04/13/2011 09:27 am ET | Updated Jun 13, 2011

Not Raising Debt Limit Would Make Lehman Seem Like 'A Walk In A Park,' Ex-Treasury Official Warns

Last week, infighting in Washington nearly shut down the Federal government. Next month, the consequences of Congressional stalemate could be far more dire.

If Congress doesn't raise the $14.3 trillion debt limit by mid-May, the U.S. government will have to resort to emergency measures to avoid default. One missed payment, which could happen as soon as July if the ceiling is not raised, would likely set off a widespread global panic, causing borrowing costs to skyrocket and severely crippling the nation's economy.

But Republican lawmakers have said they will use the debt limit as a means of enforcing fiscal austerity, insisting they won't raise it without winning concessions from Democrats.

The two sides in the debate are preparing for a showdown, reiterating their arguments or reportedly gathering intelligence on the stakes.

House Speaker John Boehner (R-Ohio) has been meeting with Wall Street officials, to get a sense of how far Congress can take its brinksmanship before spooking markets, Politico's Morning Money reports. At least one official has reportedly responded with exasperation.

Meanwhile, Jim Millstein, the former restructuring officer at Treasury, who helped reorganize AIG, outlined how disastrous the consequences of default would likely be. Speaking on CNBC on Tuesday, he said that a Treasury default would affect investors of all sorts, and he criticized those who downplay the consequences.

"This would make the Lehman Brothers bankruptcy look like a walk in a park on a sunny day," he told CNBC's David Faber. "They're really playing with fire."

WATCH Millstein on CNBC below: