Democrats and Republicans push blame each other as supercommittee fails to reach agreement after months of talks
Barack Obama stepped up pressure on Republicans to sign up to a deficit reduction deal on Monday, warning that he will deploy his presidential veto to prevent them blocking billions of dollars in automatic spending cuts that are now scheduled to start in 2013.
The cuts to military and domestic spending were triggged by the collapse of the congressional supercommittee set up to reach a compromise on reducing the national deficit.
The 12-member committee announced on Monday that after months of talks it was unable to bridge the deep ideological divide between Republicans and Democrats.
The announcement was delayed until after Wall Street closed but the markets, anticipating the collapse, dropped sharply. The failure is almost certain to hurt a still fragile economy.
The Republicans blamed the failure on the Democrats. Obama, speaking to reporters at the White House, accused the Republicans of being unwilling to give and take, and refusing "to listen to the voice of reason".
Republicans are concerned that the automatic cuts in military spending, amounting to $600bn over 10 years, will severely damage the Pentagon's ability to maintain national security.
The cuts in military spending will be matched by $600bn in domestic spending.
Defence secretary Leon Panetta has described the size of the military cuts as "devastating".
Two Republican senators, John McCain and Lindsey Graham, issued a joint statement saying: "As every military and civilian defence official has stated, these cuts represent a threat to the national security interests of the United States, and cannot be allowed to occur."
Republicans have hinted that they may be able to find a way around it in the coming year.
But Obama, speaking at the press conference, told them that he was prepared to again try to reach a compromise with them. He said he would not allow them to circumvent the automatic trigger and would veto any such proposals coming from them.
"I will veto any effort to get rid of automatic spending cuts... There will be no easy off ramps on this one," Obama said. It is extremely rare for Obama to threaten to use his veto.
The failure of the supercommittee, made up of six Republicans and six Democrats, had been expected for days. The committee met for a final time on Monday afternoon in a desperate hunt for a last-minute deal but it was too late.
With only hours left to a Monday midnight deadline, the committee issued a joint statement: "After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee's deadline."
The committee had been asked to reduce the country's $15tn deficit by $1.2tn, through spending cuts or tax rises or a combination of both.
The committee, in its statement, expressed disappointment that it had failed in the task. "Despite our inability to bridge the committee's significant differences, we end this process united in our belief that the nation's fiscal crisis must be addressed and that we cannot leave it for the next generation to solve."
It was the third major showdown this year between the Republicans and Democrats in Congress over the deficit, firstly in the spring with a Republican threat to close down the federal government unless there was agreement on spending cuts and then another threat in the summer not to raise the country's debt ceiling.
Obama, abandoning attempts to work with the Republicans in Congress, has been campaigning in recent months on a platform that the Republicans are obstructionist. The Republicans have countered that Obama is failing to offer leadership in a time of crisis.
The Republican leader in the Senate, Mitch McConnell, blamed the Democrats for the committee's failure. "In the end, an agreement proved impossible not because Republicans were unwilling to compromise, but because Democrats would not accept any proposal that did not expand the size and scope of government or punish job creators."
The deadlock on the supercommittee was blamed by the Democrats on a long-time Republican political lobbyist, Grover Norquist, who leads a campaign against tax rises. Norquist has persuaded Republican members of Congress over the years to sign pledges never to raise taxes. All six Republicans on the committee had done so.
If they had agreed to tax rises, they would be open to charges of reneging on the pledges they gave to Norquist, potentially damaging when they stand for re-election.