President Barack Obama has warned Wall St it should be "concerned" as talks to extend America's borrowing limit threaten to go to the wire.

"Democracy's messy. But when you have a situation in which a faction is willing potentially to default on US Government obligations, then we are in trouble," he told US television.

The US Government has been shut down for two days because of a political stand-off that economists fear will bleed into parallel talks about whether to extend America's US$16.7 trillion ($20.1 trillion) borrowing limit.

It is an annual negotiation that has gone up to the deadline three times since Obama came to power, and which stands to alter the course of America's economic recovery.


Wall St and Capitol Hill had been working on the assumption that the political circus would deliver the same result this year, but they are feeling less sure now that Congress has allowed the Government to shut down before resolving their stalemate.

The Republicans have said they will agree to the stop-gap budget measures needed to get the Government back up and running only if the White House agrees to delay the President's public healthcare scheme by a year.

The government shutdown - the first for 17 years - is expected to cost the US economy around US$300 million a day, according to analysts at IHS. Economists claim it could shave as much as 0.9 per cent from US GDP in the third quarter if it continues for three weeks - potentially wiping out America's economic recovery.

Obama's warning came hours after Lloyd Blankfein, chief executive of Goldman Sachs, warned US politicians not use the threat of the country breaching its borrowing limit as a "cudgel" to try to force policy changes.

The investment banking chief, one of 15 business leaders to meet Obama yesterday, said any attempt by Congress to use policy proposals as a weapon in their negotiations over America's debt ceiling would have "extremely adverse" consequences.

If America breaches its borrowing limit on October 17, the US Government would have to cut spending by 20 per cent and would almost certainly default on its debt repayments. This would send interest rates up around the world.