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tv   Key Capitol Hill Hearings  CSPAN  October 10, 2013 6:00pm-8:01pm EDT

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, the u.s. dollar is the world's most important reserve currency. u.s. treasuries are a safe haven where investors know they and this value to the world strengthens our economy and lowers interest rates for american consumers at every level. why is that something that we are willing to risk? i cannot understand it, and i hope that better sense will come shortly to the congress. thank you. thank you, mr. chairman. i want to make a point in response my colleague or rhode island and new jersey. i could not agree more with that sentiment about the importance of the fact that the united states, the u.s. dollar is the world's reserve currency, and the importance of the u.s. currency cannot be overstated as
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a benchmark for credit markets source of world, as a safe investment. i hope as we have this discussion we can be candid about what we are talking about here. as we all know, if we do not raise the debt ceiling sometime soon, then at some point we will have disruptive consequences, because tax revenue is only 85% of all the money we are planning to spend, not 100%, and that means the other 15th percent -- 50% has got to be our it, and if not, then you have to make some decisions about what gets cut. that is disruptive, not where we want to go, and i hope the president will agree to actually address the underlying problems -- underlying problems that got us are so we can avoid it. having said that, there is no circumstances under which we should ever tolerate choosing, willfully, to make sure that a
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missed payment would include a missed payment on the treasury security. processing because of uniquely important role the treasury securities play. i was disappointed that the treasury secretary in a recent hearing refused to acknowledge the obvious, because it is obvious to me. maybe i should not consider it so obvious. that he would not choose to default on a u.s. treasury security, precisely because of the unique role that these instruments play. i hope we would agree that that would be the most disruptive of the very unfortunate and disruptive options that would be available. that is the context in which we are having this discussion. i thoroughly agree with the comments of the ranking member that at some point it is just irresponsible to not deal with the underlying problem that gets right to the need for all of this debt, and, frankly, it is not clear to me why this
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administration should be the first administration in modern history to simply refuse to have a discussion about how we got here at a moment like this. thank you. >> i would like to remind my colleagues that the record will be open for the next seven days for additional statements and other materials. thank you, mr. chairman. my guess is what you just said is a suggested we not to opening statements, but that really just went over my head. i did not notice. thank you. i have a few comments, and i will not talk more than two or three minutes. five years ago we were dealing with the financial crisis. he could he on the brink of another one come of one self- inflicted, as the governor mentioned in his comments, and as senator reid mentioned. was driedrepo market up overnight. to thousand 10, we did not enact reforms. perhaps we should have.
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regulators are working on it, but they are still alterable. i sent a letter to two banks yesterday that we are in the middle of a short term funding problem. i asked them what effect default would have on the tried-party repo market where the government is art -- is backed by u.s. treasuries? we are seeing issues in the financial markets. the cost of using short-term treasuries as collateral has increased. we reportedly sold off treasury holdings and maturity in late october. secretary lew testified in front of senators and others that yields in short-term treasuries nearly tripled from the week before. we sell in that hearing where some are sitting up a construct where government, the treasury, the president has to choose
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between paying off bondholders, paying off chinese investors, and wall street investors, choosing between that and benefits,and veterans funding every day government in this country, a choice that no one should absolutely inflict upon a government. it has never been done before. this week i spent a lot of time calling community bankers and business people and hospital administrators, people running major research institutions in our state, mostly, i assume republicans, and most of them are incredulous we would even be thinking about this if we reachon the debt limit, that we would prioritize, even think about making these choices between paying wall street and pain made street, if you well. i cannot believe we are a some are saying we should not raise the debt limit and it took the crisis on themselves. commentshe governor's
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say that. it would be unwise and dangerous to do this. we have no business moving our country in the structure. thank you. --are there any other i would like to-- -- warner?en >> less than a minute. i just have to say this nation of partners asian -- we are in uncharted territory. you do not know what would happen. why would we take that risk, and respectfully, any list of prioritization which has social security or military or the medicare may or may not work, but the thing that i find stunning is -- and when i get the questions i will ask the governor this -- the other governors here -- none of this
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prioritization list includes the past dues that help fund state, local budgets, hospitals, so you could have a circumstance where america does not default, but every state and every locality, either as an immediate budget crisis, and they will have do default, which is unprecedented. thank you, mr. chairman. >> i would like to now introduce our witnesses who are here with us today. frank keating is the president and ceo of the american bankers association. previously he served as governor of oklahoma. mr. ken benson is the president of the securities industry and financial markets association. he previously served as a congressman for the 25th district of texas. mr. gareth thomas is the president of the national association of realtors. he has been in the real estate
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business for more than 35 years. is thel stevens president and ceo of the investment comes to me -- investment company institute. previous lead he served as special assistant for the national security affairs to president reagan. mr. keating, you may proceed. chairman johnson and ranking member crappo, i am frank keating. i previously served two terms as governor of oklahoma come and recently was a member of the bipartisan policy center's debt reduction task force. i appreciate the opportunity to discuss the need to raise the debt ceiling and the consequences of failing to do so. let me be clear, we need to meet our obligations and not create any uncertainty that we will do so on time, every time.
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in this country, our word is our bond. the respect and admiration of the united states and its institutions inspire around the world are based on the certainty that when our nation makes a .romise we keep it ordinary americans will bear the brunt of the damage if our leaders do not prevent the united states from defaulting on its debt for the first and very first time in its history. we're are much closer to disaster this year than we were two years ago when the debt ceiling standoff caused economic uncertainty to spike, consumer confidence plummets, and stock prices to spiral downward. all because of the perceived risk of united states defaulting on its domestic and international debt obligations. costthat standoff taxpayers close to $20 billion as investors demand higher interest on u.s. treasury bonds to account for the risk of a
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government default. if our nation defaults on its nearly $17 trillion in debt, the harm is likely to be measured in hundreds of billions of dollars. even the slightest uptick in treasury interest rates would cascade throughout the economy. it would raise the cost for taxpayers to service our raisey's debt and would that bar are we in costs for business, meaning job losses and price increases. default would he a low to retirement funds, leaving fewer resources available for our retirees. for banks, which hold three dollars trillion in treasury agency and mortgage backed securities, the sharp decline in value of those securities would translate into the viewer resources available for bridges, as is, auto, credit card, and student loans. if congress fails to act, and we hit the debt ceiling, we will set off a chain of events that will impact all americans.
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the consequences will not be easily reversed, and the repercussions could lead on for year. default would put the united states in the category of reckless or nations who are broken their word in the market, which include argentina, dennis wheeler, and cameron. left those countries financial pariahs. the answer is not to make our payments on money already spent. we should never inject uncertainty into the markets, that we as a country will not keep our word to pay the debts that we owe. we must pay our bills on time and in full. then we must manage our future own ourg and bring da debt. no one takes our national debt more seriously than i do. as a republican governor, working with a democratic senate
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and house, i balanced the budget eight years running and work with colleagues from both sides to ensure that our state honored its debts and expanded its economy. joint a task force that endorsed painful measures to put the country possis will house in order. i urge members of the committee and the full senate and house to engage in a way to find long- term solutions to our growing debt levels. if confidence is lost in our country's willingness to pay its bills, we will have lost something that may be impossible to regain, the world's. thank you, and i will be happy to answer questions. >> thank you. you may proceed. >> chairman johnson, members of the committee, i am the president of financial markets association. me toyou for asking testify today.
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given the role that death plays as a world court see, any default would negatively impact the economy and disrupt the operations of markets. the market has signaled concern regarding the debt limit, resulting in a dramatic pricing effect on the short end of the treasury market. investors are voting with wallets and feet. longe believe the time is overdue for the administration and congress to develop long- term solutions to our challenges, voluntarily defaulting on the nation's obligations should not be an option. should congress failed to raise trigger a it would series of events which would lead to the american taxpayers taymor to finance the debt. even a short term failure would impair market obligations with consequences. [indiscernible] rose inat of default 2011.
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believe market participants are prepared to deal with scenarios that a failure would present. a default by the government would be unprecedented and the consequences for market and economy would be dangerously unpredictable. no amount of planning can mitigate all the potential consequences. while we assume any missed payments will be made, the impact of a missed payment on the broader market of securities may impact the price of treasury securities which could impact clearinghouses. that entirely possible defaulted securities would be deemed not eligible. since filing testimony yesterday, participants have continued to review enhancements that could mitigate operational risk that has been identified. it is important it avoid
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distractions in the market and participants review ways to improve resiliency. treasuries are the world's safest assets. shrinkage in the market would further pressure rates, raising costs, disrupting collateral markets because of the margin that would reflect the overall pricing of collateral. given the uncertainty, or dissidents have developed a playbook that will provide or dissidents and providers a forum to share information about the developments, including the administration and congress and the status of the providers. is anticular concern indication for treasury debt securities will be extended and whether processes are being or can be delayed. it is important for the market to know as early as possible the treasury extends -- intends to extends payments. securities are traded in the
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market, with the day beginning in asia at 8:00 p.m. eastern time. participants normally run their processes earlier to provide a clear cut off to protect their positions. failure to provide early indication could obfuscate positions and could cause infusion in the asian markets. the disruption to pricing behavior is impossible to predict. is thebt obligations currency for the world market, short and long-term consequences to the taxpayer can be anticipated, but the limits on the ability to transfer, sell, and post collateral would only serve to undermine investor confidence and hurt our recovery. members have free will he called on members of congress to put house in order, but a default will result in permanent damage to our economy in ways both anticipated and
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unanticipated and must be avoided. i appreciate the opportunity to testify and i look forward to answering your questions. >> thank you. you may proceed. chairman johnson, members of the committee, on behalf of the one million members of the national association of realtors, whose members practice in all areas of residential and commercial real estate, they give her the opportunity to share our concerns about the potential economic consequences of not raising the statutory limit on our nation's debt before the limit is reached. i'm gary thomas, president of the national association of realtors. i have more than 35 years excretes in the business, and i and the broker owner of evergreen realty. it is no secret that real estate is a cornerstone of our nation's economy. it revisits roughly 18% of our nation's krista bessey product. as the housing market has recovered from the great session, it has contributed to growth, especially
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since 2011. home sales, prices, and residential construction are all on the upswing. for example, home sales were 13 per two percent higher in august that a year earlier. home prices have increased 15 %. these key housing indicators have been supported by low mortgage rates and improved confidence. the housing market has not fully recovered. maintaining momentum in the market is particularly crucial right now. housing recovery could stall if the debt limit is not addressed. a default or even a perceived threat of a default could undermine a distinct economic advantage that has taken us centuries to build. undermining our stability and raising costs today and for generations of americans to come. it is impossible to predict the
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exact economic impact in the event of our nation is unable to pay its creditors. the significant economic disruptions that resulted from the 2011 that ceiling in past invited a useful guide. financial market disruption, reduce consumer and business confidence, and slower job growth all happened when the debt limit was not increased until the very last minute. in the event of a default, a series of events would occur causing a domino effect resulting in higher mortgage rates and increasing costs of buying a home. historically, an increase in the mortgage rates of one percentage point reduces home sales by roughly 350,000 to 450,000. this would wipe out any increase in home sales predicted in 2014. a decline in home sales would also have a broader impact on our national economy. 900,000 fewer0 to
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jobs would be created azure a 1% in mortgage rates. $60,000 aower earning year and taking out a $200,000 mortgage, that one percent increase would raise the monthly principal and interest payment by nearly 10%. any decrease in the consumer's disposable income has brought economic report effects. higher mortgage rates and lower consumer confidence are both likely to follow in the event of a default. if we look back to the debt ceiling debate of 2011, consumer confidence plummeted 22% following the impasse. our economy has been able to bounce back from the 2011 that ceiling debate. but the impasse prolonged housing downturn. the result of the real estate market did not begin to turn around in earnest until 2012. as the housing market heels, mortgage rates have increased from historically unprecedented lows.
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in familyreases income have squeezed the affordability of homes. to thebility has gone lowest levels since 2006. with sentiment already facing headwinds from rising interest rates, the recent government shutdown will likely be an additional blow to consumer confidence. u.s. economic expansion will be even more susceptible to the adverse effects from a debt ceiling impasse. we have already experienced a negative economic consequences from the prospect of a default during the debt ceiling impasse of 2011. let's not repeat this mistake again. more importantly, let's not allow a debt limit impasse lead to the united states defaulting on its debt. thank you for the opportunity to share our thoughts, and we look forward to working with congress and the administration on efforts to address the challenges still facing this nation hostile housing market and overall economy.
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>> thank you. mr. stevens, you may proceed. ofchairman johnson, members the committee, thank you for the opportunity to appear. i am pleased to have the opportunity to testify. iciate members of manage were then $15 trillion in assets. the most recent ici show that registered funds held more than $1.7 trillion in securities issued by the treasury and by u.s. government agencies. that accounts for more than 10% of fund assets. u.s. treasuries trade in the deepest most liquid market in the world. treasury securities have always been regarded providing the risk free rate of return. a key factor in pricing other assets, including corporate and municipal bonds.
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today that notion of the risk- free rate is in serious jeopardy. today, washington, the federal government, is itself the single greatest source of risk to the global financial system. immediate threats to the financial stability is the looming stalemate over the federal debt ceiling. he must not lose sight of longer-term hazards our nation faces if we fail to take decisive action to contain the growth of our national debt. after all, there are two things that individuals and households, as this is, or nations must do to maintain a high level credit worthiness. they must pay their bills on time when they come due. on they must avoid taking more debt than they can reasonably afford to service and repay. for our nation, ignoring either of these principles will be ruinous. a treasury default id precipitates a sudden crisis and a degradation of the united financial standing.
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failure to bring our debt under control will be equally destructive and on current trends is even more likely. what makes the treasury markets so deep and so liquid is the certainty of investors that the u.s. treasury will pay its obligations on time and in full when interest and principal come due. or delays ay misses payment, investors will learn a lesson that cannot be unlearned. treasury securities are no longer as good as cash. edture risk of missp payments will be priced in. he already can see early signs of these concerns developing in the market, as the october 17 deadline approaches. should the treasury default, the effects would quick lease will be on the treasury markets and into the broader economy. multiple shocks, cash shortfalls for holders of the folder treasuries, higher interest rates, the missed covenants, and pressure on the dollar, would be
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likely to undermine economic activity. the impact would persist well beyond any resolution of the debt ceiling and repair of the defaults. let me stress that default is by no means uniquely a problem for mutual funds or other investment companies. nothing about their structure makes them any more vulnerable than any under investment vehicle. because the health of the treasury market underpins virtually all financial markets, the damage of a default or even of a second near miss in a little over thierry -- two years'time will be visited on every american who saves, invests, or has any stake in the economy. with our focus on the debt ceiling, it is easy to lose sight of the other looming risk, the unsustainable long-term growth in our national debt. bargainsnd spending reached so painfully in the last three years have slowed the growth of that for the short term. the office latest projection shows that that progress will be
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short-lived. by 2008 can come of it that will be rising as a share of gdp. by 2038, federal at help by the public will reach a hundred eight percent of gdp. these scenarios in our long-term trends do not promise a bright future. messages today. first, no one should take lightly a default on united obligations. the credit of the united states must not be put into question. second, those who dismiss or minimize our current budget problems are also playing with fire. the risk they are taking may be less immediate, but they are no less consequential, and the longer the nation delays action, larger and more difficult than necessary corrective measures become. thank you, mr. chairman, and i look forward to your questions. >> thank you all for your testimony.
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we will now begin asking questions of our witnesses. please put five minutes of clock for each member. this question is for the full panel. no matter where you stand on fiscal issues, or even health care, should congress seriously seriously entertain a default on our debt, and what do you believe is the most troubling long-term impact if the u.s. does not pay its bills on time? mr. keating, let's start with you. by my fellow panelists, if the united states default on its debts and a little bit or a lot, is calamitous. in perspectivek what has occurred over the course of the last umber of number of years. from 1789 when our republic was
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established until the year 2000, the debt was five dollars trillion. according to the policy center, the rivlin bemidji panel, between 2000 and 2009, that national debt roughly doubled. now it will double again. scalding, and i am sure that the congressional panel as well as simpson bowls, and i am sure rivlin domenici found the same thing. in 2020, it will be one dollar trillion a year just to pay the interest on the debt. by the year 2025, every set of federal tax revenue will go to social security, medicare, and interest on the debt. tot is required as noted is it through the default time because it will obviously raise interest rates and create real havoc in the community bank environment, most particularly, the ability to borrow and lend money, and then sit down
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aggressively and in a bipartisan this runawaycus on train. in 1950 the average person retired at 62 and died at 69. or 65 and 69. today the average person retires at 62 and dies at 80. we are mercifully living a lot longer, which is causing huge stresses in our ability to provide for the elderly in the united states, and it will continue to the bin and darken over the course of the next 20 years. >> mr. benson? >> i say two things. one is voluntary late defaulting on the debt is something that does not make any logical sense. it will create huge operational problems in the financial markets that would permeate across the markets. treasuries are used in escrow. it will affect municipal bond issues.
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it will have to meta- the quiddity and could create crises if it worker to go on. even with potential workarounds, bonds. with defaulted to the other thing i would say is with respect to the long-term fiscal condition, the default voluntarily would it would make the long-term fiscal imbalances that much more difficult. it seems to me it doesn't make any sense to do so if you don't have to. from the real estate perspective, i think that we would fall back into a deeper recession. there is no doubt in my mind that that would happen. if we reached a debt ceiling impasse, the default on u.s. lasting.ld be very long-
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interest rates would undoubtedly rise, meaning less people could afford to buy or refinance homes. housing prices would plummet again. catastrophe ina the real estate industry, which would lead the economy back into a deep recession if not a rep -- a depression. it also raises the rate at which we would borrow and would make it more difficult for us to meet our debts in the future. i don't see any possibility of it being a good outcome. it is going to be disastrous. mr. chairman, i think the key element is confidence. we are the biggest borrower in the world. we have to engender confidence in those people who are lending us money. the treasury's history of repayments and the smooth operating of the treasury market has created that high level of confidence that permits us to borrow at very low rates. i don't think it is in the interest of the american people to do anything to give our
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investors less confidence in the united states. that would include either failing to repay, or as i said in my testimony, so much debt that it will not be supportable. >> mr. stevens, some in congress have proposed payments to bondholders should be prioritized in the event of a default. is this a workable long-term solution? >> to go back to my previous answer, i think it, to some degree, misses the point. if you are household and depending on the bank for continuing financing, and the bank learns this month you will decide to pay these bills but not those bills, doesn't engender greater confidence in the bank to continue to lend you money. that is the key point. the money that you are lent, if you are lent any, is going to be much more expensive. it makes the whole that you were in that much deeper. >> senator crapo? >> i want to come back to basically what i talked about in my opening statement, which is
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the fact that while we debate the consequences and circumstances surrounding the debt ceiling battle we are having in the senate and house right now, the real issue that we need to be focused on -- i agree with all the comments about the seriousness and consequences that would occur if we do not pay our debts, i understand that -- it seems to me that the real threat of default that the united states is the debt crisis that we are facing. all know that one credit rating agency has already downgraded the united states, the good faith and credit of the united states. they didn't downgrade it over a debt ceiling. they downgraded it because they lost confidence that we are willing to deal with our debt. that is the issue that i believe
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we need to focus on. the cbo has recently stated that if we continue our current path, at some point, investors will government'st the willingness or ability to pay u.s. debt obligations. i think at some point -- i think some point soon, another credit rating agency will be convinced that we will not deal with our debt crisis. the question i have for the , is the threat of default that each of you have default on our u.s. treasury obligations -- is that threat greater because of the fight we are having in washington right now over the whether the debt ceiling will be extended or is it not far greater over the fact that we cannot get into negotiations to resolve our entitlement spending and to reform our tax code? mr. stevens, i know you mentioned this in our cash in your comments. in my oral as i said
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statement, i think credit worthiness depends upon two things. it depends upon paying your bills on time. it also depends on not racking up so much debt that you cannot support it. it is a combination of the two things. i don't think you can have one without the other if you really want to maintain a good credit rating. >> mr. thomas? >> i would agree. i think you have to attack both. you have to do it in a deliberate manner that does not upset the international marketplace. i think we have to do with the debt ceiling first and then go on to the looming question, the elephant in the room, and that is the entire debt. >> mr. benson? >> the two are certainly linked, senator, but it seems to me, just as you would if you were going through corporate restructuring, if you are going to go through a fiscal restructuring of the united states to repair fiscal
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imbalances over the long run, to are still going to need ask as credit markets to do so. you wouldn't want to do anything that impairs your ability to access the credit markets to get on a glide path. they areo think linked, no question, and they both need to be resolved, you do have one that is in front of the other. not tot to be careful make a longer for job any difficult by not addressing the short-term issue. >> mr. keating? >> i agree with ken benson. there are really two issues. they are interlinked. -- for me as a unity banker, if you came to me and said, i'd like to borrow some money, but i'm not sure i can pay back, i assure you that the interest rate would be considerably higher if i made the loan at all. if you said, i won't pay it back
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or i haven't paid back my other loans, i wouldn't make the loan at all. that is a reality that faces families, and that is a reality that faces the united states. debt, the of our reason we can't pay our bills or won't pay our bills, is entitlements. they are linked together. our said, mercifully, families are living longer, but that is a huge actuarial challenge that we have not prepared for. thank you. not going to ask another question, but i will conclude with a comment. i understand the linkage. there's another aspect of the linkage. we just had a hearing about an hour ago with secretary jack lew, the secretary of the treasury. in questioning him, i asked him whether or not the real threat we faced was in the long-term debt crisis and that that was a greater threat to our credit worthiness. said, answer to me, he
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we've been making some progress on our long-term debt crisis over the last couple of years. he admitted that we haven't touched entitlements, haven't touched tax reform, but he said, we have started to make some progress. i pointed out to him and i will point out to, that progress came in 2011 when we were fighting over the debt ceiling increase and we adopted the budget control act, which put into effect our ability to deal at least with discretionary spending. although we can argue over whether that was done well or whether it could have been done better, the fact is that that debt ceiling increase was accompanied by some fiscal reforms. that is what we are trying to achieve here today. >> senator reed? >> thank you very much. mr. benson, if we default next technically, your view, i believe, is that will make our ability to do almost
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everything, including deal with the long-term economic problems, much more difficult. is that fair? all, you made this comment in your opening statement. we are already seeing the risk premium being priced into the market today. the short end of the treasuries are up 30 basis points. a dramatic shift. the haircuts of repose are going up. the pricing effect is already happening. if we miss a coupon, we would assume that that pricing effect would be exacerbated. the other thing that we think would happen -- again, our members are working to gain this out because no one has ever been through this, the documents are not structured for this, systems has never -- have never been set up for this. while there are efforts being made to see if we get notice from treasury that a coupon payment will be missed and
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extend it to another day, how do you keep the treasury security with the missed coupon payment transferable or pleasurable as collateral -- it is not entirely clear. we think if it is done quickly and before the asian markets open that it is possible, but you still have that coupon that is pulled out of the market. there is some liquidity associated with that. it is not clear when that would be paid. it it is not clear whether interest would accrue. you have potential lost revenues there. ifn it's not clear whether those securities are no longer considered eligible collateral, what change effect might occur, not just with the ability from a repo transaction, but whether or not they are in a municipal escrow, whether they are pledged as collateral for flops or any ,ort -- sort of transaction whether counterparties would ask for replacement, or whether escrows would have to be changed.
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it has a friction that can run across many parts of the market. >> in effect, what you are describing is a potential perhapsl meltdown, worse than in 2008 with the collapse of lehman brothers, which required massive sport by the federal government to restore confidence and stable as the government. i don't know if that combination of factors would be able to support such an effort. you raised an excellent point, which is -- everyone might have very good intentions of trying to manage through this crisis, but software systems, documents, legal requirements, uncertainty would be such that you could really paralyze the market. liquidity could freeze. you would have something that
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would make 2008 look like a walk in the park. keating, again, i think your comments were about the impact of this. the proportionality. we are looking at a crisis that could trigger, ironically, worse deficit complications that could exacerbate the long-term trends even more dramatically as interest rates go up. you have a particularly valuable point of view, representing bankers all across the country. the impact on main street. one of the issues with prioritization, we are not prioritizing between paying federal debt and trivial expenses of government. we are talking about social security payments, medicaid payments to states. states could basically start buying into their own competitions. if you were told by hhs that no
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medicaid payments were going in, what you do? are you on the hook for it? what do your hospitals do? do they declare bankruptcy because governments require that they receive a certain amount of income each month? in some cases, yes. then we go down to social security benefit payments. are we telling social security recipients they are going to take a 5% haircut because we are going to pay our credit? as i read all of these constitutional advocates, as i read the fourth amendment, it doesn't make any distinction between types of debt. it's a public debt. all of this would be construed as public debt. can you tell us on the street with your impression would be? community banks and even large institutions that i work for are very alarmed. because of the uncertainty, because of the panic, because of the potential for long-term,
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destructive results. of there secretary treasury, if you are secretary of the treasury, and we had somebody dollars, you would say, we technically in default if we don't pay social security? i don't know. i know we are technically in default if we don't pay all of these bonds. we've got to pay the bonds. then we've got to continue to the paid -- to pay the bonds. the investments, the coupons on treasuries. then what? at some point, you're going to run out of money. point, because of the fear in the marketplace, there'll be less lending, less borrowing, less buying, less tax revenue. you are trying desperately to figure out who you pay first. i would try to figure out who i pay for -- first. most of us would do that. that is a crazy way to run the greatest economy the world is ever seen.
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the history of the united states, it was after the revolution that we had a very hard time -- that is when robert morris, the financer of the it very clear,e we will not pay our bills plus we have access to credit. silver,er have gold and or else nobody will do with you. that was a calamity about to happen. we never default it, even in those days when we didn't have anything. here we are, we are seriously contemplating that as a sensible, intelligent reaction to a political stalemate? i hope not. as i used to say in oklahoma to my democrat friends, if the uss oklahoma goes down, we all go down together. if the uss united states goes down, we all go down together, democrats and republicans. >> senator ritter? >> thank you, mr. chairman. thanks to all of our panelists. i know all of you agree that the
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dent it should be extended because disruption would occur otherwise. i understand that. i do think it is important to be precise about what we are talking about and what were not talking about. for instance, senator reid started his comments saying, if we default next week. i want to pick it up there. by default, we mean nonpayment or late payments on u.s. government securities is that right? does anybody disagree with that? that is what default means. in light of all of your testimony about the impact of that, would you all agree that if the debt limit were not extended immediately -- i understand that you think it should be -- if it were not, those payments should be top priority? does anyone disagree with that? senator, i would respond this
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way. i don't disagree with what you are saying, but the premise is that there are other payments that will not be made. i refer to what i said. the effect on confidence in the treasury markets will be significant, even if we are paying off those treasury securities. even if we don't have a late payment of principal, even if we keep our interest rate payments current, if we are failing and choosing in picking what other obligations the country has, that will be felt in the market even though you could say, well, those securities are not in default. >> i'm not trying to trivialize this scenario, but i'm trying to be more precise. i think there has been a lot of that actually is causing more premature disruption than necessary. would anyone not prioritize those payments? >> senator, what we have been told by the treasury department
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is that they don't have the operational capability to prioritize. i think they make something like 4 million payments a day. there is a question if they can trip thee on that other thing is, it is not clear what revenues are coming in. treasury tries to estimate. observers try to estimate. on the 17th, you have about $129 billion in a t bills coming due. the next week, about $93 billion in t-bills. the following week, principal and interest payment on bonds. every week thereafter. is,point i would make perhaps they could figure out how to do it operationally -- i don't know their systems, but that is what they tell us -- but there is a lot of debt coming due. some can be rolled, some can't be rolled. quite a --ate
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>> treasury has two systems. one is for payments on security obligations. one is for everything else. i think your paper -- your comment is accurate about the second system for everything else, but there is a separate system for payments on security obligations. i don't think there is any question that they can pay those first if they want to. i'm just suggesting that in a bad scenario, that should be a priority. it can be a priority operationally. if it were, those would be paid. i don't think there is any question about revenue coming in to cover it. for instance, martin feldstein has said "there really is no need for a default on the debt, even if the debt ceiling is not raised later this month. the u.s. government collects enough in taxes each month to finance interest on the debt."
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again, i'm not trying to trivialize this scenario, but i do think it is important to talk -- about about we are what we are talking about. i don't think it is accurate to talk about if we default next week. i don't think there's any need, any chance of defaulting next week. anybody disagree with that, defaulting on payments on government securities? >> senator, i agree with you. however, let me tell you what is happening at the street level. of our buyers and sellers is waning very rapidly. we have transactions canceling right now. we have people not being able to get loans. we can't get beyond where we are at. it is going to go backwards very fast. yes, you could probably mechanically do all of this, but
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the confidence of the american people is going to be really in the toilet. mr. thomas, let me pick up on another comment of yours. in your testimony, you sort of bemoaned this episode in 2011 over the debt limit. you said it was very disruptive. out,nator crapo pointed that episode led to the bca, the only spending and debt cuts in the recent past. do you consider that positive outweighed by the episode? >> if nothing else would have happened after that, then yes, i would agree with you. if we didn't have to come up to it and still have the same outcome by negotiating separately and got to the same point, then we wouldn't have had a fall often confidence. >> i will say this -- i can guarantee you as somebody who
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was here in participating that that would not have happened but for the deadline of the debt limit. no way, no how. it wouldn't have happened. i just want underscore senator crapo's comment. there was a distinct positive coming out of that, which is the only progress we've made on spending and debt in the recent past. >> senator menendez? >> thank you, mr. chairman. i almost think we are in a surreal conversation. but asked the first question. understanding your collective concerns on the question of debt, is there any member of the panel who advocates as a way of reducing debt defaulting on the nation's fullface and credit? all right.
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when we talk about this concept of prioritizing, think americans should understand that that would mean that we would make sure we pay china, , but we would not maybe get to paying americans who rely on social security or medicare. as well as the concept that for anyone who is a banker or anyone who works under the concept that , we will make a payment or not. the consequences that flow from that are inevitable. that the wayuggest to reduce debt was the budget control act, which i voted
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against because i did not see the willingness to include revenue as well as spending cuts -- i believe both must be achieved -- but to have across that the chairman of the joint chiefs of staff says if it continues will threaten the ability of the defense department to meet the challenges globally on multiple fronts, that really means that threatens the national security of the united dates. my colleagues go back home to their home states and rail against the consequences of sequester, even as they vote for it here. it is surreal. my question is, governor keating, you mentioned in your testimony -- i think this is an important point to realize -- if
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you could give us a sense again, just the potential for default, not the default itself, but the potential for default actively cost taxpayers money. by waiting until the last minute to act and threatening to default, they caused investors and u.s. treasury securities to demand higher interest rates. i'm going to look at greater risk and i'm going to demand higher interest rates to offset the risk. is it right that i read in your testimony that, as a result of in 2011, that it cost us $1.3 billion in fiscal year 2011? >> the bipartisan policy center's estimate was a $20 oflion figure as a result coming to the edge of the cliff and stepping back.
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>> over the course of 10 years. >> if you stepped over the cliff, the impact would have been and will be obviously far more uncertain, but most likely far more catastrophic. $20 billion just for moving up to the deadline and not crossing over it. >> $20 billion. i don't understand how it is fiscally responsible for those who are driven fiscally to suggest that having the nation and waitinglion until the last minute to meet its obligations is fiscally responsible. ask mr. benson -- i understand a large share of the financial markets use treasuries as a benchmark for or astion and pricing
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collateral in a wide variety of transactions. how would a default affect the market function of the in these areas? >> there are two things that you raised. treasury securities are a reference security. mortgages, credit cards, auto loans, pricing on swaps. both in the institutional or consumer also market. if you are affecting prices of treasuries, particularly short- term treasuries, you will affect the prices of those instruments. that will pass through to the end users of those instruments. thatecond point would be not just inused financial markets between financial institutions, but for instance, municipal issuers -- when they do their initial pricing debt offering, they will often use repose to invest their money before they put that money to work, whether it is building
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a road or hospital -- again, it is used across the financial system quite a bit. they would be affected by the price and risk. over the long-term, there would be concerns about counterparty risk. >> thank you, mr. chairman. mr. chairman, thank you. thanks for holding this hearing. to the ranking member and to this panel, thank you very much for taking the time to be here today. i think this is as critical of the hearing as we could have at this date and time. i was listening to an economist on tv this morning. he talked about a lack of humility, honesty, and civility. he wasn't talking about congress. he should have been. he could have been. i watch what is going on here in washington, d.c., and i think we do need a humble, civil, honest conversation about why we are here. because we haven't
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passed a budget in washington, d.c. in five years. that is why we are having this conversation. we haven't passed an appropriations bill, not a single appropriations bill, in five years. i haven't been here that long, but boy, i certainly haven't seen this process move. we now think cr's are the norm. a continuing resolution is the norm. i have staffers who have been here long enough who tell me and have told me that this place would freak out under those scenarios years ago, but there are a lot of people who haven't been here since last time we actually passed a budget or past appropriations. that's why we are here. we don't budget. we have no financial responsibility. i'm not telling you something you don't already know. we are $17 trillion in debt. we want to add another $1 trillion to it? we think $1.1 trillion is ok.
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it doesn't end there. $30 trillion to $50 trillion in unfunded liabilities. that is why we are here. we cannot control ourselves. we cannot control that. i think that is a very honest conversation that this committee and this congress needs to have. we go back to nevada, and that is hurting. i don't know that i have to tell you this, but we are highest in unemployment. everybody has heard me say this -- highest in bankruptcy, highest in foreclosures. i just got a letter from the governor, and i think some of this, he was talking about how tough the shutdown will be for the state of nevada, programs like child nutrition programs, unemployment insurance, dozens of other programs. theays, this undermines
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economic security of nevadans. i agree with that. a default, that is due to a shutdown -- default brick matters even worse. i'm concerned. i'm concerned about the direction of this country and the effect it has on my own state. if i can ask the governor a question, you said that when you were governor -- i hope it is fair to say you did a good job -- you said you had both houses with democrats of the time. under what circumstances did you tell the leaders to the other party that you wouldn't negotiate or would not come from ice? --t were the scenarios of that you had that would make you say that? >> my grandfather was congressman at-large from illinois, democrat. in oklahoma when i was in the house and senate, republicans sought us out with slides on
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sunday night. as governor, the legislation was overwhelmingly democrat, but i examine whatstate we report, and they said, workers comp is too expensive, the kids don't take hard enough courses in school, you have a personal and corporate income tax. you need to address that. i sat down with the pro tem and the speaker and said, here it is. we went through every one of those things, even a right to work vote in the constitution, and got it all done together. if we crash and burn, texas would laugh at us with -- at us. [laughter] who in the world wants that to happen? i don't think the analogy to the federal government is misplaced. >> mr. stevens, you talked about
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compromise -- i'm sorry, confidence. i want to stick to confidence for a minute. what sense does it make to raise the debt ceiling if you have to do so without any structural changes to this government? would you have confidence with just raising the debt ceiling? >> i think there has to be high serious about both of them. in the near term, there is a need to do with that because it would be a hugely self-inflicted wound, but there needs to be promptly attention to the longer problem. as i said, they are linked in terms of what creates and builds confidence. millions of people and thousands of institutions we turn to to help finance the united states. >> mr. chairman, thanks for allowing me to vent some of my frustration. >> senator brown? >> i was in the house of representatives a dozen years ago with congressman benson and others when we got to a balanced budget with a budget surplus.
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look what happened in 2001, 2002. an unpaid for more. tax cuts that went to the wealthiest people in this country. medicare benefits that were, shall i say, generous to the health insurance companies. this budget surplus, the largest went to theistory largest deficit in history. lectures about spending, when some of us opposed those actions, is not necessarily welcome, but more importantly, never during that time did any of us say, if you don't stop this war, or if you don't to this, we will shut the government down or we are and not going to honor our debts and obligations. i appreciate senator heller saying we need to do some of both, but first, we need to pay our bills. this isn't accruing more bills. it is paying the things -- it is the american way, you pay your bills.
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it is so clear. let me talk about one issue in particular. agos downstairs two hours listening to secretary lu on the finance committee. he said, "every thursday we approximately $100 billion in u.s. bills. if u.s. bondholders decided that they wanted to be repaid rather than continuing to roll over their investments, we could unexpectedly dissipate our entire balance." -- when ily like asked him about it this morning, it would put us in a situation where we are a homeowner one- month quest to pay the entire mortgage off instead of the monthly payment. mr. thomas is the one not in the most vigorously. effectively, the u.s. government could face the same kind of funding crunch lehman brothers had in 2008.
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this discussion of uncertainty and the uncertainty in our economy has always been there to a point, but never is endemic or penetrating as this uncertainty we are facing this week and next week. talk to me about this uncertainty. ift do you think will happen there is debate on the 17th and -- it is a thursday, and it is possible we could experience something the secretary alluded to -- what you , or do we happen throw up our hands and really just not know what will happen come thursday when this $100 billion is rolled over, connected or not to the actual debt ceiling? mr. stevens, d want to start? >> i appreciate all the contingency planning and analysis that has gone into the what if's. we should all be aware, we are
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on terra incognito. we really don't know what the impact would be. there will be lots of individuals and rushed decision makers -- individual decision- makers. that assumes, frankly, if fairly short duration default, if you will, or whatever the temporary measures are that are taken to avoid a technical default. if we entertain this idea over a longer period, there is no question that it would be cataclysmic. >> thank you. mr. thomas? >> i think the problem is, even if we went right up to the precipice and came to an toeement, the problem is, me, it is like a lender lending to my company, and i come up to the deadline of the payment and
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say, i'm not sure if i can make it or not. i will let you know by next thursday. then i do it again two years later. eventually, they're going to say, i'm not sure i want to continue to lend to you. that is the problem we have. i think in any future, the rates have to go up. there is no doubt in my mind. >> a couple things i would say, senator. we already know. we have an." evidence. that is in the pricing of the auction earlier this week. that is what is going on in the repo market right now. certain investors moving out of short treasuries. that is what is going on and other funds that are moving out of what they believe will be affected coupons. we already know what is going to happen, at least in the short run. even with all the contingency ,lanning my members are doing we can do contingency planning. we can think what we know is good to happen. but we don't know.
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we will have to work our way through it. we know we have deadline set the asian markets opening and what the reaction will be there. we don't know >> what >> we don't know. >> thank you. governor keating? >> who knows? ewould say, accurately -- mpiracally, the market went up. they were saying, people are working together. no default. time,do default, for a there will be an attitude on the part of markets and banks, well, they will fix it. it won't be that bad. to our argentina moment, our cameroon moment, our venezuela moment which could definitely happen if people conclude that this whole thing is a train wreck and they are not going to fix it. >> mr. stevens, i didn't take high school latin, but i know
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terra incognito is a place we don't want to be. [laughter] moran?tor >> perhaps because we are working so little on the senate floor, we are having a debate about the senate -- the debt ceiling increase here in the committee. i think what you are getting from us is a number of statements testing the waters, telling how we feel, and trying to find some common ground to follow -- to solve a problem. let me pose this issue. i hate where we are. i like certainty. this makes me uncomfortable. we often complain about the uncertainty in the economy that government provides. my guess is that your folks that represent your industry has been in my office and spoke about the uncertainty of the tax code, the regulatory environment. we know it is damaging to business, which means it is damaging to job creation. this is one more instance of more uncertainty. this is not a good place to be. i understand that.
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debtnk the deficit and the is a defining issue for my generation. i think i have an obligation to my kids and grandkids and americans i have never met something during my time in congress to get us on a path that lends itself where we are working to balancing the budget. i don't expect it to happen overnight, but i want to know there is a path that we are following that lends itself towards a brighter future for future generations of americans. the issue that i face in trying to resolve how we come to resolve this is, what moments of leverage do we ever have in congress? what is the moment in which we are so worried that texas is going to laugh at us that we do something? we don't do things unless there is this moment that we come dramatic fearing more consequences, to force us to do things that apparently we are never willing to do on our own.
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we ought not be having this debate about raising the debt ceiling. except, we never have a serious debate or any resolution of how we solve our deficit problem in the absence of these moments. do you have some suggestions, any belief that congress and the president will actually deal with this other issue? if your advice to me and us is, raise the debt ceiling, ok, what is your advice to me about getting something done about the deficit that is not just prolonging? i think what we are talking about here is -- we are demonstrating our willingness to pay our bills when we raise the debt ceiling, but we are doing nothing about our ability to pay our debts when we do that. , how do weo both demonstrate we are willing to pay our bills, but in the longer term, we demonstrate we have the ability to pay our bills? do you want to indict congress
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and the president to respond to that? it is the frustration i have. if we are never going to come together and solve the deficit problem, unless we have a crisis, and do you have to take advantage of the crisis? what do you do? everybody is flipping coins to see who takes that first. senator, if we raise the debt ceiling and six weeks we are back at it again, and six years we are back at it again, this will never be resolved sensibly, intelligently, patriotically unless and until, with the president's leadership and the goodwill of everyone in this room, democrats and republicans alike, and recognize that in the year 2025, our latest estimate, every cent of federal tax revenue will go to social security, medicare, and
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medicaid, and interest on the -- on the debt. it is an actuary ok's. to tie in the debt ceiling with some kind of long-term reduction in a long-term liability of the country is the only way to go. how'd you do that? bringing together men and women of goodwill, everybody in the congress. i really believe that. under the leadership of the president, shut the door, sit around the table and say, ok, this is what we've got to do. the ideas i've heard from both sides of the aisle, whether it is chained cpi or a link to the index on social security, all of that makes good sense. it has been presented to this body in the house and the public at large in a bipartisan way. it can't be that difficult. >> i would say very quickly. you raise a very serious political question. we are not political scientists i guess.
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it is a difficult question. what i would say is, today, the united states is not greece. we are not italy. we are not in a situation, why we do have a series that problem, no question about it, we are able to access the credit markets because of an understanding of our ability to strength of our underlying economy, the fundamentals of the nation's economy. we want to avoid getting into a situation down the road that would put us in a situation like greece or other countries who either have to pay a tremendous premium on their debt or can't sell their debt whatsoever. we obviously don't want to get that situation. again, that's where i go back to my comment with senator crapo -- we don't want to impair our ability today to fix our problems for tomorrow. we don't want to get to those problems tomorrow.
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let's not create any more difficulty today. i grant you it is a difficult political question you are faced with. >> i'm not sure it is a clinical question. there is a moral question. there is an issue that is really important to the future of our country. at what point in time do you get the leverage to force us to do things that cause us to come together and do things that not all of us want to do? chris -- chiesa? >> thank you, mr. chairman. and little editorial comment. i can't tell you how many times in the state legislature and -- i've heard to raise -- when i look at my own farm, i asked myself, what i do this to my own farm? the answer to that is resoundingly no.
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i think it is important for everybody to understand -- i don't think there is anybody comfortable with where we are at debt-wise in this country, democrat or republican. there are ways we can address it, but not this way. not being held hostage. i think there are ways to do it through the budget process, which, by the way, has been frustrating. there has been a minority that is held up the ability to go to a budget conference. quite frankly, the majority needs to speak at some point. i'm not talking about democrats or republicans. i'm talking about a majority in this body that needs to speak to stop this kind of craziness. let's get down to real life. agriculture is pretty big and oklahoma -- pretty big in oklahoma. operating loans are a pretty common thing. if we default, can you tell me what the impact will be on somebody going to get a loan? >> we still have to beat.
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hopefully the lending will be available in the borrowing will be available. is the chill, the panic of uncertainty, there is a pullback. there will be a pullback. all scramble around to try to do the best we can to find quality borrowers and quality lenders. you will have commercial activity. in the act particularly, as you well know, there is a real linkage between what happens in washington and what happens on your farm or ranch. we have to be sensitive to that. those of us who are conservative who say this government is too big and out of control, fine, but it is reality of the marketplace right now. it is a veterans benefits or social security or medicare or medicaid reimbursement or in the act
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, hummers will not function efficiently and well in a climate of uncertainty. it just simply won't happen. >> ok. senator warner talked about state and local governments. i've only got a couple minutes. i will throw to anybody who wants to answer it. if you thought about this issue, could you give me an idea on how a default might impact local and state governments? senator, i would say one thing in particular that could be of concern -- state and local governments that have refunded outstanding debt, municipal or treasuryt, and using a ask her, they already suffering right now because the market has been closed down in terms of extraordinary members. that means there escrows are not as efficient as that might be. the other thing that could happen is if an escrow is
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security, aa treasury security that is deemed not eligible collateral, then the state or local government would be on the hook to make up any other shortfall in that escrow. could be a cash effect to state and local governments, depending on how there escrows structure. the only the -- the only other thing i would say, among the largest holders of treasury securities are banks of all shapes and sizes. if you affect the liquidity operations of the bank and their ability to pledge those securities, that is going to affect their ability to put money out on the street. road, andfar down the it could be short, but they ultimately are affected across the system. >> thanks. i think i will just close it out right there.
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we have seenhis -- the worst recession since the 1930s. i know thomas has felt it in the big -- in a big way in the housing industry. it would seem to me that certainty and predict ability and confidence are huge if we are going to talk about growing this government and growing the tax revenue that comes around just want toand i say, i appreciate you guys standing up and telling it like it is very much. i certainly appreciate you being here today. >> senator berkeley? >> thank you, all of you, for your testimony. mr. thomas, your testimony laid estate% increase in real rates could have a dramatic impact. a lot fewer homes sold, a lot , iher payments per month think it was $120 more per month
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more, a decrease of 700,000 jobs. that is just in the real estate market. that is a pretty significant part of our economy, home construction and home sales. could one anticipate that there will be less revenue coming from that sector of the economy into the federal government if we continue on this path? >> absolutely. you would have less revenue coming into the federal government as well as the state governments. you are not going to have the same revenue base because of that. this is 1% rate increase just because of this. it does not encrypt -- considering the rate increases we will have over time, which we will have. this is a bump in the rates immediately because of the crisis. it is going to have a detrimental effect on the housing industry, which obviously has a detrimental
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effect on the overall economy. >> is it reasonable to assume that other sectors of the caromy -- for example, loans -- car lots would make less money, pay less in taxes, and people would be paying more -- paying more for that purchase? >> the payments you have to make, whether it is rolling over an existing loan or purchasing a new home, it is that much less that they can spend on other items. cars, groceries, gas, you name it. it impacts all of that. >> it really seems like the path we are on right now is the equivalent to creating a huge tax on the american economy, one familiesly hurts across the board, hurts businesses, hurts employment, and yet, we get nothing
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productive. you have tax revenue that can do something valuable, build , and in thise case, it is like taxing families with no value. >> we need to keep the economic growth that we are seeing right now intact and continue to grow. if we don't, we are going to fall backwards rapidly. >> i really hope this point gets through to all of the colleagues on capitol hill of how this impacts ordinary working families. when the there is the sort of in this squaree miles capitol hill, how people across america are hurt. issue whichrn to an is the potential impact on tier one capital that occurs if treasury bonds basically dropped in value because interest rates increase.
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is that a concern of the industry? >> it certainly is. it is very much a concern among the community banks out there. whether it is oregon or massachusetts or oklahoma, whatever the state might be, there are only so many places up for theto make lost opportunity that the diminished value of the securities that you hold make you face. i know my grandfather in illinois is a community bank or. in town on hisy board. if he had to go out and get money quickly from some other needed to knowle where salem, illinois was, he would be very hard-pressed. this could create real issues for the community banking environment. >> my time is running out. i will note concern about the impact on repurchase agreements or repo lending that is very
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important to many institutions. it sounds to me like the path we are on can decrease revenues and raise costs. job, maycan lose their be more likely to need food stamps, for example. possible that in the name of reducing the deficit, this path could increase the deficit? is that possible? -- for mee fair to me to call that extraordinarily wrongheaded? thank you, i'm out of time. >> senator warren? >> thank you, mr. chairman. i appreciate your being here today. mr. keating, i read your article in "the washington post," that
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using the debt ceiling as leverage is unwise and dangerous. you also noted that the respect and admiration of the united states and its institutions inspire around the world are based on the certainty that when our nation makes a promise, we keep it. i take it from what i've heard here today that all of you agree with that same sentiment. i've read yours, mr. benson, that it is on acceptable for congress to either voluntarily default on the debt and a continual short-term extension of the debt limit increase is unnecessary market uncertainty and raises questions about our nation's credit worthiness. i think we're all on the same page here. i agree. i think that makes sense. here's my question. if the very prospect of the default costs us money and our good name, i don't understand why we keep voluntarily raising the prospect of default with all of these votes on the debt limit. congress already controls the size of the debt. it gets to decide how much the
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government taxes and how much it spends. don't you think would be better if congress replaces the arbitrary debt limit with the commitment that treasury can borrow exactly as much as it needs to pay our bills? of how you change the process, if you change the process, will have to be resolved between you and your colleagues. there are probably many different approaches that make sense. what we are saying is, when it is all said and done, whether you scrap the debt ceiling process as it exists now, if you go to another structure or system, if you include or don't include the president in the process, then fine. just get it fixed. i don't know what the very best solution would be. i think it is very important to look for a solution, that we don't do this every year, every two years. >> i think we are in the same
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place. we can't do this every year, every two years, every six weeks. very -- the very threat is costing us money. it is costing us our good name in the marketplace. the way we stopped doing that, it seems to me, is to take responsibility for these debts. does that make sense? >> you are right. there are debts. you have to pay them eventually. >> does anybody disagree with that? >> senator, i would just say that so much of our spending is on autopilot already. the next 10at years, mandatory spending, which doesn't get a vote in the congress, is 61% of outlays. interest on the federal debt is 11%. that is about three quarters of all of our spending. my worry is, if there wasn't a gut check about increases in the debt, that those numbers would simply get worse. if you sit down with your spouse and say, where are we, you've
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got to make a decision about whether you want the next credit card or the next purchase, because at some went, it gets unmanageable. >> you want some accountability in the system. it seems to me that accountability it seem to me that accountability means voting to close tax loopholes so that wealthy individuals are going to pay a fair share here. accountability does not mean taking easy political votes and then turning around and grandstanding over whether or not we're going to raise the debt limit. the way i see this, i appreciate your thoughts on this and the importance of our not voting over and over and over and over on raising the possibility that we are not going to pay our debts as they come due. you know, the u.s. -- a u.s. default is the economic
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equivalent of a nick: -- nuclear bomb. ut thanks to this debt limit we watch in or row as the clock ticks to zero. there has to be a better way to do this. the bare minimum we can do is pass a long-term debt ceiling increase as quickly as possible. but really, i think we should take this option off the table. the united states should honor its obligations and pay its bills in full and on time, period. anything else i think we've made clear, hurts our families, hurts our businesses, hurts our country. thank you. thank you, plch. >> senator? >> first off, i would like to thank the chairman for holding this very important hearing. we're at 5%. 5% of the american people think we're doing a good job. why would they believe any
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we've said about the debt limit of what we're doing here? that's why it's so important that you participate. i'm kind of new to this business but i come with a dad who was a truck driver. but he had a saying. when you're in a hole stop digging, right? what have we done? we've shut down the government. but unanimously in the house we passed a resolution that we're going to pay everything that's not working. do you know how absurd for farmers in my state who have had a huge natural disaster. there we are representing dysfunction. and now we're willing to take the greatest threat of all and jeopardize this economy, and jeopardize this economy. we came here to listen to your thoughts. and i just want to kind of reiterate some of the wise things you have told us today. mr. benson you said no amount
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of planning could take into consideration all the possible consequences, no amount of planning could take into consideration all the consequences. i want to finish with a couple of statements of yours, mr. stevens. lessons cannot be unlearned. if we continue to this we will reap the consequences of that. and finally more importantly, damages will be visited on every american if we do this. there are people in this body who honestly are trying to find a way forward to say it doesn't matter this matters dramatically. and it matters not just to the livelihood and to the political, you know, popularity of this group and whether we're pops on get, you know, all your homes. what should be relative is the american people. it's understanding when you say we're going to pick and choose our debts that we're going to
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pay. every american out there when they look at their credit score -- let's say i'm going to buy a car. i always pay my car loan. always late on my credit card. what do i tell the bank? don't worry about all those credit cards that i haven't paid because i always pay my car loan. that's not how it works in the real world and they know it. they know this is a dysfunction that has to be addressed. i agree with my friends and my colleagues on the other side that we have a debt and deficit problem. anyone who wants to ignore that is not looking at facts. not looking at the statistics that you have raised here. but we cannot do it. the bowls-simpson, they want to negotiate. hen have we heard this before? bowles-simpson -- and all the ultimatums that we're not going to raise taxes, equal opportunity playing have led us to this point that where we are
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not functioning the way we need to function on behalf of the american people. and lots of great questions but i just want to thank you and i want to encourage you to continue to tell your story, continue to do what you're doing here, reiterating that we cannot let this happen. because i don't want to be here. i don't want to be here saying i told you so. and you don't want to be here saying i told you so. we want to stop this nonsense from happening. we want abide by the full faith and credit of the american people because that's who we represent. it's not the american government. it's the trust and the responsibility that we have to the american people and so thank you so much. continue your good work. i'm almost out of time. i know there's not a question there. i didn't get a chance for an opening statement. but do i want to tell you how invaluable your work on this is and how important it is that you continue to ring the bell, that you continue to sound the alarm because in the end, it's not about us in this room.
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it is about people who are getting car loans. it is about people who are retiring. it is about people who want to finance a house and they cannot even go and get approval because we're shut down. so if they saw their rates raising, what's their chance? and so thank you and continue your good work. it's so important that your voice get heard in the next couple of days here. >> i'm told that senator .chumer is on his way mr. benson, g.e.o. has said the cost from the recent financial risis, they exceed $13 trillion. and someone suggested the default could be even worse. what would a default mean for
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investors including both urrent retirees and future ones? >> in the case of current investors, if there was a default and coupon payments were missed, then at least immediately, you know, they would be out money for some period of time. it's not clear whether they would be paid accrued interest from the due date or the date of actual payment and if they were obviously they would have lost earnings associated with that. if they are holding treasury securities at this point in time as treasury securities moved down in price, then they would take a loss accordingly on that as well. so i think it's fair to say that current investors would certainly have a negative consequences as a result of this. >> mr. stevens, what do you think? >> it will hurt in some fashion
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or other. every who saves, every who invests, every who borrows, everyone who has a stake in the economy, not one people in one category or another necessarily uniquely but certainly retirees would be among those, people who are saving for long-term, institutions as well. it would be very, very broadcast. >> thank you. >> senator schumer? >> thank you, plch, i appreciate the courtesy that the committee extends. there's a lot going on. it's a very important hearing at a very crucial time. i want to thank all our witnesses and i want to thank the senator as welcome. i want to make a few responses to some of the committees made earlier today that the most urgent threat to our economy is overall debt not debt limit. well, i agree in the long run. we're going to have deal with it. we've made some progress there.
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i would add middle-class incomes are declining in america. to me that's a greater problem in our debt. if it happens in another five or 10 years it's a different america. but i don't want to gain save the importance of getting our deficit down but we've made some decent progress there. mr. stevens, i heard you talk about confidence earlier. well, it's safe to say investors have confidence in the ability in the united states to pay its obligations. if that changes, our interests rates will go up. it will make the country less strong. i would argue that one of the best ways to increase our debt is to not pay our debt obligations, to not pay our bills, plain and simple. the two are not relates, they're very related. here we are just two years after the last prolonged discussion about whether we pay
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our debt and we have to ask the question. so an important purpose of this hearing, plch, is to deal with the debt ceiling denyiers. there are two type of debt ceiling denyiers. one group generally confined to a small minority in the house that thinks default doesn't matter that it's all a lie ginned up by the obama administration. i notice that one of the people most quoted is congressman brown who says it doesn't matter. he also said a third of what he learned in medical school were lies. if we're having someone like that the lead country we're in trouble. but there is a more sober group that has gained steam and maybe that's more trouble. they think there's a magic solution that many members of this body has put forward. we don't need to default, they say. we can pick and choose which payments to make. and if we prioritize paying
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interest on our debt, we'd avoid default. so mr. benson and mr. stevens, i want to ask you to elaborate on priorityization a bit and the effects it could have on the market. treasury secretary lu said, priorityization is default by another name. i agree with that statement. but we have hundreds of billions of dollars of treasury securities maturing between october 17th and the end of the month. 1st. illion october 2 we rely on our investors as they mature. how confident can we be that investors will be willing to le over these debts as we're actively deciding that we won't repay some of our creditors? >> senator if you think about a household that relies upon the bank for financing on an
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ongoing basis. if the bank finds out that the household is choosing to pay some bills and not other, it doesn't inspire great confidence for the bank to continue to lend and to the extent that it does, it's going to charge a higher interest rate. and i think that's the analogy. i honestly believe that the confidence of this vast market of learneds that we depend upon to finance data at the level of $17 trillion will take a blow irrespective of which bills we decide not to pay. >> isn't it true we haven't had this experience before except for there was a mishap before. we have had an active decision made, we're going to pay some debts and not others. >> it's not an excerpt we have one or should -- experiment we have run or should run. >> well said, i yield back my remaining time. >> thank you, again, to all of our witnesses for being here today.
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this hearing is adjourned. thank you.
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>> good evening from washington, d.c. it is 15 minutes before the top of the hour and late this afternoon 20 republican leaders sitting down with the president, the vice president and other members of the senior staff trying to work out some sort of a compromise on raising the debt limit and also ending the government shutdown as we
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enter day 1 tomorrow. we want to bring you up to date on a couple of developments. our phone lines are open. that is our line for republicans. 202-585-3886 for democrats. ll others the number to call 202-585-3887. tag is c-spanchats. first the statement from the white house issued just late this evening -- earlier this evening as the president met with house republicans.
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>> the president's goals remain the same to insure that we pay the bills that we've incured, reopen the government and get back to the business of growing the economy, creating jobs and strengthening the economy. this is from "the washington post." the headline is house and senate republicans offer competing plans on the debt limit and the government shutdown. they report "that house and senate republicans offered those plans to resolve the government shutdown crisis as the president aimed to persuade them to have a short term solution with no partisan strings attached." gordon buck also issued a stake just about 25 to 30 minutes after the speaker returned to capitol hill. no public statement from speaker boehner today.
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>> and we are plie -- pleased that there was a sitdown with a dialogue tonight. earlier in the day harry reid led a contingency of senate democrats. it was one of two meetings that the president had with members of congress. the afternoon session with house republicans. tomorrow by the way, the president will meet with senate republicans. 10:45 ssion lasted minutes. enator reid had this to say. >> i introduce the president by telling my caucus how proud i
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was of them and how proud i was from the president by the strength and the unity we've shown. after completed 1:45 minutes today, i feel the say way. we are here. the government should be open now. we should be able to pay our debts and as we've said and we'll continue to say -- we, if that happens will negotiate on anything, anything and the president confirmed that today. >> will you accept a debt limit decrease -- >> the house is -- has a unique form of legislating, hour by hour -- i don't know what east happened in the two hours i've been gone. but they have three different proposals. i assume there's a couple more since then. let's wait and see what the house does. when they send us something
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we'll look at it as closely as we can. under that same determination that we've made, often the government, there is so much pain and suffering out there. it is -- it's really tear jerking to say the least. but we want the government open. we want to be able to pay our bills. this is -- this is a situation where they do not know what they want. i hope the republicans decide what they want and we'll be happy to work with them in any way. i repeat for the fourth time right here. open the government. we'll pay our bills. we'll negotiate with you about anything. pardon me? >> will you accept a short term deal? >> we are going look at anything they send us. in the last -- coming out of this meeting, we had two e-mails. they've changed -- the last we
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got on how much time they want on debt limit. let's just wait and see because there are some rumors they want -- let us wait and see because they cannot decide -- one more question. >> senator reid, up until now it's been very clear -- you had a very clear position, the president had a very clear position which is we need a clean c.r. before you'll engage in negotiation. republicans were pretty clear earlier today, they want to negotiate before you reopen the government. >> not going to happen. >> what's your sense? are we any closer? >> senator reid joined by senator chuck schumer of new york, addie murray of washington stadse. dick durbin as they met with the president, that was earlier today. and the president sitting down with 20 members of if house republican leadership including speaker boehner and the
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republican leader eric cantor. we'll get to your calls in a moment. one of the questions from jake sherman which adds insight in that 90-meeting that took place. the president to the republicans, what's it going to take? he reports that the president and house republicans clash maryland the meeting thursday afternoon over how soon the government can be reopened even as the g.o.p. offered to lift the debt limit for six weeks. the president repeatedly pressed the republicans and ask what's it going take to end the shutdown? the meeting was described as -- al but incon clues incon cluesive. >> let's go to sammy. >> how are you tonight? >> fine. thank you. >> i would be a lot better if the republicans would do something. i'm a republican, and i'm very disappointed with the republicans. >> what do you want to see happen? ry want to see the republicans
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get our nation back on instead of playing tick tack toe with the democrats on this. >> who best represents the government party and your own ideology? >> fun -- none of them right now. >> the hash tag is c-span chat. >> raising the debt ceiling show as lack leadership senator barack obama. i agree. fix the budget. by the way it's an insight from "the washington times" incase your interested when the president took office in 2009, he nation's debt was $10.6 trillion. we're now approaching $17 trillion. that's a 57% increase. under george bush it increased 38%. maryland's democrat's line, good evening. >> i would like to know if congress are receiving a salary
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during the shutdown? >> they are. some have agreed to with hold the paycheck or donate it to charity. it to the y reembers work -- will they reimburse it? >> most of it will be after the government reopens. >> even essential workers? >> i'm not sure about that. >> that's messed up. that's mess upped. >> thanks for the phone call. mezula, montana. good evening. >> good evening. i appreciate the chance to talk to you tonight. thank you, sir. i believe all of america on every side of the aisle is angry and frustrated right now. the biggest part of our frustration, i think comes down to we're calling upon our
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individual congressmen to fix the problem that if we could remember way back to k. ross perot was saying this was going to happen. this was a train wreck we've been watching for a long time. and everything with their pet projects and then we -- we see in the news media where the president's taking these $9 billion trips with his family to kenya and all the rest of this stuff. america's fed up. america is absolutely fed up. we're saying we're taking cuts all across the board. people are hurting in this economy and they're saying you have to buy insurance. there's people i know that when they went on the computer and it analyzed what their cost would be, it's 50% of their paycheck. now, this -- this is untenable.
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that would put so many people in the tank, it's not funny. they couldn't make their house payments. they're going to default on their loans. at what point do we step back from the table and say, ok, we -- and believe me, america's watching. all the name calling, all of the things that's going on, we're watching. >> john, thanks for the call. by the way the stock market up today more than 300 points as wall street liking what it heard earlier today that the president was sit downing with house republicans and senat democrats. eye as to what happens tomorrow. on our facebook page we're asking you how the shutdown as impacted you. this is an unscientific survey. it has impacted you a lot, a little or not at all? >> you can log on on
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facebook.com/c-span. mary rogers said this tweet. keep it shut down. we can't be spending our children and grandchildren's future. >> good evening. >> how are you today? >> fine, thank you. >> thanks for taking my call. you know, one thing i look at is every employer in the country quit paying their federal taxes to keep these guys in office you would never have a problem because barack obama would get off his tail and do something about it. >> steve, democrat's line? >> can you hear me? >> we sure can. >> how are you tonight? >> fine, thank you. please goads. >> -- please go ahead. there is no question that the republicans are primary at fault for this mess today. starting in 2001 when the last republican president george w. ush took over, he had a record
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-- to begin with. in domestic policy and foreign policy for eight years that resulted in -- i use the word train wreck. i'm not using the same term people have been using recently. but it started the snowball effect that no matter who became the next president there was going to be long-term problems underway. the tax cuts that were instituted back then to get the wealthy and the big companies tax corporation stuff and shifting all the weight of the country's finance going through the middle-class is resulting in where we're at today. >> thanks for the call. next is the caller from georgia. angie on day 10 of this
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government shutdown. >> good evening. thank you for taking my call. >> good to hear from you. >> i agree with the gentleman, the second gentleman for me saying that, you know, the money comes from taxpayers' money. and so if everybody said i'm not paying my taxes, all the businesses like wal-mart, target, you know, all the big manufacturing companies that they say ok, we're not going to spend our money because you're hurting us. you know, what would happen? you know that's where they get their money to pay the debt with. so i'm just, you know, they don't realize what they're doing to everybody. so why don't we just say we're not paying our debt and the fact that i'm going to be -- what's going to happen then? they won't have that money. >> angie, thanks for call. he nation's debt is $16.10 trillion. that averages about $153,000 for every u.s. taxpayer. if you log on to our website, we are keeping track of all of
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the event, the hearings the conferences. you can check it out on c-span.org. the white house and the white house file reach a deal but agree to keep on talking. those negotiations continue into the evening. we did not hear from the speak turnover house john boehner. e did hear from eric cantor. and the statements from the white house and the speaker's office if there's anything furtherer that happens into the evening, of course, we'll take you to capitol hill or the white house for that. any new developments. we want to get one other call from allen from utah. independent line, good evening. >> thank you. i appreciate you talking to me. >> we're glad to hear from you. go ahead, alan. >> i'm a 73-year-old farmer. nd i am -- i have an education in agriculture economics.
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unless economics has changed greatly since the time i went to school, what we used to talk about is the labor was paying the taxes. if people are unemployed hey're not paying any tax. how's that good for the country? and all this fighting we're doing on the debt limit and all that, we forgot about the thing that could get us out of this, we need more employment. that's the first thing. and there's the uncertainty that the republicans is always talking about that's in the market -- are you there? >> we sure are. >> the uncertainty that niese the market is not what the uncertainty is the manufactures don't dare make this expensive stuff. somebody that's got money to buy it. and the rich people they can't buy it all. i mean,

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