US shutdown deepens fears of looming debt crisis

WASHINGTON — Democrats and Republicans remained no closer to resolving a budget feud that has shut down much of the government as Washington and international officials raised the alarm Thursday over an even more critical upcoming showdown over the nation's line of credit.

The shutdown, now in its third day, was clearly leaving its mark. The National Transportation Safety Board wasn't sending investigators to Tennessee to probe a deadly church bus crash that killed eight people and sent 14 others to the hospital. The Labor Department said it wouldn't release the highly anticipated September jobs report on Friday because the government remains shuttered.

Tensions rose further after shots rang out outside the Capitol building causing security to lockdown Congress, a nerve-wracking moment in a city still recovering from a Sept. 16 mass shooting at the Navy Yard. Authorities and witnesses said a woman tried to ram her car through a White House barricade then led police on a chase that ended in gunfire outside the Capitol more than one mile (1.6 kilometers) away.

Officials also warned, the dispute could grow to encompass legislation needed by mid-October to raise the debt limit.

That has raised fears of a worst-possible outcome: If Congress fails to raise the borrowing cap, the U.S. could default on its obligations for the first time and send shockwaves across the world.

International Monetary Fund chief Christine Lagarde warned the U.S. not to allow the standoff to get that far.

"The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the U.S. economy, but the entire global economy," Lagarde said in a speech.

"So it is "mission-critical" that this be resolved as soon as possible," she said.

The U.S. Treasury warned that failure to raise that debt ceiling could spark a new recession even worse than the one Americans are still recovering from.

Obama laid the blame Thursday at the feet of the Republican leader of the House. He cast Speaker John Boehner as a captive of a small band of conservative activists who want to extract concessions in exchange for passing the short term spending bill that would restart the government.

"The only thing preventing people from going back to work and basic research starting back up and farmers and small business owners getting their loans, the only thing that is preventing all that from happening right now, today, in the next five minutes is that Speaker John Boehner won't even let the bill get a yes or no vote because he doesn't want to anger the extremists in his party," Obama said.

Boehner swiftly shot back, criticizing Obama and his "my-way-or-the-highway approach." Boehner said that if the president would negotiate to fix flaws in "Obamacare," the shutdown could end.

"The president's insistence on steamrolling ahead with this flawed program is irresponsible," he said.

The exchange came a day after a White House meeting between Obama and congressional leaders yielded no progress.

At issue is the sweeping overhaul of the U.S. health care system that is the centerpiece of Obama's domestic policy agenda. The 3-year-old law is designed to extend insurance to millions of Americans without coverage. Republicans — led by a core of conservatives aligned with the small-government tea party movement — argue the plan is costing jobs and intruding on private decision-making by requiring Americans to have health insurance.

The shutdown is keeping hundreds of thousands of federal workers home and affecting Americans in ways large and small. Scores of government programs, from feeding pregnant women to staffing call centers at the federal tax agency, were disrupted. Obama truncated a long-planned trip to Asia.

The shutdown itself is estimated to trim only about 0.2 percent of the U.S. gross domestic product each week. But that could grow worse if the impasse begins to erode consumer and business confidence.

The U.S. stock market sank to its lowest level in a month Thursday, while indexes in Germany and France also fell.