of the shutdown.
"Obviously my message to the world is the United States always has paid its bills and it will do so again," Mr Obama said.
Asked what the government would do if the debt ceiling were not increased on time and the government would have to decide which bills not to pay, Mr Obama said the issue was still being reviewed.
"No option is good in that scenario," he said. "We are exploring all contingencies." Mr Obama did signal some flexibility, saying he was open to negotiating with Republicans on budget issues - even if lawmakers extended borrowing and reopened the government only on a short-term basis.
"If they can't do it for a long time, do it for the period of time in which these negotiations are taking place," he said.
Republicans proposed a bipartisan committee to discuss how to get out of the budget impasse and the debt ceiling row.
But Mr Obama dismissed the move as a ruse to discuss spending cuts that only Republicans want, and vowed to veto such a solution in the unlikely event it reaches his desk.