Administration officials have warned that a failure to raise the current $14.3 trillion ceiling by August 2 could trigger a partial default. If Washington lacks the money to pay its bills, interest rates could skyrocket and the value of the dollar could decline, among other things.
Obama said Tuesday he cannot guarantee older Americans will receive their Social Security checks next month if a deal is not reached.
"There may simply not be the money in the coffers to do it," the president told CBS News.
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Testifying on Capitol Hill Wednesday, Federal Reserve Chairman Ben Bernanke warned that a failure to raise the ceiling would create a "major crisis" and be potentially "catastrophic" for the global economy.
Democrats and Republicans remain at sharp odds over how to proceed. Obama has indicated a preference for a "grand bargain" that would save trillions of dollars over the next decade partly by raising taxes on the wealthiest Americans and reforming politically popular entitlement programs such as Medicare and Medicaid.
GOP leaders remain adamantly opposed to any tax hikes, arguing that increasing the burden on "job creators" now would derail what has already proven to be, at best, a shaky economic recovery.
Republicans also accuse the White House of failing to negotiate in good faith. Senate Minority Leader Mitch McConnell, R-Kentucky, said Wednesday morning that the administration is pushing for tax hikes now in exchange for illusory spending cuts later.
Specifically, McConnell claimed an administration official had only been able to identify $2 billion in spending reductions when asked what cuts the White House would agree to next year -- a tiny fraction of roughly $4 trillion in deficit reduction savings Obama has claimed he's interested in generating over the next decade.
"Republicans refuse to be drawn into this legislative trap," McConnell said. Americans want "real cuts and real reforms now."
The White House is "not serious about cutting spending or debt," McConnell declared.
On Tuesday, McConnell unveiled what he characterized as a last-ditch plan to avert a default if negotiators can't reach an agreement. The Republican leader proposed three short-term increases in the amount the government can borrow while at the same time registering the disapproval of Congress for such a move.
McConnell's proposal would give Obama power to raise the debt ceiling by a total of $2.5 trillion, but also would require three congressional votes on the issue before the 2012 general election. The president would be required to identify spending cuts equivalent to each debt ceiling increase, though there would be no guarantee Congress would adopt the proposed cuts.
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While some congressional Democrats promised to consider the plan, Obama has said he would reject any short-term extension of the debt ceiling.
Some conservatives are accusing McConnell of capitulating to the Democrats. The website redstate.com posting a story Tuesday with the headline: "Mitch McConnell Just Proposed the 'Pontius Pilate Pass the Buck Act of 2011.' "
For now, it remains unclear at best whether the two sides will be able to reach any agreement. House Majority Leader Eric Cantor, R-Virginia, said that during Tuesday's negotiating session at the White House, Obama presented more details of his proposed cuts to entitlement programs. Republicans, according to Cantor, supported much of what they heard.
Cantor, however, reiterated GOP opposition to higher taxes. At the heart of the Republican resistance is a bedrock principle pushed by conservative crusader Grover Norquist against any kind of tax increase. A pledge pushed by Norquist's group, Americans for Tax Reform, has been signed by more than 230 House members and 40 senators, almost all of them Republicans.
According to a senior Democratic official familiar with the negotiations, the mood after Tuesday's White House meeting was weary as participants tired of hearing the same talking points from both sides.
While no breakthrough occurred, Obama reiterated that potential consensus exists for more than $1.5 trillion in spending cuts negotiated in previous talks led by Vice President Joe Biden. At the same time, the president insisted he wants increased tax revenue as part of an agreement.
The president insisted earlier this week he is not looking to raise any taxes until 2013 or later. He claimed he has "bent over backward to work with the Republicans" and not force them to vote on any revenue hikes in the short term -- a politically toxic move for the GOP's conservative base.
In exchange, Obama said, he wants to ensure that the current progressive nature of the tax code is maintained, with higher-income Americans assessed higher tax rates.
Meanwhile, in a letter to Obama and legislators released Tuesday, leading business associations urged them to put aside hard-line partisan positions in order to reach a deal.
"Our political leaders must agree to a plan to substantially reduce our long-term budget deficits with a goal of at least stabilizing our nation's debt as a percentage of GDP (gross domestic product) -- which will entail difficult choices," said the letter from the Chamber of Commerce, the Business Roundtable, the Financial Services Forum, the National Association of Manufacturers and the Partnership for New York City.
"Now is the time for our political leaders to put aside partisan differences and act in the nation's best interests," the letter concluded. "We believe that our nation's economic future is reliant upon their actions and urge them to reach an agreement. It is time to pull together rather than pull apart."
Asked by reporters about the letter, White House Press Secretary Carney responded: "We couldn't have said it better and we agree."
For his part, Treasury Secretary Tim Geithner warned that time is running out. The secretary said he wants to see a deal to raise the debt limit and cut projected spending by the end of this week -- or next week at the latest -- so that Congress will have enough time to turn the deal into law.
"We know we don't have a lot of time," Geithner said. "Default is not an option."
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