Alongside the models of space shuttles, fighter jets and marine helicopters, a huge digital clock is counting down to the end of the year.

This new feature dominates the foyer of the 17th-floor offices of the Aerospace Industries Association – the largest and most powerful lobbying organisation for the US defence industry.

Last Friday afternoon, there were still 186 days, 8 hours and 46 minutes to go. After that, $500bn in automatic cuts to the Pentagon budget over 10 years are due to take effect, threatening – according to the AIA – America’s global military supremacy and 1m jobs across the country.

“It’s all so crazy,” says Marion Blakey, president of the AIA, which is mounting one of its biggest campaigns to persuade Congress to stop those reductions – or at least the $50bn in cuts set for 2013. “I truly believe that this is a historic moment – a critical moment for our country and our economy,” she says.

Lobbyists at AIA’s headquarters – with their views over the Pentagon and Arlington Cemetery – see themselves on the front line of a battle to prevent the nation dropping over what has come to be known as the “fiscal cliff”.

If Congress takes no action by December 31, America will suffer a contraction in budgetary policy worth $600bn next year – or about 4 per cent of gross domestic product – which would very probably plunge the US economy into a double-dip recession.

The growing fear is America’s divided political system will be unable to rise to the challenge of avoiding this fate – recreating the brinkmanship that nearly led the US to default on its debt a year ago – and dealing another self-inflicted wound to the US and wider global economy.

“There are a lot of people focused on it,” says Bob Rubin, the co-chairman of the Council on Foreign Relations and the former Treasury secretary. “As the balance of the year goes on, the uncertainty around it could begin to affect decisions in the real economy and it could affect the markets with respect to volatility and perhaps even directionally.”

Republicans and Democrats have entrenched ideological differences over how best to tackle America’s bleak long-term debt problems. Republicans resist tax rises and defence cuts, while Democrats will not contemplate slicing back social safety net programmes without assurances of new revenue. Their bickering before an 11th-hour deal to raise the debt ceiling last summer led Standard & Poor’s, the rating agency, to strip the US of its triple-A status.

But now, ironically, they are at loggerheads over how to contain the impact of one of the largest deficit reduction exercises in US history – a flurry of tax increases and spending cuts from a variety of laws passed since 2010.

Both parties accept they have to broker a deal, but are unlikely to make any compromises until November’s elections. Alarmingly, some fear that the White House and congressional leaders could even see political advantages to allowing the economy to slide over the fiscal cliff.

If no agreement is reached by the end of this year, the pain will be felt far beyond defence companies, though they are among the sectors with the most to lose. Government departments other than the Pentagon will also lose $50bn in 2013, potentially slashing funds to agencies from the National Institutes of Health to the Securities and Exchange Commission and the Internal Revenue Service.

But most of the damage will be inflicted by roughly $450bn in tax increases on American workers, due to the expiry of Bush-era income tax rates introduced in 2001 and 2003 and the end of a temporary cut in the payroll tax that began in 2011. The average middle-class family will see its tax bill increase by $1,750 next year, sapping already frail consumer spending. At the same time, tax rates on capital gains and dividends are scheduled to rise, potentially threatening new investments.

Few economists believe the US economy will be in good enough shape to withstand such a storm in 2013 – even if the impact will set in gradually and Ben Bernanke, chairman of the Federal Reserve, has frequently asked lawmakers to resolve the problem quickly.

“The point here is that, putting all these things together, you have a very substantial withdrawal of income from the economy that will affect spending and will affect the ability of the economy to recover in the short run,” he said two weeks ago.

Pressure is building from the outside too, particularly while uncertainty swirls about the fate of the eurozone. The International Monetary Fund joined calls for the US to avoid the fiscal cliff in its annual assessment of America’s economic policies this week. Senior EU officials José Manuel Barroso and Herman Van Rompuy pleaded for action ahead of last month’s summit of the Group of 20 leading nations in Mexico.

Dan Price, a national security adviser to President George W. Bush for international economic affairs, says he sees a “great deal of concern” around the world. “They understand that through relatively simple action we can right our ship,” says Mr Price, now a consultant at Rock Creek Global Advisors. “Their scepticism is whether we have the political will and leadership to do that.”

With the November election looming as a referendum on the economy – and a close contest between two different visions of tax and spending policy, and the size and role of government – neither side wants to offer any concessions.

This has triggered intense posturing about the deadline.

Republicans, who control the House of Representatives, will this month vote on a plan to extend all Bush-era tax rates for one year, having already passed legislation to replace the automatic cuts to defence with other reductions to social safety net programmes such as food stamps.

Both solutions have been soundly rejected by Democrats, who control the Senate, and the White House – which is campaigning on a platform of fairness and wants a solution involving higher taxes on the wealthy.

Michael Ettlinger of the Center for American Progress, a left-leaning think-tank, says there is a “very real worry” about the fiscal cliff in the White House. “But the price that Republicans would demand for doing something about that is probably too high.”

However, there is not complete paralysis. Behind the scenes, some members of Congress, particularly in the Senate, are trying to prepare a deal for the “lame duck” session – after the November 6 election and before the new crop of lawmakers takes office in January.

Some are aiming for a more modest agreement to simply push back the cliff by a few months in order to allow the new powers in Washington – possibly including a new president – some breathing room in the negotiations. They will however be wary of simply “kicking the can down the road” – leaving some degree of fiscal consolidation in place, in order not to raise the ire of credit rating agencies.

Others are pushing for a bold deficit reduction agreement like the “grand bargain” that Mr Obama and John Boehner, Republican speaker of the House of Representatives, narrowly failed to achieve last year.

“If we don’t do our job, [there will be] really dire consequences. But if we can reach a really comprehensive deal, the positive impact it would have on not only our economy would be remarkable,” Mark Warner, the Democratic senator from Virginia, said last month.

That may be way too ambitious. The political gridlock will not necessarily be cleared by the election, particularly if there is a tight outcome with the White House in the hands of one party and at least one branch of Congress controlled by the other.

More disturbingly, there are growing worries that both Republicans and Democrats could have strong incentives to go over the cliff – letting everything fall before trying to put the pieces together again in the new year, regardless of the cost to the economy.

Some allies of Mr Obama are pushing him to stand as firm as possible if re-elected. Democrats feel the president would have extraordinary leverage if he wins a second term and could finally be in a strong position to demand the end of Bush-era tax cuts for the wealthy – a promise from his 2008 campaign that he failed to fulfil.

Meanwhile, some Republicans have flirted with the idea of offering some tax increases in exchange for a reduction in the hit to the defence budget, but the party remains overwhelmingly opposed to higher taxes in almost any form – an ironclad position that was at the root of the debt ceiling crisis last summer and may not soften by the end of the year.

With no clear path to a deal, most lawmakers are counting on Washington’s innate ability to pull an 11th-hour compromise out of the hat once again. Referring to the possibility of plunging down the cliff, Ron Johnson, a Republican senator from Wisconsin, says: “Everyone has faith that we won’t be that stupid. I hope they’re right.” But Mr Johnson says this kind of last-minute dealmaking often breeds bad policy and new “ticking time bombs”.

While Washington dawdles, there is frustration abroad. Economists hoping to chart US fiscal policy from no retrenchment at all to a contraction of $600bn in 2013, have little clarity.

Bank of America Merrill Lynch has been among the most vocal in warning about the dangers of uncertainty.

“We don’t think the markets have priced in most of the consequences,” they said in a recent note. “We expect corporate leaders to start voicing concern this summer, with activity starting to slow in the fall. The biggest impact will probably be on hard-to-reverse decisions: capital spending, hiring, and auto and home sales.”

Robert Stevens, chief executive of Lockheed Martin, the defence contractor, has already spoken out. “The near-term horizon is completely obscured by a fog of uncertainty,” he said last month, citing site closures, changes to contracts that could hurt the supply chain, and mass job cuts as possible results.

Other sectors are also waking up to the danger. The US Chamber of Commerce, which represents a broad swath of corporate America, argues: “The threat of further harm to the American economy is real.”

But Ms Blakey and her squad of defence lobbyists – always reminded of their mission by the clock in the foyer – are most desperate for a congressional miracle. “I think waiting for the lame duck is way too late in the game,” she says.

“I believe they should step back from the fiscal cliff, repeal [automatic cuts] and make an honest-to-God commitment to dealing with our debt and deficit.”

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