Senate Finance on the Debt Limit w / Lew
AT
OCTOBER 10TH’S SENATE FINANCE COMMITTEE hearing entitled “The Debt Limit,” lawmakers
questioned U.S. Secretary of the Treasury Jacob Lew on the impacts that a
failure to increase the debt ceiling would have on the American economy.
- Senate Democrats state that Treasuries are the “backbone of the international financial system” and a default would have “dire effects” for the global economy and impact Americans due to higher interest rates and missed benefit payments
- Senate Republicans state that many other debt increases have been tied to spending and policy reforms and that the Obama Administration should be clear on the level of funding they want, while assuring markets that the Treasury will not default on interest payments.
- Treasury Secretary Lew states that legal authorities around prioritization are unclear; waiting until the last minute will be “very dangerous”; and that the President has made clear he is willing to negotiate but not until the debt limit is increased.
Opening
Remarks
In
his opening
remarks, Chairman Max Baucus (D-Mont.) expressed the need to reopen
the government and pay the nation’s bills with “no strings attached,” so that
the President and Congress can “return to regular order” for further negations
on how to address the debt. He said that families will feel the impacts of a
default “first hand” because “home values would plunge and interest rates would
soar.”
Baucus
also noted that there has been much concern from the international community
which has expressed the critical need to raise the debt limit and avoid the
“dire effects” of a default, adding that Treasury bonds are the “backbone of
the international financial system.” He concluded that he has “never seen
Washington so angry, gridlocked, and broken” in his 35 years in the Senate.
Ranking
Member Orrin Hatch
(R-Utah.) said
that the President’s claims that previous debt limit increases have not been
tied to budget items is “false advertising” and cited that of the 53 debt limit
increases since 1978, only 26 were “clean.”
He
expressed frustration that the Obama Administration has not given clarity on the
duration of time or amount of money they would like to see included in the debt
limit increase and said that comments from the Administration are an “apparent
effort to whip up uncertainty in the markets.”
Witness
Testimony
In
his testimony,
Treasury Secretary Lew stated that “Congress alone has the power to act”
in order to increase the debt limit so that the country can pay its bills and
noted that “no Congress in history” has allowed the U.S. to default on its
debt.
Lew
noted that the uncertainty brought on by the recent government shutdown and
debate over the debt limit has caused short terms interest rates on Treasuries
to nearly triple and that volatility has risen to its highest levels of the
year.
He
urged Congress to act immediately to increase the debt limit, explaining that
it would be “impossible for the U.S. to meet” all of its obligations including
Social Security and Medicare payments. He said that a last minute deal could be
“very dangerous” and said that serious repercussions could be realized if bond
holders wish to be paid rather than roll over their Treasury bonds.
He
concluded that the U.S. should not be put in the position to make the “perilous
choice” of paying just the interest on the debt and then choosing what other
payments to make, saying there is no way of knowing the “irrevocable damage”
what would result from having to make such a choice.
Question
and Answer
Chairman
Baucus
began the question and answer segment by asking about the idea of
“prioritization” what that the process of prioritizing payments at the Treasury
would look like.
Lew
replied that the legal issues surrounding interest and principle payments “are
complicated” as the government has never been in the situation before. He noted
that the systems used at Treasury were designed to pay the countries bills in
full and the legal authorities surrounding the choice to make certain benefit
payments and not others, are not clear. Lew stated that “prioritization
is default by another name.”
Baucus
then asked if revenues can meet the payments required for the October 23rd
Social Security obligations. Lew stated that there is a “real risk” of
miscalculation of revenue estimates as the projections were based on a
situation where the government was still open and thus do not take into account
lost payroll taxes for laid-off or furloughed workers.
Ranking
Member Hatch
asked for clarification on how much of a debt increase would be needed and for
how long of a duration it is needed for.
Lew
replied “the longer the period the better” as the economy would benefit from
more certainty and added that “everyone knows the numbers associated with
different periods of time.”
Hatch
then said that the growth path of the Federal debt is unsustainable and asked
if it is “reasonable to say there will be no negotiation” without “another tax
hike.”
Lew
said the “record is clear” that the President has negotiated in the past and
remains eager to negotiate in order to find a balanced approach to address the
debt including entitlement and tax reform. He added that “it is not fair
to say we are in the same place we were” as the deficit has been “cut in half”
in the past few years.
Sen.
Ron Wyden
(D-Ore.) said that in a default, “the dominos will fall fast and hard” and will
hit older people the most as their retirement payments “dry up.” He also
expressed concern that any budget savings achieved by legislation would be
“eaten up” as a result of paying higher interest costs and would have the
additional negative effect of transferring American taxpayer wealth to foreign
creditors.
Lew
shared Wyden’s concern that retirees would be in “a pretty bad spot” if a
crisis causes asset values to shrink. He also said that a default would have a
“real impact on people” as mortgage and student loan rates would increase.
Sen.
Chuck Grassley
(R-Iowa.) said “more often than not” the debt ceiling is raised along with
other policy and reforms and that it is “not unprecedented to have negotiations
and reforms tied to an increase.” He then asked if the President is
willing to negotiate on entitlement reforms.
Lew
replied that he “never said” that it was unprecedented, but explained that
previously the increase was added to a separate bill and was not “driving the
debate.” He added that the President’s budget “reflects openness” to discuss
entitlement reform.
Sen.
Chuck Schumer
(D-N.Y.) said that the timing of the default is like “a blindfolded man walking
towards a cliff” because the exact day that Treasury will run out of money is
unclear. He asked Lew is this analogy is accurate and stressed the need
for Congress to pass a clean bill immediately.
Lew
agreed that it is “impossible to predict with accuracy” the exact moment a
default will occur and that this situation is “a dangerous place to be.”
He stressed that Congress should raise the limit sooner rather than later, but
expressed concern that it seems to be a “parlor sport in Washington” of
figuring out when the last minute is.
Sen.
Robert Menendez
(D-N.J.) worried that a default would threaten global security as the global
financial system relies on the faith that the U.S. will pay its debt. He
then asked Lew to address if the global markets would “have nowhere else to
turn” or if creditors would seek out different countries to invest with.
Lew
stated that it is “impossible to overstate the role of the U.S.” in the
stability and security of global financial markets and said he did not want to
speculate if creditors would turn elsewhere. He concluded that “it is against
our interests to invite this discussion” and that this “manufactured crisis” is
not necessary to pursue.
Sen.
Michael Bennet
(D-Colo.) asked if default would only make the debt problem worse, to which Lew
replied it would as higher interest rates would “only cost us more.”
Sen.
Patrick Toomey
(R-Penn.) said that the greatest disruption to the markets would be if Treasury
chose not to pay interest on the Treasury securities and asked Lew if he is
“prepared to assure us and investors” that “under no circumstances will you
permit a missed payment on a U.S. treasury obligation.”
Lew
replied “I am not the one who makes that decision” explaining that it is up to
the President.
Toomey
reacted, saying he was “shocked” that the Treasury Secretary would not assure
the markets it would not default on Treasury obligations. He noted that
President Obama stated he plans “for every contingency” and asked if there were
options.
Lew
concluded that all options are bad and there is no way to make the payment
system work well.
For
more information and to view a webcast of this hearing, please click here.
,Blog Tags:,Blog Categories:,Blog TrackBack:,Blog Pingback:No,Hearing Summaries Issues:General,Hearing Summaries Agency:Senate Finance Committee,Publish Year:2013
AT
OCTOBER 10TH’S SENATE FINANCE COMMITTEE hearing entitled “The Debt Limit,” lawmakers
questioned U.S. Secretary of the Treasury Jacob Lew on the impacts that a
failure to increase the debt ceiling would have on the American economy.
- Senate Democrats state that Treasuries are the “backbone of the international financial system” and a default would have “dire effects” for the global economy and impact Americans due to higher interest rates and missed benefit payments
- Senate Republicans state that many other debt increases have been tied to spending and policy reforms and that the Obama Administration should be clear on the level of funding they want, while assuring markets that the Treasury will not default on interest payments.
- Treasury Secretary Lew states that legal authorities around prioritization are unclear; waiting until the last minute will be “very dangerous”; and that the President has made clear he is willing to negotiate but not until the debt limit is increased.
Opening
Remarks
In
his opening
remarks, Chairman Max Baucus (D-Mont.) expressed the need to reopen
the government and pay the nation’s bills with “no strings attached,” so that
the President and Congress can “return to regular order” for further negations
on how to address the debt. He said that families will feel the impacts of a
default “first hand” because “home values would plunge and interest rates would
soar.”
Baucus
also noted that there has been much concern from the international community
which has expressed the critical need to raise the debt limit and avoid the
“dire effects” of a default, adding that Treasury bonds are the “backbone of
the international financial system.” He concluded that he has “never seen
Washington so angry, gridlocked, and broken” in his 35 years in the Senate.
Ranking
Member Orrin Hatch
(R-Utah.) said
that the President’s claims that previous debt limit increases have not been
tied to budget items is “false advertising” and cited that of the 53 debt limit
increases since 1978, only 26 were “clean.”
He
expressed frustration that the Obama Administration has not given clarity on the
duration of time or amount of money they would like to see included in the debt
limit increase and said that comments from the Administration are an “apparent
effort to whip up uncertainty in the markets.”
Witness
Testimony
In
his testimony,
Treasury Secretary Lew stated that “Congress alone has the power to act”
in order to increase the debt limit so that the country can pay its bills and
noted that “no Congress in history” has allowed the U.S. to default on its
debt.
Lew
noted that the uncertainty brought on by the recent government shutdown and
debate over the debt limit has caused short terms interest rates on Treasuries
to nearly triple and that volatility has risen to its highest levels of the
year.
He
urged Congress to act immediately to increase the debt limit, explaining that
it would be “impossible for the U.S. to meet” all of its obligations including
Social Security and Medicare payments. He said that a last minute deal could be
“very dangerous” and said that serious repercussions could be realized if bond
holders wish to be paid rather than roll over their Treasury bonds.
He
concluded that the U.S. should not be put in the position to make the “perilous
choice” of paying just the interest on the debt and then choosing what other
payments to make, saying there is no way of knowing the “irrevocable damage”
what would result from having to make such a choice.
Question
and Answer
Chairman
Baucus
began the question and answer segment by asking about the idea of
“prioritization” what that the process of prioritizing payments at the Treasury
would look like.
Lew
replied that the legal issues surrounding interest and principle payments “are
complicated” as the government has never been in the situation before. He noted
that the systems used at Treasury were designed to pay the countries bills in
full and the legal authorities surrounding the choice to make certain benefit
payments and not others, are not clear. Lew stated that “prioritization
is default by another name.”
Baucus
then asked if revenues can meet the payments required for the October 23rd
Social Security obligations. Lew stated that there is a “real risk” of
miscalculation of revenue estimates as the projections were based on a
situation where the government was still open and thus do not take into account
lost payroll taxes for laid-off or furloughed workers.
Ranking
Member Hatch
asked for clarification on how much of a debt increase would be needed and for
how long of a duration it is needed for.
Lew
replied “the longer the period the better” as the economy would benefit from
more certainty and added that “everyone knows the numbers associated with
different periods of time.”
Hatch
then said that the growth path of the Federal debt is unsustainable and asked
if it is “reasonable to say there will be no negotiation” without “another tax
hike.”
Lew
said the “record is clear” that the President has negotiated in the past and
remains eager to negotiate in order to find a balanced approach to address the
debt including entitlement and tax reform. He added that “it is not fair
to say we are in the same place we were” as the deficit has been “cut in half”
in the past few years.
Sen.
Ron Wyden
(D-Ore.) said that in a default, “the dominos will fall fast and hard” and will
hit older people the most as their retirement payments “dry up.” He also
expressed concern that any budget savings achieved by legislation would be
“eaten up” as a result of paying higher interest costs and would have the
additional negative effect of transferring American taxpayer wealth to foreign
creditors.
Lew
shared Wyden’s concern that retirees would be in “a pretty bad spot” if a
crisis causes asset values to shrink. He also said that a default would have a
“real impact on people” as mortgage and student loan rates would increase.
Sen.
Chuck Grassley
(R-Iowa.) said “more often than not” the debt ceiling is raised along with
other policy and reforms and that it is “not unprecedented to have negotiations
and reforms tied to an increase.” He then asked if the President is
willing to negotiate on entitlement reforms.
Lew
replied that he “never said” that it was unprecedented, but explained that
previously the increase was added to a separate bill and was not “driving the
debate.” He added that the President’s budget “reflects openness” to discuss
entitlement reform.
Sen.
Chuck Schumer
(D-N.Y.) said that the timing of the default is like “a blindfolded man walking
towards a cliff” because the exact day that Treasury will run out of money is
unclear. He asked Lew is this analogy is accurate and stressed the need
for Congress to pass a clean bill immediately.
Lew
agreed that it is “impossible to predict with accuracy” the exact moment a
default will occur and that this situation is “a dangerous place to be.”
He stressed that Congress should raise the limit sooner rather than later, but
expressed concern that it seems to be a “parlor sport in Washington” of
figuring out when the last minute is.
Sen.
Robert Menendez
(D-N.J.) worried that a default would threaten global security as the global
financial system relies on the faith that the U.S. will pay its debt. He
then asked Lew to address if the global markets would “have nowhere else to
turn” or if creditors would seek out different countries to invest with.
Lew
stated that it is “impossible to overstate the role of the U.S.” in the
stability and security of global financial markets and said he did not want to
speculate if creditors would turn elsewhere. He concluded that “it is against
our interests to invite this discussion” and that this “manufactured crisis” is
not necessary to pursue.
Sen.
Michael Bennet
(D-Colo.) asked if default would only make the debt problem worse, to which Lew
replied it would as higher interest rates would “only cost us more.”
Sen.
Patrick Toomey
(R-Penn.) said that the greatest disruption to the markets would be if Treasury
chose not to pay interest on the Treasury securities and asked Lew if he is
“prepared to assure us and investors” that “under no circumstances will you
permit a missed payment on a U.S. treasury obligation.”
Lew
replied “I am not the one who makes that decision” explaining that it is up to
the President.
Toomey
reacted, saying he was “shocked” that the Treasury Secretary would not assure
the markets it would not default on Treasury obligations. He noted that
President Obama stated he plans “for every contingency” and asked if there were
options.
Lew
concluded that all options are bad and there is no way to make the payment
system work well.
For
more information and to view a webcast of this hearing, please click here.