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Washington (AFP) – The United States limped into day three of a government shutdown on Thursday with President Barack Obama warning markets that the crisis could trigger a catastrophic U.S. debt default.

Obama met with top Republican leaders for an hour on Wednesday, but the talks failed to end the crisis that has sent hundreds of thousands of government workers home and shut museum sites and national parks throughout the country.

Conservative Republicans want to dismantle or amend Obama’s health care law as a condition for approving stop-gap funding for the new fiscal year, which began Tuesday. The president is refusing to tinker with the legislation, his signature health care reform bill widely known as “Obamacare.”

Both sides accused the other of refusing to negotiate. There is no end in sight to the latest crisis to hit bitterly divided Washington.

Heightening tensions, Obama sent Wall Street a blunt warning that the political crisis that has paralyzed the federal government could yet trigger a U.S. catastrophic debt default.

But when he met with Republican House Speaker John Boehner and Senate minority leader Mitch McConnell, there was no sign of a breakthrough.

Hundreds of thousands of federal workers are staying home, museums and national parks are shut, much scientific research is on hold and the shutdown is now threatening already sluggish economic growth.

“The president reiterated one more time that he will not negotiate,” Boehner said, emerging empty-handed into a warm Washington night to address reporters after the West Wing talks.

On that point at least, the two sides agreed.

Obama said in an interview with CNBC that he would not negotiate on budget matters until Republicans had passed a bill to reopen the government and raise the $16.7 trillion-dollar U.S. debt ceiling.

The cap must be raised within two weeks or Washington could default on its government debt and payments for the first time, result that could hurt the credit rating of the world’s largest economy.

After the talks, Obama’s spokesman Jay Carney issued a statement saying that his boss still hoped “common sense” will prevail.

Senate Democrats have repeatedly blocked Republican House funding bills that seek to dismantle or delay Obama’s signature health care reform bill, widely known as “Obamacare.”

The impasse left the government without a budget for the new fiscal year that started right after at midnight Monday.

Reid emerged from the talks complaining at Boehner’s attitude, and vowed never to allow Republicans to overturn the health care law.

“We are locked in tight on Obamacare,” Reid said.

In his CNBC interview, Obama challenged his opponents to directly address the already nervous financial community.

This time’s different

Obama was asked whether Washington was simply gripped by just the latest in a series of political and fiscal crises which reliably get solved at the last minute.

In unusually frank comments on issues that could sway markets, Obama warned that investors should be worried.

“This time’s different. I think they should be concerned,” he said.

“When you have a situation in which a faction is willing potentially to default on U.S. government obligations, then we are in trouble.”

Obama said he would not negotiate until lawmakers pass a temporary financing bill and raise the debt ceiling, but that after that he would be “prepared to have a reasonable, civil negotiation around a whole slew of issues.”

The president warned it would set a terrible precedent to allow lawmakers of any party to hold a White House to ransom over the government’s borrowing limit.

“Absolutely I am exasperated, because this is entirely unnecessary,” Obama said.

Hopes of an early exit to the shutdown are fading.

“Most of the time you can see an end game,” Republican Senator Johnny Isakson told MSNBC. “Right now, there’s no end game in sight.”

Some signs of incremental movement did emerge, however.

Dangerous ground

Democrats pledged to appoint negotiators to thrash out a long-term budget — provided Republicans agree to an immediate six-week federal spending measure with no anti-Obamacare provisions.

Earlier, Obama had gathered a group of high flying CEOs, apparently hoping they would pressure Boehner to pass a temporary funding bill.

Goldman Sachs boss Lloyd Blankfein warned that America was on dangerous ground by flirting with not raising the debt ceiling.

A previous period of brinkmanship on the issue badly hit the U.S. credit rating.

“There’s a precedent for a government shutdown, there’s no precedent for a default,” he said after meeting Obama.

The fallout has already caused Obama to shorten his long-planned Asia trip, scrapping stops in Malaysia and the Philippines that were due to begin this weekend, so he could attend to the crisis at home.

Photo Credit: AFP/Robyn Beck

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