The United States Congress has split along party lines as deadlock continues over raising America's debt limit.
The House of Representatives passed a Republican bill proposed by Speaker John Boehner, by a vote of 218-210 on Friday.
But that was quickly killed by Democrats in the Senate who voted 59-41 against.
The BBC reports that the Boehner plan included some $US900 billion of spending cuts and would raise the debt ceiling by a similar amount.
However, it would require another vote during mid-2012 and includes language in support of a so-called balanced budget amendment to the US constitution - both rejected by the White House and the Senate leadership.
Democrats have said the House bill would force Congress to vote on another extension of the debt ceiling early in 2012, when presidential election campaigns will be in full swing.
They instead favour a longer term $US2.5 trillion debt limit increase with about $US2.2 trillion in spending cuts, keeping the country in funds until after the next presidential election.
Afterwards, Senate leader Harry Reid (Democratic) said he would start Senate action on a compromise plan and called on Senator Mitch McConnell (Republican) to work with him.
Senator Reid said a short-term debt limit extension is unacceptable.
The current limit on borrowing by the federal government is $US14.3 trillion and the deadline for Congress to raise it, is 2 August.
House Speaker John Boehner said Republicans had tried their level best to reach a deal.
''I stuck my neck out a mile to get an agreement with the president of the United States,'' Mr Boehner said, referring to negotiations with President Barack Obama that twice broke down.
''My colleagues, I can tell you I have worked with the president and the administration since the beginning of this year to avoid being in this spot,'' he added.
Meanwhile, Moody's has signaled it probably will not downgrade the United States' AAA credit rating immediately, even if there is no deal to raise the debt ceiling.
The ratings agency said the United States would still have enough money to pay its debts to bondholders after Tuesday.
Debt cap set in 1917
The debt ceiling is set by statute and can be raised only by Congress.
An overall cap was first introduced by Congress in 1917 to make it simpler for the US government to finance its efforts in World War I.
Since then the ceiling has been raised dozens of times. The BBC reports it is usually a formality.