Treasury Secretary Jack Lew warned members of the Senate Finance Committee about the possible economic consequences of failing to raise the U.S. debt limit during a Thursday hearing on Capitol Hill.

One of the areas of possible concern is what will happen to borrowing activity in the mortgage and auto finance space. The issue is serious enough to keep lawmakers shut away in constant negotiations, with House Speaker John Boehner reportedly asking party members to agree to a temporary debt ceiling increase, according to reports from CNBC.

Back on the Senate floor, lawmakers listened to Treasury Secretary Lew list the possible effects of the country defaulting on debt payments.

"It points to the potentially catastrophic impacts of default, including credit market disruptions, a significant loss in the value of the dollar, markedly elevated U.S. interest rates, negative spillover effects to the global economy, and real risk of a financial crisis and recession that could echo the events of 2008 or worse," Lew said in front of the Senate panel Thursday.  

A resulting interest rate spike would hit American households particularly hard, leading to higher costs on retirement accounts, while making it more expensive to buy a car, a home or open a small business, Lew said.

For the mortgage industry, which recently saw a minor slowdown in the wake of rising interest rates on Fed QE tapering concerns, another interest rate spike could deliver a devasting blow to the recovering housing market.

While members of Congress challenged Lew on the president’s unwillingness to pursue a balanced budget strategy and compromise on entitlement reform, Lew warned that using the debt ceiling as a negotiating strategy would deliver “self-inflicted wounds” to the U.S. economy.

Yet, Congressional members reminded Lew that Americans have become skeptical of debt limit warnings and remain more afraid of the government's inability to cut expenses. Sen. Pat Roberts (R-Kan.), said many of his constituents have asked their representatives to stand strong against spending even in the midst of Congressional gridlock and the debt ceiling debate.

"The American people get this," the senator said. "Fifty-two percent surveyed don’t want any increase in the debt limit. Seventy to 80% say no increase without spending reform … and yet all we hear (from the president) is that we will not negotiate," Sen. Roberts added.

Lew responded, saying the president "has been very clear: Congress needs to open the government and make it possible for us to pay our bills," he said. After that issue is resolved  — and the country is beyond the crisis point — the president is willing to negotiate, the Secretary noted.

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