US Treasury warns debt ceiling deadlock or default could have "catastrophic consequences" and trigger deep recession

As the budget impasse in Washington starts to hurt financial markets, the US Treasury is warning a deadlock over America's $17 trillion debt ceiling could have "catastrophic consequences".

In a document released this morning, Treasury says a failure to raise the debt ceiling could see America default on its debts for the first time ever.

Treasury warns that will not only hurt America's economic recovery but put it back into a deep recession.

Listen to my analysis from this morning's edition of "AM".

· "Not only might the economic consequences of default be profound, those consequences, including high interest rates, reduced investment, higher debt payments, and slow economic growth, could last for more than a generation."

· "In the event that a debt limit impasse were to lead to a default, it could have a catastrophic effect"

· "Many private-sector analysts believing that it would lead to events of the magnitude of late 2008 or worse, and the result then was a recession more severe than any seen since the Great Depression."

Chicago volatility index (VIX) on rise - though nothing like last impasse in late 2011.