Washington (AFP) - Joe Biden and Republican leaders kicked off high-stakes talks Tuesday aimed at averting a potentially catastrophic US debt default, as the president was forced to shorten an upcoming Asia tour to tackle the crisis.

Biden flies to Japan on Wednesday for a G7 summit, but two sources said subsequent stops in Papua New Guinea and Australia have been scrapped to deal with the domestic stand-off over raising US borrowing limits.

The Treasury has warned of grim consequences if the country runs out of cash to pay its bills, which would leave it unable to pay federal workers and trigger a likely surge in interest rates with knock-on effects for businesses, mortgages – and global markets.

The United States could begin defaulting on its debts “potentially as early as June 1,” Treasury Secretary Janet Yellen said Monday, while the nonpartisan Congressional Budget Office has forecast June 15.

- ‘Potentially devastating’ -

The two parties remained sharply divided heading into Tuesday’s talks, with Republicans insisting Biden agree to significant spending cuts in exchange for their support to raise the debt ceiling.

Democrats have been calling for a “clean” increase of the borrowing limit with no strings attached, and have accused Republicans of using extreme tactics to push their agenda ahead of the so-called “X-date” at which the United States starts defaulting on its debts.

In a sign of growing nervousness over what would be the first ever US debt default, more than 140 top US chief executives sent a letter to Biden and congressional leaders stressing the need for an agreement.

“We strongly urge that an accord be reached quickly so that the country can avert this potentially devastating scenario,” the letter signed by the CEOs from Pfizer and Morgan Stanley, among others, said.

Vice President Kamala Harris joined Biden and top Congressional Republicans and Democrats for the meeting on Tuesday, which got underway at around 3:00 pm (1900 GMT).

- Breaking the stalemate -

Biden and the Republican speaker of the House of Representatives, Kevin McCarthy, have blamed the other party for the lack of progress made in the first round of talks last week.

“We’ve got to solve the problem,” McCarthy told reporters at the US Capitol on Tuesday.

“I just want to get in the room and work out the challenge here and come to an agreement.”

But Biden accused the Republican Party of holding the economy hostage.

“America cannot default on its debt. If we were to do that it would be catastrophic,” he said in a video message posted on Twitter, adding default would likely push the US into recession.

“It would be devastating for America and quite frankly the whole world,” he said.

Republicans, who regained control of the House in the 2022 midterm elections, are using their newfound clout to demand cuts of $130 billion from federal agencies and programs in exchange for support for lifting the debt ceiling.

This would limit spending in the 2024 fiscal year to 2022 levels.

They also want to expedite domestic energy production projects, simplify the process for obtaining permits for pipelines and refineries and claw back unspent Covid relief funding.

There are now only three days remaining when the House and Senate are both in session before June 1, when the Treasury predicts the US could run out of money.

Some senators have acknowledged that they may have to cancel the Memorial Day recess beginning Thursday to get a deal finalized.

As the X-date draws closer, Democrats in Congress have begun considering a range of alternatives, including using an arcane congressional procedure to bypass McCarthy.

They’ve also contemplated asking Biden to invoke the 14th Amendment to raise the debt ceiling unilaterally, which some legal scholars believe would allow the Treasury to simply ignore the debt limit.

But Biden has cautioned that such a move could be challenged in court, and has continued to call publicly for Republicans to support a clean increase to the debt ceiling.