Investing.com -- Former Treasury Secretary Henry Paulson urged US authorities to develop a backup plan to prevent a potential collapse in demand for Treasuries, warning such an event would have severe consequences.

Paulson said officials need an emergency plan "on the shelf, so it's ready to go when we hit the wall," during an interview on Bloomberg Television's Wall Street Week with David Westin.

The former Treasury chief said a breakdown in the $31 trillion market for US government debt would differ from the financial crisis he managed two decades ago. During that crisis, the government had fiscal resources to address the credit meltdown, he said. However, in a US public debt crisis, "when you hit the wall and you're trying to issue Treasuries and the Fed is the only buyer and the prices of the Treasuries are going down and interest rates are up, that's a dangerous thing."

"People say, when are you going to hit the wall? I obviously don't know, it's impossible to know," Paulson said. "When we hit it, it will be vicious, so we have to prepare for that eventuality."

Paulson did not provide details for a potential emergency plan but said the US could address the fiscal deficit through increased revenues and taxes, along with managing expenses. This would include overhauling Social Security and health care programs. "You can raise the revenues without a big drag on growth, if you close preferences and loopholes in the tax code," he said.

The challenge lies in securing support from lawmakers, Paulson noted. "I've worked with Congress before, and Congress doesn't like to do unpleasant things until there is an immediate crisis."

Budget experts have warned of a potential scenario where investors demand higher yields on Treasuries due to risks from the government's growing debt burden, which would increase the government's interest payments and widen the deficit.

The US budget deficit has averaged roughly 6% of gross domestic product over the past three years. The Congressional Budget Office expects the gap to remain around those levels throughout the coming decade.