America risks a major backlash from financial markets unless the outline of a deal to prevent a government default is agreed in the next 24 hours, US Treasury Secretary Tim Geithner has warned.
The outline of a deal to cut spending is expected to be presented to Congress today.
Ken Clarke, the former British chancellor, said the ongoing deadlock across the Atlantic was the "next iceberg".
Tensions were running high across Capitol Hill last night as the White House, as well as Republicans and Democrats in Congress, scrambled to reassure investors that the country's $14.3 trillion (€9.94 trillion) debt ceiling will be lifted by August 2.
After weeks of fruitless talks to raise the ceiling and reduce America's long-term deficit, political leaders were waking up to that danger that investors may punish a divided Washington.
The acrimonious collapse of talks late on Friday between US President Barack Obama and John Boehner, the top Republican in Congress, is likely to rattle markets that have so far voiced a breezy confidence in a deal. At the close of a frantic weekend that saw temperatures top 100 degrees, the Republican House of Representatives and the Democratic Senate seemed no closer to agreeing a deal that still needs Mr Obama's signature.
"For us to get this done by August 2, which is critical, and that's the deadline all the leaders accept, they need to start this process in the House Monday night," Mr Geithner said last night.
Mr Obama and Congressional leaders from both parties have been struggling for months to cut up to $4trn from US deficits over the next decade, a condition for lifting the debt ceiling.
The talks have reached an impasse in Washington because they go to the heart of the competing visions of America.
Republicans insist that major spending cuts are the way to help restore America's economic vigour, while Democrats want the country's wealthiest to pay more tax in an economy in which millions remain without work.
Bill Daley, the former JP Morgan executive and now White House chief of staff, said everyone is now "moving into difficult days" but remained confident a deal on the debt ceiling would be achieved.
The limit has been raised many times since becoming law in the 1920s.
As Democrats and Republicans pointed the finger at each other across America's Sunday news programmes, Mr Boehner said, "it may be pretty hard to put Humpty Dumpty back together again" after the deal had broken down.
With just over a week to go before the deadline, markets may soon judge that US politicians are abusing this privilege.
"The group that take the status for granted most is Washington," said Tony Crescenzi, a fund manager at Pimco, which manages the world's biggest bond fund.
"It will be tense. It will occur at the 11th hour. It will go down to the wire," he said. (© Daily Telegraph, London)