The "terrible" and "unthinkable" threat of a US government default transfixed Washington Monday, as a standoff over raising the debt ceiling surmounted angst over a week-long government shutdown.

Republican House Speaker John Boehner sparked alarm after warning on Sunday that he would not allow Congress to raise the government's borrowing limit by an October 17 deadline unless President Barack Obama climbs down and offers concessions.

The sense of building crisis over Washington's financial paralysis was picked up in China, with Beijing warning that the United States must act quickly to establish the credibility of the dollar, the world's major reserve currency.

Concern also spread to previously calm investors, with the Dow Jones Industrial Average down 134.22 points (0.89 percent) at 14,938.36, mirroring a downward trend on global markets sparked by anxiety over US government paralysis.

The White House reacted sharply to Boehner's remarks, warning Congress could trigger a disastrous default and shred Washington's prized credit rating, as doomsday scenarios of default, once deemed unthinkable, appeared to grow in credibility.

The US government will be barred from borrowing by October 17 unless the current $16.7 trillion debt ceiling is lifted.

In the resultant chaos, Washington would begin defaulting on its debts, global stock markets could plummet and the fragile world economy could take a hit it can ill afford.

Gene Sperling, Director of the National Economic Council, said Boehner's comments were disappointing and warned Obama could not allow the House of Representatives to hold him hostage over raising the debt limit because it would set a dire precedent for future presidents.

"The president has made clear the era of threatening default has to be over," Sperling said at a breakfast hosted by the Politico news organization.

"If we sanction that as a regular process, that will do great harm to our democracy, great harm to our economy, great harm to the full faith and credit of the United States," he said, adding that a debt default would be "unthinkable."

Obama is refusing to negotiate with Boehner on raising the debt ceiling, saying Congress has a duty to pay bills already run up by lawmakers.

Boehner told ABC News on Sunday that his Republican-controlled House would not raise US borrowing authority without concessions from the White House.

"We're not going to pass a clean debt limit increase," Boehner said.

"The president is risking default by not having a conversation with us."

Uncertainty remains over Boehner's true intentions. He had been quoted as saying by anonymous lawmakers in reports last week that he would not allow the United States to go into default.

But Boehner is in a perilous political spot, between the wider interests of economic stability and the radical demands of Tea Party conservatives in his Republican coalition to whom he may well owe his job as speaker.

Jason Furman, chairman of the president's Council of Economic Advisors, warned "the only plan here" was for Congress to raise the debt ceiling.

He said the consequences of default were "too terrible a thing to even talk about."

"We've never actually tested it, we don't know what happens," he also told Politico.

US Treasury Secretary Jack Lew said Sunday the United States will run out of its ability to borrow money on October 17, and with only $30 billion cash in hand to meet obligations that can run to $60 billion a day, it will quickly face default.

"Congress is playing with fire," he told CNN's "State of the Union".

China voiced the alarm many foreign governments are feeling.

"As the world's largest economy and the issuer of the major reserve currency in the world, it is important for the US to maintain the creditworthiness of its Treasury bonds," vice finance minister Zhu Guangyao told reporters.

"It is important for the US economy as well as the global economy."

"The clock is ticking," Zhu said. "It is only one week away before the deadline on the 17th."

Concerns over possible default, the second of two political crises that could pummel the US economy, overshadowed concern over the government shutdown, which went into a seventh day on Monday.

The government closed down after Congress failed to pass a new budget for the new fiscal year, turfing federal workers out of their jobs, closing national parks and strangling government services.

No serious negotiations appear to be under way, with both sides concentrating on symbolic political moves and sniping.

There are increasing indications that the standoff will only be resolved in some kind of wider bargain that also includes raising the debt limit.

Republicans have demanded that Obama accept their attempt to defund or delay his trademark health care law in return for reopening the government and raising the debt ceiling.