Treasury Secretary Janet Yellen warned on Monday that not increasing the U.S. debt ceiling could lead to an "economic catastrophe." She explained to CNBC's Closing Bell: Overtime that such a failure could result in financial turmoil, significantly cut spending, and disrupt payments to Social Security recipients, veterans, and government contractors.

Yellen's warning comes amid a political deadlock over raising the debt limit, pushing the Treasury Department dangerously close to a potential U.S. debt default. This could happen if the Treasury depletes the special measures it has been using to fulfill its obligations after the U.S. hit its statutory debt limit of $31.4 trillion.

To prevent a default on the nation's debt, Congress must vote to either increase or suspend the debt limit before the Treasury exhausts its emergency funds. However, with only eight days remaining this month when both the House and the Senate are scheduled to be in session simultaneously, the window for reaching an agreement is closing.

Yellen noted a significant divide between President Biden's position and that of the Republicans regarding the issue of raising the debt ceiling.