Treasury: Debt default could trigger recession worse than '08

If Congress fails to raise the debt ceiling and allows the country to default on its debts, the economy could tumble into a downturn worse than the 2008 recession, the U.S. Treasury Department warns.

Treasury officials laid out a number of economic consequences to to a debt default, in the hope that Congress would speed up their negotiation process.

In 2011, lawmakers eventually raised the debt ceiling before the default deadline after a lengthy debate that resulted in Standard & Poor's lowering the country's credit rating.

‘‘As we saw two years ago, prolonged uncertainty over whether our nation will pay its bills in full and on time hurts our economy,’’ Treasury Secretary Jacob Lew said in a statement. ‘‘Postponing a debt ceiling increase to the very last minute is exactly what our economy does not need -- a self-inflicted wound harming families and businesses.’’

The effects of a default, the Treasury warns, include credit markets freezing and the value of the dollar dropping, resulting in an economic catastrophe worse than the Great Recession.

Though the Treasury's warning may seem dire, many economists agree the "fiscal shock" of a default could lead to recession.

Lew also warned two weeks ago against the piecemeal proposals currently winding their way through Congress.

“As administrations of both political parties have previously determined: these 'prioritization' proposals are unworkable. They represent an irresponsible retreat from a core American value: Since 1789, regardless of party, Presidents and Congress have always honored all of our commitments,” Lew told a room of business leaders.