|John Boehner, the House of Representatives Speaker, [L] has dismissed spending cuts as "gimmicks" [AFP]
The US is in the danger of losing its status as one of the most reliable borrowers of capital in the world.
Moody's, the credit rating agency, on Wednesday threatened to downgrade the country's AAA credit rating, saying there is a small but rising risk that the US government may default on its debt.
The announcement by Moody's came just before Barack Obama, the US president, convened debt talks that turned into what a Republican aide said was the tensest session in four straight days of meetings.
The warning sent the US dollar tumbling against most major currencies and gold climbing to a record high. Stock futures and debt prices also fell.
The president and politicians met for nearly two hours on Wednesday to try to agree on a deal to reduce the deficit.
The deal that Obama wants - a $4 trillion, 10-year deficit-reduction proposal - would eventually increase taxes, reform social entitlement programmes such as Medicare and Medicaid and cut government spending.
Republicans have balked at the idea of raising taxes on the highest earners and wealthy corporations as part of any plan to slice deep into government spending, saying that doing so would smother job growth.
Republicans demand steep spending cuts in return for supporting an increase in the $14.3 trillion borrowing limit to avoid a potentially devastating national default.
Obama told Republicans at the conclusion of the meeting that he would not yield further even if it puts his presidency at risk, a Republican aide has said.
"Enough's enough," Obama said, according to a Democratic official familiar with the talks.
The official said the president, who will hold further talks on Thursday, urged Republicans to stop political posturing.
Eric Cantor, the No. 2 Republican leader in the House of Representatives, said the talks on Wednesday became so acrimonious that Obama walked out.
"He said he had sat here long enough. No other president, Ronald Reagan wouldn't sit here like this," Cantor told reporters.
Democratic officials called Cantor's account overblown.
At Wednesday's meeting, House of Representatives Speaker John Boehner, the top Republican in Congress, dismissed spending cuts offered by the White House as "gimmicks and accounting tricks".
The US Treasury says it will run out of money to pay its bills on August 2.
The US president has said the possibility of his country defaulting on its debt is "not acceptable" and vowed to reach a budget agreement by August 2.
In a speech on Monday about the US fiscal crisis, Obama vowed to meet Republican opponents every day until a deal is finalised.
"I continue to push congressional leaders for the largest possible deal," Obama said, ruling out a short-term fix and proposing daily negotiations to avert a potentially disastrous default.
The last time the US was placed on review for downgrade was in 1996, by Moody's.