The fiscal fate of the US government turned one shade gloomier after House Republicans dropped their latest proposal to end the government shutdown, raise the US debt limit and avoid the country's first-ever default, dpa reported.
Republican leaders by late Tuesday apparently failed to gather enough support in their own ranks to back the proposal, and the powerful rules committee postponed the meeting on the bill, according to media reports.
The US government teeters on the precipice of a historic default that could come as early as Thursday, when it expects to run out of "extraordinary measures" to extend the 16.7-trillion-dollar debt limit.
The uncertainty over the way forward prompted a Wall Street ratings agency, Fitch Ratings, to warn that the country's AAA credit was at risk.
The Senate, where Republicans and Democrats appeared to be nearer agreement, resumed talks late Tuesday on a solution after suspending them so the House could consider its own bill.
It was unclear whether both houses of Congress could agree on a bill in time for signature by US President Barack Obama by late Wednesday.
"I'm hopeful that it can be worked out," Democratic Senator Joe Manchin told CNN. "There's no way conscionable that we can default. It would hurt not just this economy but economies over the world."
Manchin is a member of a 14-Senator bipartisan group that has been hammering out a compromise. The collapsed measure in the lower chamber would have kept the government running through December 15, one month earlier than expected in legislation being negotiated in the Senate, according to a spokesman for House Speaker John Boehner. The proposal would have revoked health care subsidies for members of Congress and their staffs. Obama and Democrats in Congress have vowed to reject any provision eroding the 2010 Obamacare health insurance reforms.
The tea party faction within Boehner's Republican majority has demanded measures to slow or weaken Obamacare.
Fitch Ratings said it believes the US debt ceiling "will be raised soon" but warned that "political brinkmanship" could raise the risk of default in the United States.
Minutes after Fitch issued a negative watch on its AAA rating for US sovereign debt, a Treasury official speaking on condition of anonymity told dpa that the agency's move "reflects the urgency with which Congress should act to remove the threat of default hanging over the economy."
Starting Thursday, the potential for delays in payments to government suppliers, workers and pensioners "would damage the perception of US sovereign creditworthiness," Fitch said in a statement on its website.
"The prolonged negotiations over raising the debt ceiling ... risks undermining confidence in the role of the US dollar as the preeminent global reserve currency by casting doubt over the full faith and credit of the US," Fitch said. "This 'faith' is a key reason why the US AAA rating can tolerate a substantially higher level of public debt than other AAA sovereigns."
The potential Senate deal would set up budget talks by December 13 and could provide for another round of talks on broader budget issues such as entitlement reform. Social security and other mandatory obligations make up about 70 per cent of the US budget, lawmakers say.
Those broader talks could include measures to ease or adjust across-the-board spending cuts that took effect in March. The so-called sequester cuts resulted from a compromise for the last debt limit increase in August 2011. That agreement was only reached with hours before a similar deadline, leading another Wall Street ratings agency, Standard & Poor's, to reduce its US bond rating from AAA to AA+.
Treasury Secretary Jacob Lew set Thursday as the deadline when the country hits its debt ceiling, with only about 30 billion dollars left in cash, and risks default on various obligations.
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