The U.S. Senate has rejected a debt bill passed just hours earlier by the House of Representatives, with Democrats and Republicans showing little sign of compromise as the country faces potential economic chaos.
President Barack Obama warned a hyper-partisan Congress that the country was "almost out of time."
Both the White House and Democratic Senate Majority Leader Harry Reid had spoken against the plan, drafted by House Speaker John Boehner, so its passing by the House was largely symbolic.
Boehner's bill passed 218 to 210, with no Democratic support and losing 22 Republicans. The plan included a constitutional balanced budget amendment -- a demand from the so-called Tea Party element -- which would certainly not get past the Senate.
The vote exposed a rift in the Republican party, as Boehner twice delayed the vote to revise it to win support from the most conservative members of his party.
The White House immediately shot down the plan, calling it "moot and irrelevant."
Meanwhile, Reid has been working on a bill in the Senate to cut spending by $2.2 trillion and raise the debt limit by $2.7 trillion, meeting the president's terms.
Reid and the White House have called for a compromise, but that is hardly guaranteed in partisan Washington.
"The power to solve this is in our hands on a day when we've been reminded how fragile the economy already is," Obama said from the White House, while the market had a down day after a report indicating weak economic growth.
Obama said that Democrats and Republicans are not that far apart on solving the ongoing debt crisis and called on lawmakers to "step up and show the leadership the American people expect."
Obama's statement came as the clock ticks down to the Aug. 2 deadline for politicians to agree on an extension to the U.S. debt ceiling.
If they don't come to an agreement by Tuesday, Obama warned, the government could find itself unable to meet many of its obligations including social security cheques and veteran benefits.
"This is not a situation where the two parties are miles apart," Obama said, adding that both sides agree on many of the fundamentals.
He praised a plan proposed by Reid and even said a bi-partisan proposal by Republican Sen. Mitch McConnell offered a way forward.
Obama has urged his 9.4 million Twitter followers to tweet Republicans in Congress to support the bipartisan compromise plan.
However, he slammed the plan Boehner had been trying to convince his party to support and said the Republicans wasted three days trying to push it through.
Democrats were unanimously opposed to Boehner's plan which would have raised the debt ceiling by about $900 billion -- only enough to cover about six months before lawmakers would have had to begin the process again.
"It's a plan that would force us to relive this crisis in just a few short months, holding our economy captive to Washington politics once again," Obama said.
He emphasized, however, that a deal can be achieved if both sides act responsibly and called on Americans to contact their representatives and urge them to make a deal.
"There are plenty of ways out of this mess but we are almost out of time. We need to reach a compromise by Tuesday so our country will have the ability to pay its bills on time as we always have," Obama said.
Obama is seeking an extension to the U.S. debt ceiling that would cover the U.S. through 2012 -- until after the next election.
