Lawmakers 'Playing with Fire' Over $14 Trillion Debt Ceiling

Lawmakers in Washington are embroiled in a heated debate about raising America's $14 trillion debt ceiling, which could have some dire consequences for the Treasury market if it's not increased, according to Jim Millstein, former US Treasury chief restructuring officer.

"There are a lot of people talking about this debt ceiling of being no consequence and we can blow right by it without any consequences, and I just think it's nuts," Millstein told CNBC on Tuesday.

"The government has to be able to borrow and it has to be authorized to do so. This debt ceiling puts a cap on that. If we fail to increase the debt ceiling then the Treasury department can scramble for a couple of weeks, a couple of months maybe, before it would otherwise hit that ceiling, and then we are in default," Millstein explained.

He went on to say that, if default were to happen, it would would have "extraordinary" consequences for the U.S.

"This would make the Lehman Brothers bankruptcy look like a walk in the park on a sunny day—they are really playing with fire," added Millstein.

"It's not just the Chinese and Japanese bond holders who hold our Treasurys—it's pension funds and insurance companies and banks, money markets and mutual funds," he said.

"This should be a sideshow in the bigger issues surrounding the budget," Millstein concluded.

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