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[inaudible conversations] >> here we go. the committee will come to order. on january 27, 1838, a young state legislator named abraham lincoln spoke before a gathering in springfield, illinois. at the time, america was a deeply divided nation. lincoln warned that the greatest threats to the young democracy were internal. he said, quote: if danger ever reaches us, it must spring from up amongst us. it cannot come from abroad. if destruction be our lot, we

must ourselves be its author and finisher. for the nation of free men, we must live through all time or die by suicide, end quote. the actions of the past few weeks, the the extremism of a small core of pens in the house of representatives have put our nation on a very perilous path. for more than 200 years, the united states has been true to its word, it's honored its obligations, its paid its debts. yet today a small group of hard liners is using our economy as a bargaining chip to repeal the affordable care act. met me be clear -- let me be clear, we're not going to let that happen. the affordable care act is the law of the land, it is not going to be dismantled in this budget fight. the issue is not up for debate. our committee wrote the affordable care act. i'm always open to this committee working together to strengthen the law to better serve the american people.

but as the president said, we cannot negotiate under the threat of default on the nation's bills. before any debate, before any deliberation, we immediate to reopen the government -- we need to reopen the government and pay the nation's bills, no strings attached. then we need to work together to return to regular order, we must address the nation's long-term budget challenges working together including entitlement and tax reform. but right now we immediate to prevent -- we need to prevent another self-inflicted wound to america's economy. that is what defaulting on the debt is, a self-inflicted wound with global consequences. the deadline is fast approaching. in seven days the united states treasury will have exhausted all extraordinary measures to stay under the debt limit. in seven days the united states will be at the risk of defaulting on payments. the united states of america, the richest, most powerful

nation in the world will be forced to look for loose change in the sofa in order to pay its bills. while the government shutdown has been disrupt i, a default -- disruptive, a default would be a financial heart attack. it would have widespread, long-term economic consequences. financial markets are already showing serious signs of stress. the dow has dropped more than 800 points in the last three weeks, and a one-month treasury bill rate has risen to its highest level since the 2008 fiscal crisis. if the debt ceiling is breached, the government would immediately have to slash federal spending by 20-30% to drive the nation back into recession. the pain would be felt across every sector of society; social security and medicare would be cut, veterans' benefits slashed, funding if e -- for highways would be hit. every government program would be devastated by deep cuts. families would feel it firsthand

with dramatic drops in their retirement savings, jobs would be lost, home values would plunge, interest rates or mortgages and student loans would soar. now, some have said we can avoid default by prioritizing u.s. payments, paying bondholders and interest on the debt, but they fail to mention this scheme would force treasury to pick and choose which programs to pay, forcing vital programs like social security, medicare to compete for funding. this idea is just irrational. a default would have a catastrophic impact on the global economy as well. the president of the world bank warned the default would have bad consequences for the world's question. christine lagarde said it is, quote, mission critical that the debt limit be resolved as soon as possible. this is serious. the whole world is watching.

our actions here in the next couple days will have global implications. we are the most important economy in the world. the dollar is the world's reserve currency. treasury bonds are the backbone of the international financial system. a default would put the global economy in chaos. of that, there's no doubt. last week treasury warned us the default would cause a, quote, recession that could echo the events of 2008 or worse. have people here forgotten what happened many 2008? in 2008? the collapse of lehman brothers set off a financial earthquake. markets plunged, unemployment surged, america's confidence was shatter ored to the core. the 2008 crisis upended lives across the country, the aftermath of which can still be felt today. we cannot let that happen.

we have a responsibility to avoid another economic disaster. our leadership, our resolve will be it'sed in the coming days -- will be tested in the coming days. we, all of us here in this room, we have an opportunity to pull america back from the brink. earlier this week i introduced a bill with leader reid that would get us past this stalemate, it extends the nation's borrowing authority past the midterm elections. it is a clean increase without any amendments i. -- it simply allows the united states to pay its bills and avoid default. it will help pull us back from the edge. it will owl us all -- allow us all here to pause, take a deep breath. i've been in congress going on 39 years, and i've seen my fair share of partisan fights. but merv in my mind -- never in

my mind have i seen washington to angry, so gridlocked, so broken, and it doesn't have to be that way. i know the public might find it ard to believe, but there are some very reasonable people here in congress. there are many who want to do what is right. there are many who want to work together to conduct the business of our nation. and i would say to them and all my colleagues, now is the time. now is the time for congress to stop refighting old battles. now is the time for congress to come together and do what is right for our nation, and now is the time for congress to come together, reopen the government and fulfill america's financial obligations. i began my remarks with a quote from president lincoln, and i find it appropriate to conclude with another one. lin cob once said, and i quote him: i'm a firm believer in the people. if given the truth, they can be depended upon to meet any national crisis.

end quote. and that is why we're here today. we need to give the american people the truth. the real facts. and only then, when everyone understands the real risks at hand, the facts and the truth, we'll be able to meet this national crisis. senator hatch. >> well, thank you, mr. chairman. i want to thank you for holding today's hearing on the debt limit. i also want to welcome you, secretary lew, to the committee. we appreciate your coming at this early time. during debate over the debt limit increase in 2006, then-senator obama stated that, quote: the fact that we are here today to debate raising america's debt limit is a fine of leadership failure, unquote. leadership, he said, quote: means that the buck stops here. instead washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. america has a debt problem and a failure of leadership.

americans deserve better, unquote. secretary lew, on the day then-senator obama spoke about our debt problem, our gross debt was $8.3 trillion. it is now more than twice that, currently standing at $16.7. that represents 107% of the size of our economy, and as the congressional budget office has made clear, this poses large economic and fiscal risks. during that same 2006 debt limit debate, then-senator biden said, quote: why vote against the debt limit increase, cannot change the fact that we have my vote against the -- my vote cannot change the fact that we have incurred this debt already and will no doubt incur more. it is a statement that i refuse to be associated with the policies that brought us to this point, unquote. what a difference in attitude there's been since then. now president obama and vice

president biden preside over an administration that tells us that that raising the the debt limit in your words, secretary lew, quote: simply allows us to pay our wills, un-- our bills, unquote. you have also stated that only congress has the power to lift the debt limit. now, while it is ostensibly true, there will be no increase if the president does not agree. at the same time, despite your public statements to the contrary, it is not true that a raising the debt limit has only to do with spending congress has already approved. this line of argument is based on a premise that congress makes spending decisions unilaterally and that the executive branch plays no role in the process. that premise is simply false. no amount of spending can be enacted without the president signing it into law. furthermore, while president obama's budgets have not been well received even by democrats

in congress, the president has traditionally been deeply involved in congress' efforts to set spending priorities. the administration also issues statements of administration policy and veto threats on spending bills and other pieces of legislation. the president's worked with congress all the time to enact their domestic agendas. we all remember how president obama unveiled and pushed his trillion dollar stimulus through a democratic congress that he then signed signed into the law. in addition, this president has made unilateral decisions with no input from congress that have had an impact on federal spending. for example, there was the decision to delay the employer mandate under obamacare which cbo tells us will cost an additional or put an additional there are 12 $12 billion to our deficit. congress never voted on the delay. it was a unilateral choice made through a rulemaking at the treasury department. so in short, the commonly-repeated notion that questions surrounding spending

and the debt limit are congress' and congress' alone to answer is, to put it mildly, a case of false advertising on the part of the obama administration. there have been several other instances of false advertising from the administration concerning the debt limit. one is the president's claim that nonbudget items have never before been attached to the debt limit increase. a claim to which a fact checker at "the washington post" assigned the maximum four pinocchios as we have on the chart over here. in fact, of the 53 debt limit increases passed since 1978 under both republican and democratic presidents, only 26 were, quote, clean, unquote. another is that in 2011 we entered some sort of a brave new world in which for the first time in recent history people were commenting on the inability of treasury to make timely payment on incoming due obligations. if you would just go back to

president clinton's administration and read some press conferences held by then-treasury secretary reuben, you will see this claim is also false. mr. chairman, i ask permission to enter a reprint of the press conference of 1995 with then-treasury secretary reuben and then-white house chief of staff leon panetta that supports this position along with an article from "the new york times". >> without objection. >> now, secretary lew, i hope we do not simply go into comparative recollections of history. what is at stake is too big for that. the issue we face is yet another debt limit increase. there have been seven debt limit increases since the president came into office, collectively raising the limit from $13.3 trillion to the current $16.7 trillion, a cumulative increase of $5.4 trillion. when talking about the future increases in the debt limit, all the administration will say is that, one, they want a, quote,

clean, unquote, increase and, two, they refuse to negotiate. now, we don't know what that means, what they mean by a, quote, clean, unquote, increase. we don't even know how much of an increase they want or for how long. apparently even making such desires known would constitute a negotiation. the posture is unhelpful toward resolving the current impasse over the debt limit. essentially, what the administration appears to be seeing is that it is entirely up to congress to increase the debt limit can and to decide how much and for how long. this, of course, raises more questions than it answers. for instance, does it mean that if congress chooses to enact a two week clean debt limit increase, the president will sign it? according to the administration's public statements, because congress is solely responsible for increasing the debt limit, such a hypothetical stopgap would be fine if that's what congress chose to do. yet somehow i don't think that's

what the president is looking for when et comes -- when it comes to the debt limit. in just the past couple days, the president has expressed willingness to entertain a short-term increase in the limit which sounds like a willingness to negotiate testimonies. sadly, the president's statements are still short on details. secretary lew, the lack of real engagement on the part of the administration is just one of the elements of the current debt limit debates that i find disconcerting. it is also disconcerting to have administration official, including you, publicly questioning sentiments of americans and financial market participants and suggesting that people may be too calm in an effort, in an parent effort to whip up uncertainty in the markets. it is disconcerting that you have suggested that payments of social security benefits to retirees and disabled american workers are at risk, especially since you are a trustee of the trust fund. it is disconcerting that administration officials are sounding alarms of emerging risk

to financial stability arising from the debt limit. from the debt limit impasse. while at the same time the financial stability oversight council, which you chair, has been silent and refuses to tell the american people how it would respond to these risks. finally, it is disconcerting that the administration refuses in the context of the debt limit to even have a conversation with anyone concerning our unsustainable entitlement programs which everyone agrees are the main drivers of our debt. the president has thus far refused to seriously discuss structural entitlement reforms without assurance that he first gets another tax hike. more often than not what we hear from the administration on entitlements is a series of disclaimers as to what reform proposals they will no longer consider, and that list seems to get larger every day. the biggest question i have is, if the obama administration won't negotiate on entitlements this the context of the debt

limit, when will they negotiate on entitlements? secretary lew, i will remind you that i've put forth five modest, bipartisan reform proposals for our health entitlement spending and personally gave them to the president earlier this year. you have copies of these proposals yourself, yet to this day i have yet to hear a response. i cannot even get mere conversations from the administration about my proposals that i offered in good faith well before the debt limit was even an issue. most recently, the senate majority leader has introduced a, quote, clean, unquote debt limit bill, senator baucus referred to, that would increase the debt limit until january 1, 2015, which will likely raise the limit by $1.3 trillion or more. that apparently is the position of the senate democratic leadership, but it's somewhat inconsistent with the president's recent willingness to accept a short-term increase in the debt limit.

as you can see, secretary lew, we have a lot to discuss today. my hope is that during the white house of hearing -- during the course of this hearing we can get a sense of where the administration wants to go. i also hope we can get past the arguments that have dominated the administration's rhetoric regarding this issue. our nation's debt is now larger as a hair of our economy than -- as a share of our economy than at any time since the spike-up in world war ii. despite the rhetoric of the administration, our growing debt is not solely the result of decisions made by congress. it is not all due to the financial crisis. and it is not all the result of tax relief enacted under the bush administration. instead, it is a problem that all of us, both congress and the executive branch, need to deal with. and the only way to responsibly deal with it is to confront our unsustainable entitlement spending which will require the administration to do something it is now refusing to do which is negotiate.

secretary lew, as president obama said in 2006 regarding the debt limit, americans reserve better. i want to thank you, mr. chairman, and appreciate you holding this hearing. >> thank you, senator very much. before the secretary of treasury begins, to my members, thank very much the full attendance. we have to be very efficient with the questions and our answers. the secretary has an engagement just a couple, three minutes after 9:30, so i urge us all to respect others as we question so that we all have a chance and the secretary a chance to answer his questions. our questions. secretary. >> thank you, mr. chairman. chairman baucus, ranking member hatch and members of the committee, i appreciate the opportunity to appear here today, and i appreciate the invitation to discuss the potential impact of a failure by congress to increase the debt limit. congress has an important choice to make for the american people,

and congress alone has the power to act to make sure that the full faith and credit of the united states is never called into question. no congress in 224 years of american history has allowed our country to default, and it's my sincere hope that this congress will not be the first. among the risks that we control, the biggest threat to sustained in our economy is a recurrence of manufactured crises in washington and self-inflicted wounds. unfortunately, today we face a manufactured political crisis that is beginning to deliver an unnecessary blow to our economy right at a time when the united states' economy, the american people have painstakingly fought back from the worst recession since the great depression. in addition to the economic costs of the shutdown, the uncertainty around raising the debt limit is beginning to stress financial markets. at our auction of four week treasury bills on tuesday, the interest rate nearly tripled relative to the prior wreak's

auction and reached the highest level since october 2008. in measures expected volatility in the stock market have risen to the highest levels of the year. the only way to avoid inflicting further damage to our economy i is for congress to act. i know from my conversations with a wide range of business leaders representing industries from retail to manufacturing and banking that this is of paramount concern for them. that's why it's important more congress to reopen the government, to raise the debt ceiling and then to work with the president to address our fiscal challenges in a balanced fashion. republican and democratic presidents and treasury secretaries alike have universeally understood the importance of protecting one of our most precious assets, the full faith and credit of the united states. president reagan wrote to congress in 1983, and i quote: this country now possesses the strongest credit in the world. the full consequences of a default or even the serious prospect of default by the

united states are impossible to predict and awesome to contemplate. denigration of the full faith and credit of the united states would have substantial effects on the domestic financial markets and on the value of the dollar in exchange markets, closed quote. if congress fails to meet its responsibility, it could deeply damage financial markets, the ongoing economic recovery and the jobs and savings of millions of americans. i have a responsibility to be transparent with congress and the american people about these risks. and i think it would be a grave mistake to discount or dismiss them. for these reasons i have repeatedly urged congress to take action immediately so we can honor all of our country's past commitments. the treasury department has regularly updated congress over the course of the last five months as new information has become available about when we would exhaust our extraordinary measures. in addition, treasury has provided information about what

our cash balances will be when we exhaust our extraordinary measures. as our forecasts have changed, i've consistently provided updates in order to give congress the best information about the urgency with which they should act. and last month i met with the 23u8 membership of this committee to discuss these issues. treasury continues to project that the extraordinary measures will be exhausted no later than october 17, 2013. at which point the federal government will have run out of borrowing authority. at that point we will be left to meet our country's commitments with only the cash on hand and any incoming revenues placing our economy in a dangerous position. if we have insufficient cash on hand, it would be impossible for the united states of america to meet all of its obligations including social security and medicare benefits, payments to our military and veterans and contracts with private suppliers. for the first time in our history. at the same time, we're relying

on investors from all over the world to continue to hold bonds. every week we roll over 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 cash balance. let me be clear, trying to time a debt limit increase to the last minute could be very dangerous. if congress does not act and the united states suddenly cannot pay its bills, the repercussions would be serious. raising the debt limit is congress' responsibility because congress and congress alone is empowered to set the maximum amount the government can borrow to meet its financial obligations. some in congress have suggested that raising the debt limit should be paired with accompanying spending cuts and reforms. i have repeatedly noted that the debt limit has nothing to do with new spending, it has to do with spending that congress has already approved and bills that have already been incurred. failing to raise the debt limit would not make these bills

disappear. the president remains willing to negotiate over the future direction of fiscal policy, but he will not negotiate over whether the united states should pay its bills. certain members of the house and senate also believe that it's possible to protect our economy by simply paying only the interest on our debts while stopping or delaying payments on a number of our other legal commitments. how can the united states choose whether to send social security checks to seniors or pay benefits to veterans? how can the united states choose whether to provide children with meal assistance or meet our obligations to medicaid providers? the united states should not be put into such a position. there is no way of knowing the irrevocable damage such an approach would have on our economy and financial markets. leaders have a responsibility to make our economy stronger, not to create manufactured crises that inflict damage. 1987 president reagan addressing a debt limit impasse delivered a message that is applicable to us

today. this brinksmanship threatens the holders of government bonds and those who rely on social security and veterans benefits. interest rates would skyrocket, instability would occur in financial markets, and the federal deficit would soar. the united states has a special responsibility to itself and the world to meet its obligations. the very last thing the u.s. economy needs now is a fight over whether we raise the debt ceiling. not when we face serious challenges both domestically and internationally that require our full attention and not when we know the kind of damage a financial and economic crisis can cause. thank you, and i look forward to answering your questions. >> thank you, secretary. i'd like to focus a little bit on a concept that some suggest is the way out of this problem and which some suggest is feasible. and i disagree with, it's called prioritization. you touched on it. could you just briefly tell us

what decisions you'd have to make as treasury secretary assuming interest was paid on the debt if you then had to choose which other obligations had to be paidsome i know you can't tell us which ones, nor should you the tell us social security, medicare, military, farm program, what not. but if you can just go through the process and describe what the actual legal and administrative problems and consequences would be and include how much total that would be. my understanding it's about 70-80% of those programs could be paid if they're all paid and also what effect it would have on the gross domestic product, that caped of a cut. -- that kind of a cut. >> mr. chairman, let me start by saying what i think should be obvious, that if we don't have enough cash to pay all our bills, we will be failing to meet our obligations, and under

any scenario, we will be defaulting on obligations. there is no plan other than raising the debt limit that permits us to meet all of our obligations. when questions are raised about prioritization, the first question is interest and principal on the debt and then, as you said, mr. chairman, what else? the legal issues even regarding interest and principal on the debt are complicated. let me remind everyone, principal on the debt is not something we pay out of our cash flow revenues. principal on the debt is a function of the markets rolling over, so there's a question of what we can do as a government and how the markets function when the government is failing to pay all its bills. we've never been there, and anyone who suggests they know exactly what that means would be projecting after 224 years of the history of paying all our bills what happens if we stop paying all of our bills. mr. chairman, i don't know how you could possibly choose between social security and

veterans' benefits, between medicare and food assistance. these are obligations we've made. you know, we wouldn't have the money to necessarily pay our troops if full. we wouldn't have the money to pay our veterans the benefits in full. our systems were not designed to not pay our bills. our systems were all designed to pay our bills. the legal issues are many. i do not know how you could make the decisions, i do not think the legal authorities are clear at all, and i do not think the administrative process would permit the system to work. we write roughly 80 million checks a month the system is automated to pay because the system has been we pay our bills. you cannot go into those systems and easily make them pay some things and not pay other things. they weren't designed that way because it was never the policy of this government to be in the position that we would have to be in we couldn't pay all our

bills. >> to prioritize, it's my understanding as well that you know to some degree what your outpay obligations are. for example, the big social security payment due october 23 rld, interest on the debt the 1st and at the end of the month, this month, major medicare, other bills due. but on the other hand, knowing the revenue's a little vetch chi. it's lumpy. it comes in in unanticipated amounts. could you go over that, please? >> el, that's very much the case, mr. chairman. we have estimates. if these estimates are wrong, then there is the real risk of miscalculation, and i would just note even in the period of time that i have been keeping congress informed, we've seen swings in the moral course of things of -- normal course of things of $20 billion in terms of the estimates of our cash on happened. it's because quarterly cash receipts were not estimated to

where they would. we are having economic consequences that we're just beginning to understand. all the revenue projectionings that we have based our analysis on were based on a world where government was functioning and all of the services that relate to government activity were happening. it didn't talk into account layoffs, reduction in payroll or payroll taxes, so i have to assume that the estimates before a shutdown are likely not to be an accurate predicter of exactly where we are. >> and how do you reprogram computers? >> well, mr. chairman, i have to tell you, i don't believe there is a way to pick and choose on a broad basis. this system was not designed to be turned off selectively. so anyone who thinks that it can be done just doesn't know the architecture of our multiple payment systems that are very complex. they were designed properly to pay our bills, they were not designed to not pay our bills.

>> so prioritization just doesn't work. >> you know, i think prioritization is just default by another name. it's just saying that we will default on some subset of our obligations. but we are still, by definition if we don't have enough money to pay all of our bills, we will be in default on our obligations. >> thank you. senator hatch. >> thank you, mr. chairman. secretary, i want to be clear about the administration's position on the debt limit. as i understand it, the position is that the president will only accept a so-called clean debt limit hike with no other accompanying policy or fiscal considerations attached to it. i've asked you repeatedly how much of a debt limit increase you would like and for how long. and you have responded that it's up to congress. now, i believe that the administration's position is unfortunate because it is clear that we have a debt problem and that the fundamental driver of our debt is unreasonable, unsustainable spending in our entitlement programs. i believe we can and shiewld use this as an opportunity to

address these problems, and i've personally, as i mentioned, offered five modest bipartisan proposals on entitlement reform to the president earlier this year. you've received copies. unfortunately, i've heard no responses to that, and i sincerely did that. nevertheless, the administration's entitled to its opinions and positions, so i just want to be clear concerning the debt limit. as long as there's nothing attached to a debt limit increase, the administration will say nothing more about it including etc. preferred caught i don't mean -- including its prefers outcomes in terms of how long? is my understanding correct or do you wish to give me your preferences about how big of a debt limit increase you'd like to have and for how long you would like it so that at least we can begin discussions and negotiations on this particular issue? >> senator, you and i have discussed this a number of times, and we've corresponded a number of times. i wrote to you just last week, a few days ago, stating what our

view is. our view is that this economy would benefit from more certainty and less brinksmanship. so the longer the period of time is, the better for the economy. it's really congress' decision how often it wants to vote on the debt limit. i believe that more certainty the is better. i think that the senate leader and the chairman have put forward a proposal -- >> mr. secretary, all i'm asking is how much do you want, how long? i mean, those are two simple questions. how much do you want us to raise and how long? >> senator, the question of how long is one i think i'm answering as clearly as i can. the longest the congress is prepared to, you know, extend it for is the best. i think the president tried to be clear in his statements in recent days that, um, if congress passes something shorter, he was open to -- he's not looking for there to be a crisis here.

but congress -- [inaudible] so the better solution is to go longer. so we've tried to be clear. and everyone knows the numbers that are associated with different periods of time. >> well, it's not clear to me. secretary lew, the reason the -- [inaudible] from the nonpartisan congressional budget office makes a number of things abundantly clear. between 2009 and 2012, the federal government recorded the largest deficit since 1946 causing federal debt to soar to an amount higher than at any point during u.s. history except for a brief period during world war ii. second, our debt path is unsustainable, threatening to bring us to this fiscal crisis. third, the root of our spending problem is the government's major health care programs, that includes not just obamacare, but medicaid and medicare as well. fourth -- and others. fourth, trust funds and social security and our health entitlement programs face

exhaustion. yet when it comes to negotiating solutions to our into it almost spending problems, all i hear is that negotiations can only proceed if, first, the president is guaranteed yet another tax hike or if only spending restraint we've enacted thus far is turned off. when it comes to so much as even discussing solutions to our into it be element spending program -- to our entitlement spending program or problem, all i hear is that negotiations can only proceed if first we pass a clean continuing resolution and a clean debt limit increase. what does it take beyond a guarantee to the president and congressional democrats that they first get yet another tax hike or that the sequester be undone to get the administration to the table to talk about spite element reforms such as the ones i've proposed and which to date have been fete with total site -- met with total silence by the administration. and furthermore, we know this

very data disabled american workers face a benefit cut of 20% or more under current law when the disability trust fund is exhausted in 2016 or earlier. >> senate, i think -- senator, i think the record is clear that the president has negotiated, has wanted to negotiate and remains anxious to negotiate on a bipartisan basis to have a fair and balanced approach to dealing with our fiscal problem. >> it's not clear to me. >> he has been on the verge of agreements twice until, frankly, it was not acceptable to republicans in congress. he was prepared to do very hard things. he was ready to have an agreement twice in 2011 and at the end of last year. he put in his budget very tough policies, policies that many of the democrats on this committee find very challenging because he wanted to make clear he was looking for a balanced approach to entitlement reform and tax reform to settle our fiscal matters in a sensible way for the medium and long term. so i think the president's record on being willing to negotiate is clear. i would just make one comment on -- >> briefly. >> very briefly on the

trajectory of our deficit. i would just note when the president took office in january 2009, we were in the middle of the worst recession since the great depression, we were in the middle of two wars, and we had a deficit that was 9% of our economy. we've cut that in half. we're making progress. we have more to do, but i don't think it's fair to say that we are in the same place we were. we've made tremendous progress. >> senator wyden. >> thank you, mr. chairman. mr. lew, it seems to me in the event of a default or near default, the dominoes are going to fall fast and hard. and those hit early on will be older people who depend on their own retirement savings to get by. these are the older people who saw much of their life savings evaporate during the recessioning, and they're struggling just to get those private savings, in effect, back to the water line, back to where they are. be as specific as you can with respect to what default or near

default would mean for those seniors who depend on their private savings. >> senator wyden, i can only begin to imagine what it would mean to a retired american who relies on social security as their major or sole source of income if we had to tell them their check was going to be late. i remember my late mother lived on her social security check. many of us have relatives who lived on their social security check. if the check didn't come, if they didn't have the ability to call someone who could help them out, they were many this trouble. so anyone who thinks anything short of default has never experienced what it means to live on social security. turning to medicare -- >> private savings especially -- >> okay, i'm -- >> i share your view about those others, but i think the public has heard, and you've given some comments with respect to mortgages. but i'm concerned about those retirees and their private savings as well.

>> retirees saw their private -- well, let's talk not just about retirees, because workers have their savings at stake. the effect is the same, it's just more immediate for retirees. retirees have no time to catch up. .. now, if you create a crisis that causes assets to shrinking value, for retirees, they don't have a lot of time to catch up. so even if it all rights itself

over a period of time, for those retirees, they are in a pretty bad spot. so i think it's very unfair to have manufactured crises that have a real-life impact on working americans and retirees who ought to be able to worry about market risk, not government policy risk. >> let me ask you about the defect -- effective default on budget. we know budget sequestration is not exactly been an ideal instrument, not exactly perfectly targeted to driving down the budget deficit. but it has produced budget savings that actually accrue to the benefit of the american taxpayer. in the event of a default on new default, is it fair to say that some of those budget savings would be eaten up to pay higher interest costs, substantial amounts of which would go to foreign governments and other foreign creditors? >> we have seen just this week

for the bills that mature at the end of october, the rates have almost tripled over the last week. we still have access to the credit markets but it's more expensive, and for no reason. it could be resolved by just settling this issue and making it clear that the debt limit will not be breached and we won't have any problem. >> what's troubling to me is, after the american taxpayer has gone through something of a painful process, and you see these savings, in effect the results of the default which produce higher interest payments and in effect transfer american wealth from our taxpayers from that which would go to foreign creditors. >> higher interest rates also float through the economy in terms of higher mortgage rates and higher student loan interest rate. so the costs have multiple levels of impact on real people.

>> thank you, mr. chairman. >> senator grassley. >> secretary lew, majority leader reid cleaned debt limit increase into the beginning of 2015 would likely be an increase of around one or three-tenths trillion. my understanding, it is leading the debt limit increase in add-on up to congress, but you will negotiate, require a cleaned debt limit increase and willsay nothing about its negotiating preferences regarding how long or how much the debt limit increase is desired. with that being the case, with majority leader reid's cleaned debt limit bill raise limit for one month and admitted you were passed through congress, and the president will sign it, i assume, is that correct? >> i would have to say a bill and -- the president made clear

that he thinks the only way for a longer period of time would be good for the economy, but he did not rule out doing something short if that's what congress says. i think we've been very clear about what we think the right thing to do is. >> both you and president obama have repeated the talking points that negotiating deficit reduction policies on the debt ceiling increase is unprecedented. the debt limit has been used in the past as a means to enact deficit reduction policies, i quote congressional research service since 1978, congress has voted to raise the debt ceiling 53 times, 27 of those, or 51%, the debt limit increase was tied to other reforms. ism you are aware that more often than not the debt ceiling is raised with other policy or

reforms. if you're so aware of that history, why do you and president obama continue to use the talking point that negotiating on the debt limit bill is unprecedented when the facts illustrate of the? >> i don't think that is an accurate version of history, and certainly not what i recall having lived through many of the budget debates over the last 35 years. if you look at the ninth budget agreement, only three have involved the debt limit so it's not the case that most budget agreements involve the debt limit is look at the budget agreement that could involve the debt limit, in several of them, the debt limit was just added onto a deal but it was not driving the debate. what i think changed in 2011 was the affirmative case was made in 2011 that if a certain faction, and i'm not saying it's the people in this room, but if a certain faction in the hous houd not get its way they would prefer default over a compromise

that they found unsatisfactory. that is different. it is just different. we cannot have the debt limit become something that's a threat to the economy unless policy concessions are made. that's not our democratic system works. the minority can't do that. >> secretary lew, well before going to my next question, at least you can't say that it's unprecedented to have negotiations and reforms tied to a debt increase. >> i have never said it's unprecedented for a debt increase to betide action. and it betide action. and it increases on been a hard vote. since 1970 in this country is been working to try to turn into a more ministers about. congress you got to vote on every bond issue to the debt limit was put in place to reduce the number of times congress had to vote on debt. in the 1980s, 1970s was working with house speaker we tried to turn into an automatic vote so that wouldn't be a vote on the debt limit.

just two years ago senator mcconnell put in a mechanism to try to make it easier to vote on the debt limit. it's always been a hard vote. the question is is going to be used as a threat to the economy? that can't be. >> secretary lew, the president has made clear that if we pass a clean c.r. and a cleaned debt limit extension he is ready to negotiate. where we need to negotiate is obvious. if you look at long-term protection, spent on health care, entitlements demands our attention. in the next 25 years, spending on medicare and medicaid as a percentage of gdp is projected to double nearly. now, if i ask -- now if i ask if the president is willing to negotiate on health care entitlements, i think you've already said what the president put in his budget. you are probably going to cite the president's budget. you've already done that. i don't consider that negotiation. i consider it a restatement of

your position. negotiation means you're willing to give it serious consideration to the other side's ideas. senator hatch has made numerous serious proposals on health care entitlements. i'm told the message of the 2012 election was that democrats no longer have to negotiate on health issues. can you convince me that that is from? >> senator schumer? >> senator schumer? i'm sorry? >> senator schumer? i'm sorry gaza and your spirit can he answer the question? >> in about 10 seconds. >> i think the president's budget does reflect his openness to series in time reform and he's been willing to work on a bipartisan basis to do things that are unpopular on the democratic side and he is just looking for a partner to work with was willing to have give and take, not just one way. >> senator schumer. >> thank you, mr. chairman. and thank you coming, secretary lew. this hearing is much-needed. i think if it has a purpose, its deal with the debt ceiling tonight. the debt ceiling deniers try to claim that default will be a big deal.

middle-class family won't be hurt. we can just pick and choose which bills to pay, ma prioritization they call it. well, the debt ceiling deniers -- debt ceiling rails and you've given them that today. basically you said, or think just about these words, you said prioritization is to qualify under the name. prioritization is extremely difficult, as you said. he would pay for this or veterans benefits? to remake social security benefits go out, or pay medicare? do we pay for an education? do we pay our troops? american people don't want that. they would certainly want us to class a clean debt ceiling bill and avoid those awful choices. but i would like to talk about the other and by the way, one of the debt ceiling to there's i read in the nea near-term, congressman named brown. he also said that much of what he learned in medical school were lies. they came from in his words the pits of hell. if we are letting people like this lead us, god save america. now, i'd like to deal with the

second issue, which is the timing. in my view, we are like a blindfolded man walking towards a cliff. if we keep walking in that direction, very soon we will fall off. we may fall off on october 16. we may fall off on october 17. we may fall off on october 25 or november 1, but we will fall off. the most interesting part, the most important point about this is we don't know which day we will fall off. the markets are somewhat mystical. they could even a state or two before october 17 come to view the u.s. is going to default, anticipate that, treasuries go down in value, interest rates go up, much of our financial system freezes and we're back where we were in 2008 when aig failed. so i just want to ask you this question. to be clear, isn't there a risk almost every single day, starting around october 17, even

perhaps a day or two earlier, and getting worse, we can tell exactly when each day after that we won't have enough money to pay our bills and default could occur? even if you laid out the most meticulous plan in the world speaks senator schumer, i have been trying to be a stress but as possible for several months, because i very much fear that miscalculation is something that could lead to an unintended but very severe consequence. since august i have been very clear. we are already in overtime. we hit the debt limit in may. we've been using extraordinary measures and the call them extraordinarily but everyone assumes they are infinite. they are not infinite. i warned in august that we're going to run out of extraordinary measures sometime in the middle of october and even went a step further which mostly has never been done and said we are going to have roughly $50 billion in cash. one month later based on the

year-end tax receipts and expenditures, i updated it and i said no later than october 17 we would run out of borrowing capacity and instead of $50 billion we would have roughly $30 billion. i think i should indicate that what i sit in each of these correspondents is true. it is impossible to predict with accuracy. we are talking about enormous variations in day-to-day expenses, and in economic activity which generates tax revenue. so it is impossible to predict with accuracy. it's difficult to keep roughly $50 billion in reserve at all time just as a cushion against the unknown. so when you talk about having less than $50 billion drawing it down, it's a dangerous place to be. that's why congress needs to act to raise the debt limit sooner rather than later. >> a way to avoid cataclysm is to pass a clean debt ceiling now, not delay, you say we can wait until the esa the 17th or the 19th, or october 31, is

that right a? >> i must say there's a -- win at the last minute, you can do that with the debt limit. the debt limit if you look at the last minute and you make a mistake, you have done serious damage to u.s. economy, to the world economy. it's just not responsible. it's reckless. >> so would you agree with my blind -- my analysis, we don't know exactly what they will fall off but if we keep walking we will is pretty active? >> i've tried to describe it in my own words. >> thank you, mr. chairman. >> thank you, senator. senator crapo. >> thank you. secretary lew, you indicated in your beginning remarks that we face a terrible threat to the economy from a manufactured crisis. and i understand the fact the issue of whether the federal government's borrowing limit should be raised is problematic and creates serious concerns

with regard to our economy. but the fact is that we do face a debt crisis, not -- i guess it is manufactured over decades now but we face a real debt crisis. and as we hear the discussion about whether the united states is going to lose it's good faith and credit ultimately are going to default, i think the real crisis is that default, the one that we are screaming toward because of our refusal to engage as a country. congress and at the president, with regard to reforming our failed entitlement system, reforming our failed tax policy in this country, and dealing with the real debt crisis that we face. i think senator schumer's comment about the blind man walking towards the cliff is even more appropriate with regard to the debt crisis that we face with a 16, almost now $17 trillion debt. so my question to you is, don't

you believe that a long-term trajectory of our debt gives our economy a greater threat and gives investors even more concern in terms of their confidence about the ability of the united states to avoid default? >> senator, we clearly have long-term challenges that i think the financial markets and when you talk to financially policymakers around the world, they actually see that we've made a lot of progress in the last few years. we have more to do in terms of entitlement reform and tax reform that we've taken the deficit those 9% of gdp and brought it in half to 4% of gdp. if anything we again criticize around the world for having done too much deficit reduction too fast because they want more growth. i very much agree we should be getting in a bipartisan basis, and you and i talked about this, sensible balance approaches for medium and long-term reform. and i would love to engage in that conversation but it is not the crisis were talking about. >> the very progress your talk

about a card as result of significant tax increases, and a debt ceiling compromise that was reached with the budget control act. i mean, the fact is that we have not dealt -- and in that compromise we don't with discretion are spending almost entirely. we have not dealt with entitlements which the administration seems as they are off the table. and now we have yet even more demands for greater tax like. and that's what the negotiations that we want to engage in our about. >> sender, the president has engaged on multiple occasions. i have been part of those negotiations. we very much believe that a balanced approach where you to entitlement reform and tax reform would be good for the country. we tried in 2011. we tried in 2012. we are ready to try again. the president said we would take away the threat of economic disaster, he is ready to engage, if i heard him correctly in this press conference he said he

would pay for dinner. he is willing to talk and wants to talk but it can't be that when the u.s. economy being threatened if one small part of congress doesn't get its way. >> so we need another trillion dollars of debt off right before we can even discuss whether to start reforming entitlements, whether to start reform the tax code? >> senator, what we believe is a government needs to open, congress need to open the government and congress needs to make possible to pay our bills and we need to engage and we're ready to do that. >> just to complete my questioning them, back to the issue of our long-term debt and the threat that it poses to our economy. are you telling me that -- >> what i tried to say, hope i wasn't confusing, there's a challenge to deal with any medium and long-term. it is not the same as a crisis is what happens if you fail to act on the debt limit in the next short period of time. i would very much like to do it

sooner rather than later. i think it's better for the country, would've been better if we been able to complete the negotiation with the president and the speaker were very close until house republicans said they wouldn't vote for it. we would love to be in a place where we were talking about a sensible alternative to these mindless across-the-board cuts. we've been very clear about that. but it can be with the threat with a government shutdown and we will default on our bills. that is not the way to engage in the kind of bipartisan negotiations that need to happ happen. >> secretary lew, thank you for your testimony about how you think that this series of prospect and and certainly in the market are right now. and i guess that's my question to you because everybody is talking about default as if that's the triggering point and i think your testimony lays out that this won't happen anytime. and i guess the reason i brought this chart is everything and if you're not involved in the

financial markets, haven't been in the business community, some mysterious thing. but this chart shows the treasuries are held not only in the u.s. by businesses but in europe and china, and their significant -- is a network. it's a complicated and complex as just about anything that's around when it comes to all the individuals that are involved. it's not as one of our colleagues said, picking up the phone and calling wall street and telling them to settle down. so my question is, well, i just went on the web and said okay, what about treasury? practically -- google treasuries and the most important market indicator. way more important than the dow and s&p. how important it is because of the interest rate being pegged off of this interest rate. and so here we are now basically almost talking the interest rate up with the talk in d.c. and in the last 48 hours, i wish

i could print out this chart because we've seen a spike, a dramatic spike from .03%, the .097%. more than a doubling in 48 hours. so my question is, if the interest rates on treasury doubles in the next 48 hours again, aren't we already to that tipping point? >> senator, i have been trying to be very careful in just report what seven. i'm not going to predict what markets will do. i do think that if you looked from last week to this week a tripling of interest rate on short-term bills is not a good thing. we've seen stability and long-term bond markets, but markets are a delicate thing. i don't know how markets will translate one day's news, one day's action into discomfort. what i do know is that every week we roll over $100 billion of treasury bills. that relies on the market in open and willing to function.

i just think everyone has to remember that it's not just the interest, it is also the principal. the markets have to keep worki working. >> i think what people are missing in d.c. is that everybody is at risk in the u.s. economy. it's not just what you just explained, but everybody at home. last time we had this discussion about whether we were going to default or not, the stock market dropped 20%. so we could have this same discussion and then by friday, or monday, yo ubc come in fact e of my constituents, and analysts said you could see like a 25% drop in the stock market. this is triggered off a treasuries we don't have to go to default. just the talk of default is causing the level of uncertainty that we're all trying to avoid. >> that's a weasel in 2011 to 2011 we had an 11th hour agreement and we avoided seeing what happens when you cross the

line. but we have the damage. we have a drop in the market. we had a higher interest rate costs. we also suffered for the first time a downgrade in u.s. credit rating. so that's what happened when we didn't cross the line. i don't think anyone should want to test what happens when we crossed the line. we are seeing with the government shutdown that everyday new things are coming out that a really bad. people who thought it was okay to shut down the government are now rushing to open up one piece or another. it would be reckless to see what happens when you cross the line until they america's bills. >> i think we were doing right now is reckless to help our colleagues, i hope we will come together. thank you. thank you, mr. chairman. >> senator roberts. >> thank you, mr. chairman. i don't think we have a blindfold on walking toward a cliff. i think were walking toward a cliff with our eyes wide open, and that's the problem. all this talk about self-inflicted wounds, it was

not a self-inflicted wound when we raise the debt limit, and we also achieved the grim reference hollings act, the balanced budget act, budget control act and i could go on and on, refer to as other senators. schneck by other senators. i think it's and willingness to really negotiate. that's the nfa again, mr. chairman, got to be careful. the president said over and over and over again, that he will not negotiate. but i don't think that's true. there's a meeting as we speak with the public and -- republican leadership. he met with democrats. my question to you, you have been briefed on the agenda of this meeting with regards to the time that the president would refer -- prefer, and the agenda, more special talk about sequester flexibility with

appropriations committee oversight, the repeal of the medical device, tax, the restoration of the 40 hour work week to the aca as opposed to the 30 hour work week causing all the problems. and perhaps even a decision or at least a time frame on a decision on the keystone pipeline. there's a long list that all of us have that we have talked about, that we've been talking about, or especially senator crapo asking specific questions on in time reform, and that's the real cliff with her eyes wide open that i think we're walking down. and i would only opine to you, sir, the reason why this is so tough, the american people get this. maybe not on the shutdown, although there's been a lot of debate back and forth. they should get this on the debt limit to 52% don't want any increase in the debt limit. they get it. they look at this as their own

family budget and they understand this. 70-80% say no increase without any spending reform. and yet all we heard was i will not negotiate. this reminds me about the debate of the paris peace talks back in the vietnam era, the size of the table and the height of the cheers. maybe this morning when the president meets with republican leadership, and also the democrat leadership, previously, we could get the size of the table. you all can have high chairs. we will take the low chairs. so this is silly. senator schumer said that basically we are walking toward a cliff with a blindfold. i think we have the blindfold off. no action on entitlement reform. no action on tax policy. i've been to the dinner with the help of senator isakson. at the white house. it was a privilege. but when we talked about how we

achieved the grand bargain on tax reform and the president said he needed $800 billion. now, that's -- that price has been raised by the distinguished majority leader to $1 trillion. i don't think they will find much support on this side of the aisle for that. then when we talk about reform he said why can't we just take -- why can't we take mortgage interest, charitable giving, retirement, just means test those? and then give some specific examples. i tried to putting regulatory reform and i was put them in on the agenda is you would agree to it, or if the president would agree to it. we are not going to do that. when i going to means test everything in the tax code and we're not going to raise taxes 800 billion or $1 trillion. that's a nonstarter, so i hope we can do that. what is your -- have you been briefed or what is the up-to-date news that you can give us about the intent of this meeting, and as to what could be

on the table speaks the president has been very clear. congress needs to open the government. congress needs to make it possible for us to pay our bills and then he's open to talking about anything. and it's not a question of the shape of the table or the size of the table. it's a question of whether there's give and take. >> so you indicate that the president is willing to negotiate but he's not willing to tell us what agenda, or what specific parts of the agenda he might be interested or not, or the time from? >> the sender has made clear. congress has to make it possible for us to better bills and he's happy to talk about anything. he's made it clear what you would like to get done. we've made clear in a budget. we've made it clear in numerous communications. give-and-take means everyone coming and doing hard things. he demonstrated his willingness to do hard things. if others are willing, and made we can do -- >> all right. i'm over 13 seconds. i apologize, mr. chairman.

i think what you're saying is that if the government shutdown could be discontinued everybody wants that, nobody wants a, shutdown and i don't want to get into that debate again, but he's willing to negotiate only if we end of the shutdown and agree to an extension on the debt limit, then he may negotiate with an agenda that's just a more this? >> he's always been one to negotiate, just not with the threat of destroying our economy. >> thank you, mr. chairman. thank you, mr. secretary. my colleagues have already expressed a series of dimensions in which both the shutdown and the threat of default i think effect our country domestically, economically. i want to look at a different dimension that both as domestic and global issues. any other role as i play as chairman, i worry about the

incredibly, extremely negative effects with a government shutdown and the threat of default have on our foreign policy and our national security. both now and in years to come. the shutdown and the default affected some of america's near-term foreign policy prior to such as the president not being able to go to the asian economic summit. in his absence of those serving appropriate due to the crisis, feeds into existing fears. having traveled to the region, that our rebalanced asia is more rhetoric than reality. and who showed up and was more than willing to fill the void? china. and in doing so, america's loss is china's gain. and this is an opportunity about opening markets for u.s. businesses to sell products and

services. this is an opportunity to promote economic insecurity questions. and i think our allies are going to wonder is a united states capable of meeting its promises, whether about economic initiatives or security initiatives. and perhaps the most damaging i think and difficult thing to reverse is the impact this has on america's reputation in the world and the economic consequences that flow from that. the entire global financial system depends in large measure on the faith that the united states government can and always will pay its debt. and america enjoys the unique privilege of having its currency act as the world's reserve currency. so it seems to me by playing political games we give credence to other emergency powers, like china and brazil, who want the world to become less reliant on

the dollar. and there are consequences to becoming less reliant on the dollar. not only does that undermine our stint in the global economic system, it puts are given to build in question with allies. i know in your role you feel -- you don't internationals in the context. the could you give the committee a sense of the consequences and talk with those consequences but there are consequences abroad that affect us here at home? >> senator, i think it would be impossible to overstate the importance of the u.s. playing the role in the world that we do in terms of stability we provide. there's a reason why the dollar is the world's reserve currency. the world actually counseled us being responsible and making the kind of decisions that they can continue to look to washington for that kind of stability. we have finance ministers from around the world gathering in washington this week. yesterday i met with finance ministers from africa and from latin america. and it's challenging when they look at you and they ask what's

going on in washington? it makes them nervous about the economy, and we need them to growing demand because that's good for our economy. and this question of world reserve currency, it's no secret that there are discussions around the world where others would like to to be a basket of currencies that my be used as an alternative to the dollar. i have to ask a question. where our role in the world, both in terms of security and economic well being, and to the stability in the world, why would this kind of a manufactured crisis be seen as something that is necessary to pursue when it undermines that? i think the questions you're asking are quite significant. >> let me ask you. there are those who suggest, oh, that's not a real issue because the rest of the world has no place to go. >> i'm not going to speculate on whether someone else will emerge as an alternative, but we are in a place right now where it's important for the united states

in the world for us to maintain our position and we have the capacity to do that. we had economic ability. it's only a matter of political will. >> and there's no reason to risk that possibility, continue to find whether or not there some other universe of currencies for which people could look to. and there's no reason to risk having the potential economic impacts we can have globally that provide domestic opportunities for growth and jobs and opportunity. >> i certainly think there's no reason to i would go a little further and say it is against us to invite the current discussion. >> senator enzi. >> thank you, mr. chairman. mr. secretary, i think this is the 11th time i've been through this discussion about the sky is falling and the earth will be robbed. wyoming families are not buying these argument. they are saying you can't spend more than you take in.

and you definitely can't keep doing it for ever and ever and ever. i've got a person that in turn for me several years ago are now is the owner of a major company in wyoming and operates in four states. he pays his people of everyone's and while somebody comes in and says, i need a pay raise, and he hands them a copy of dave ramsey's basic book and says you don't have a problem with income. you've got a problem with the outcome. that's what the wyoming people thing. we've got a problem without go, not income. i'm not interested in having their taxes raised so we can put more people in the wagon. i use an example on the floor the other day about how the private sector, the people working in the private sector get upset because government keeps growing and growing and growing. when it grows that means there are more people in the wagon and less people pulling the wagon. they're getting tired of it. in fact, it's getting pretty hard to pull.

we are not doing anything about it. that's their impression. they can increase their income, why should we be able to increase our income? how do we solve this problem of out go? if we keep asking for this debt limit increase, and it's always as for as the sometime down the road we're going to negotiate, figure out a way to solve the problem. you mentioned that you rather we didn't have these manufactured crises. america would prefer we don't have these manufactured crises. i think this is a manufactured crises again because we didn't work on it yesterday. to shut down with government. we haven't done the budget the way we're supposed to get we're supposed to start on those on april 15, the once a week and not get to this continuing resolution situation on october 1. and everybody will know exactly how much they can spend.

it doesn't compress this a question like you did last year. these discussions, i was invited to the white house when we were doing obama. and i spent a day of the president chopping down every suggestion the republicans made. it was a waste of a day. so when we hit this thing about willing to negotiate and if you have any ideas, given to me, because we are in just about -- the sky is falling. so why do you and the president feel we should not be discussing right now this dire financial situation, and coming up with a solution that will put a little bit of room in there for something to be done right now? these people are running up their credit card debt and they need to raise their limit. they are expected to say what they will do in order to be able to take care of their debt,

although they are not real interested because the interest rate goes up which is the same thing we're facing. you already said it's tripled in the last week. so we are running into the same problem. why should we present some kind of a solution? it could be a long-term solution. it doesn't have to be a one week solution but we are not even providing a long-term solution to i put out a payment plan along with the sequestered that would take care of the dead in two years. not the deputy would take care of the deficit in two years -- not the debt. it would take care of did it the deficit in two years. some variation of that. why do you think the president should and come up with solutions right now in conjunction with the extension of the debt limit? >> senator, those wyoming families know that wind after they run out the credit card they don't get more. they have to pay their bills. the debt limit is just paying our bills. you and i have talked. you know that i would very much like to be in a conversation

about long-term, sensible and tom tax reform to give the kind of stability going forward that this country needs. that can't be done by saying we won't pay our bills next week. that's what's wrong with engaging right now to the president wants to negotiate. >> we keep saying that this terrible thing is going to happen, and this is just paying our bills. how many times can we say this? just paying our bills. the american public doesn't get that same option. >> the time to reduce what we need to borrow is when we make the decisions on what we're spending, not after. if we, if congress appropriate money, if congress puts laws in place were people's -- who are entitled, congress, once his commitment are made, you can't tell a contractor who is to work, i'm not going to beg you because we changed our mind. >> which takes effect my comment

which -- one at a time. >> i'm not disagreeing with th that. >> time has expired. many senators here have questions as. senators have been very good about sticking within the limits of hopefully you can stay a little bit longer so we can have all sinners ask the question. they will be short with their questions. >> it's going to be very difficult to go more than five minutes spent let's see what we can do. senator carper. >> thank you, mr. chairman. secretary lew, thanks for joining us. i want to say to my colleagues, i just got out of the report units. i was watching the hearing on television in the adjoining room. people watching this on tv must be frustrated, disappointed with us. some of the finest people serve on this committee. that's what i wanted to be on this committee. thoughtful democrats, republicans. find middle, reasonable compromises. the problem here is pretty simple. democrats need to support and

tom reform. it saves money. it's a sees programs for the long haul and it is consistent with our obligation to look out for others. that's what we need to do. republicans need to embrace tax reform that provides predictability for businesses and for investors. but at the same time generate revenues. we go back to this for years at the end of the clinton administration where we it for balanced budgets in a row. revenues as a percentage of gdp right around 20% all four years. those four years, spending as a percentage of gross domestic product was right around 20%. our deficit is down from about four years ago at $1.4 trillion, last year about, the deficit was about $700 billion. we cut it enough. is that enough? know, it's not enough. we need to do more. but we can't do more and less with the entitlement reform. over half of our spending is an entitlement spending. we can do more of us would

generate revenue. the problem here is, the old line in the paul newman movie, we have here is a failure to communicate. i've talked to people all the time. i tell them will have to pay more taxes. they say i don't mind paying more taxes. i don't want you to waste my money. that's what they -- i don't want you to waste our money. tom coburn he's to serve in this committee and i introduced legislation called try max. not to hurt the least, to save money and prejudice programs for the law. every one of you has gotten a letter asking to join us as a cosponsor. i hope you read the letter. i hope you will join us. tom coburn and i held a hearing on monday this week, so just get a disability. nobody wants to harm people or disabled. biting huntington, west virginia, one judge approved

99.7% of the people who applied for social security disability. 99.7%. and that kind of -- the outlier but their people are applying to get approved rightly can work and don't deserve to be on disability. the idea we can't somehow meet our moral imperative and also meet fiscal, we can do both. i would say we would really, not just to boost our approval rating but we need to instill confidence in american people. stop talking past each other and work together. mr. secretary, we will meet with the president today, democrats and i presume the republicans will meet with him today. somehow the president has to make it crystal clear he is willing to negotiate, and i think he said, i heard him say on entitlement stuff, and i'll republicans, they've indicated a willingness to negotiate on tax reform that generates some revenue. there's a matter of trust. i don't have to break through it. i really don't a breakthrough it get any ideas?

>> i think that the kind of conversations that he is having are meant to try to rebuild, to make it clear that once we get be on where we are right now, once congress reopens the government and takes away the threat of default, he has been and remains open to honorable compromise which means give-and-take. but has to be a two-way street, and that's always been the case with any negotiation. >> thank you, mr. chairman. >> thank you santa. senator isakson. he's gone. senator brown. >> sector, thank you for joining us. heard a lot from the debt limit deniers about october 17 is not really the day we default. we hear from the debt limit deniers that their shirt nothing will happen since we can pay china and wall street first. but the fact of the matter is on that day, october 17 as you know well the day we run out of borrowing is a thursday which happens to be the day that treasury holds its weekly auctions, rolls over debt.

comment for us if you could what would happen if we brought not raise the debt limit, what could happen if our borrowing costs, with a substantially increased? what would happen if they did increase on thursday? would happen if we're unable to roll over the $100 billion in debt? >> senator, on not going to comment on what markets might do. i think the history is clear that anxiety leading up to 2011 cost of that market reaction. we've seen in the last few days and he is asserting with maturities in the period between october 17 and the period immediately after that. i can't say what the likelihood of there being a problem but i can see the consequences of any inability for us to roll over would be quite serious. in terms of a household budget, it's like instead having to pay your monthly payment on a mortgage from having to pay the mortgage. that would be a problem. >> second question, i'll be

brief, mr. chairman. over the last couple of weeks i spent a lot of time calling people in ohio, team unity bankers, business executives, entrepreneurs, people running research institutions, hospital executives, small manufacturers. regardless of the board and i assume i don't know the part in most cases their i assume most of them are republicans because they're and lines of work that might suggest that. but over and over they say the same thing. why is this happening? we can't risk a default. they don't understand why the government shut down. increasingly understand that it's one faction of one party and one house in one branch of government that's brought much of his to a halt. the national association of manufacturers, the largest manufacturing association in the country wrote on monday the fifth of policymakers to address the debt limit is injecting uncertainty in u.s. economy, having the ability of manufacturers and the broader business community to compete,

invest and create new jobs. for the last several years, since the health care act, since dodd-frank. the criticism i hear more than anything from business in my state is uncertainty, uncertainty. what's going to happen with imitation of obamacare? the uncertainty that they claim hangs over our country, our economy, and especially from politicians who are critical of many of these programs. so my question is, if we agree to a short-term clean debt limit increase, does that provide the certainty that we would need to compete? >> senator, i've tried to be clear that a think longer certainty would be very good for the economy and the shorter the period, the less stability it provides. when you talk about shifting debate two different time periods, retailers are very worried about what happens in november in december if we are

going through what we're going through now. so i think the longer is better but avoiding the crisis do better than having a crisis. and in no case is the president going to end up in a position where the threat of destroying the american con is the basis for a compromise, the kind of give-and-take that honorable compromises come from. >> thank you, mr. chairman. this is the worst uncertainty and most precarious uncertainty i've ever seen in our economy in my time in public office in what's tragic about is how self-inflicted it is. thank you, mr. chairman. >> thank you, senator. >> thank you, mr. chairman. secretary lew, you've said again today the president won't negotiate on the debt limit. and the president as was noted earlier has asserted that have been additional items added invest. as you know, when you look back at the last 30 years of the history of debt limit, it's the only thing that has worked.

in fact, every significant deficit-reduction package that is pass this congress in the last 30 years has come in the context of the debt limit. i found one that didn't. that was in 2005 for about $40 million. that's the way it's worked. it's gramm-rudman, 1990 balanced budget agreement or the andrews air force base agreement. it's the 1997 balanced budget agreement, the paygo rules that many of this committee talk about favorably. of course, it's in 19, the most recent budget control act just a couple of years ago. all in the context of the debt limit. so my view is kind of strange the president would not want to negotiate but then say -- at all has worked. you indicate it only makes common sense because it's a tough vote as you say. why? because our constituents don't get it. why would you extend the credit card again, the over the limit again without dealing with the underlying problem. that's why the polling showed that over two to one the

american people say we should extend the debt limit but only if we deal with the underlying problem. that's all we're asking for. i'm speaking for myself. i will say we need to avoid a debt limit crisis. but we also need to avoid a debt crisis. so avoiding a debt limit crisis today and avoiding a debt crisis tomorrow should be our objective. the president himself said back in 2006 when the debt was half as big as it is today, $8 trillion, america has a debt problem. a failure of leadership. he said i'm therefore going to oppose the increase in the debt limit. he opposed it when it was half as big as was today. he said we needed to deal with the underlying problem. and in response to senator hatch's question about why the president refuses to do with the underlying problem, which all know is that two-thirds of spin and the biggest part of the spending, that is on autopilot that we don't appropriate every year which is the mandatory side, in response to the question you said and i quote, he put in his budget significant

endowment spending reforms. he wants to do this. and, in fact, you're right. the president's proposal includes a pretty long list of entitlement savings. mandatory savings. about $730 billion over 10 years. a step in the right direction. during that time when likely to add another $8 trillion to the debt based on cbo. but these at $730 billion over 10 years. not all those choices reflect my top priority, or others on the committee probably, but in a negotiation you don't get everything you want. so my question to you is for a simple. by adding some of those proposals, maybe not all 730 billion, maybe it's 500 billion, maybe 400. but by adding some of the presidents own proposals to an extension of the debt limit, which is been done historically and what the american people are asking for, couldn't we move forward? isn't that what we ought to be doing? getting with the debt limit but also with the underlying problem. and taking the presidents own proposals to do it.

>> senator, on history of the debt limit you and i have been back and forth many times. i think it makes a big difference if you attack -- attach a debt limit to summit already agreed to. a balanced budget agreement was all signed and sealed in the debt limit increase was put into it. it didn't drive it. nor did it threaten to fall. i think we're in a given situation since 2011. >> no, it isn't the fault because the president -- >> the president has said and just repeated he wants to and is prepared to negotiate. i think it's important not to just go three presidents budget and cherry pick the things that are hard to do to get look at the things are hard for others to do. the negotiation is give-and-take. if everything is on the table, looking at him how to reform and tax reform in a way that is join together to solve the problem, that could be a serious conversation. i would just caution -- >> the president also said in the budget he believes we ought to have tax reform.

specifically with regard to corporate tax upon for the first time in your budget indicated it should be revenue neutral and i applaud you for that. i think that's important. it's an urgency right now. my question to you would be come the presidents own proposal on entitlement, agreed should be a give-and-take but i'm willing to say let's look at the presidents own proposal putting those into the debt limit increase plus correction to the congress on tax forms as you all have suggested we all too willing to move that speak was just be clear, the presidents of you on the debt limit, he has stated i hard as he can but he's not negotiating over the debt limit. congress has to make it possible to pay our bills. he looks forward to negotiations. >> senator, i hate to call attention to the time but i'm going to be late for another commitment if -- >> do you have just one more speak with how about tomorrow? to more. >> i think if we do two more -- >> that's a little too late.

okay. >> nothing more important than this and i want to make sure everybody on our side has a chance. >> thank you, mr. chairman. thank you, mr. secretary for your indulgence. i'll just take a few minutes. in your view, would failing to raise the debt ceiling make our debt and deficit situation better or worse? >> it doesn't do anything good. i mean, if the cost of borrowing goes up, it raises our expenditures and it doesn't reduce them. >> if the cost of borrowing went up just 1% or 2%, what would that cost? >> i would have to go back and do the numbers exactly to give you an answer, but we're talking billions of dollars to we are not talking about small numbers. >> i think it's very clear, and ronald reagan shared this view. you called him earlier, this would make matters worse. >> yeah, and less we work to do something unthinkable and say we'll never pay those bills.

you've got to pay the bills or you will be borrowing money at a higher interest rate so it only cost. >> our interest costs will continue to go up and our ability to do things like respond to floods in colorado or educate our kids will be diminished. i'm going to let you go because i know you have to go, but i've heard a lot of people on both sides of the aisle today talk about their willingness, their desire to try to meet in the middle and i think that's important. i think we need to do that because i can tell you this, people in colorado, they are sick and tired of a lot of things about washington but with are mostly sick and tired of is our managing by crisis and, therefore, our inability to manage the affairs of this country in the way in this case that threatens the full faith fh and credit of the united states and our ability to have reserve currency for the world be the american dollar. thank you. >> senator toomey. >> thank you, mr. chairman. secretary lew, you said a couple

of times in reference to previous discussions over the debt limit that it's different now. it's true it is different now. i would argue not it is much more urgent we deal with the underlying fiscal problem. now, unlike in past years we're spending $3.3.6 trillion the equivalent of a string of unprecedented deficits. modest improvement you alluded to, you know that's temporary and it's that's temporary and is scheduled if there are no structural changes for those deficits to get much worse. not terribly far from today. we know the total debt that's over 100% of our total economic output. i believe already limiting economic growth and prosperity. with trillions of dollars of guarantees that we didn't used to have. with tens of trillions of dollars in unfunded liabilities. we have large entitlement programs, the largest of which are all growing faster than our economy and, therefore, are on a completely unsustainable path. what's different is her situation is much more dire now

than it was in previous discussions. nevertheless, the president is saying you do me everything i want and then we could have a conversation about these things that are important to you. i still find that shocking, but here's the bottom line it seems to me. if the president refuses to agree to include even a modest reform that begins to take us in the direction of a more sustainable path in the context of the debt ceiling increase, there appears to be a real chance that this congress will not pass a debt ceiling increase before october 17. now, i hope that we do pass a debt ceiling increase with a program reforms. because there's no question in my mind at some point if we don't raise the debt ceiling it will become disruptive. as you know, ongoing tax revenue is only about 85% of all the money this government intends to spend in the coming fiscal year. so if we only get 85% of everything we intend to spend in

tax revenue, the 15% shortfall would have to be covered by borrowing or else we wouldn't be able to do everything in full and on time. that would be disrupted. but the greatest destruction by far would occur if you were to choose to not pay interest on our debt. senator cantwell made it very compelling argument about the unique role the u.s. treasury securities play in the world, and the united states. so my question to you, mr. secretary, as the secretary of the treasury are you prepared to assure us, or more important, the millions of americans who are invested in u.s. treasury securities and the entire american economy, that under no circumstances will you permit a missed payment on a u.s. treasury securities obligation? >> senator, the only way to make sure we pay all of our obligation is for congress to act and raise the debt limit. no president has ever had to decide whether to pay some bills and not others' --

>> i understand. >> i am not the one who makes that decision as you know. i think -- it's not my decision. it is something that the president would have to decide. and i'm telling you that it would be, put us into default if it went to a place where we could pay one bill and the others. what would you say to people and social security? >> i have a knowledge is very disruptive and that's not what helped ago but i only control one vote in the senate and the administration controls zero and they control zero votes in the house. and so it would seem to me the only appropriate thing to do is plan for contingencies. so are you telling me that the president we decide to ensure that we would not miss a payment on treasury securities? >> what i'm telling you is there is no good solution if congress fails to raise the debt limit and that's why the president has called on congress to raise the debt limit. use the number 80-85% coverage in terms of revenue. that's an annual average. the amount we fall behind is

unthinkable. congress has to do its job and act. >> i hope the president will work with us so we can avoid this but, frankly, i'm shocked that the secretary of the treasure will not usher the financial markets, american investors and savers and millions who hold treasuries that they don't have to worry about the security of the treasury. i'm actually disappointed. >> i would refer you back to statements by president reagan and secretary jim baker, who made the same warnings that i'm making. because only congress can act to raise the debt limit the no president has ever been put in a position speed as i understand it almost out of time. on tuesday the president said and i quote, we plan for every contingency. so obviously worst case scenario, there are things will try to do, end quote. can you tell us about these contingencies? >> senator, the options are all bad. >> i agree. >> i tried to describe our public and the federal payment system is. there is no way to make our

federal payment system work well to pick and choose what we pay. so we are going to be in place which is uncharted territory. if anyone thinks it works smoothly -- >> the question is whether the treasury is prepared to try to minimize disruption spent obviously we have looked at any options. there's been reports indicating things better than look at over the years. nobody has ever had any of these into effective they are not tested. >> the gentleman's time has expired. i note there are four senators left to ask washington if i might ask the secretary if he could -- if they could state the question intensity to get i to respond. >> i'm happy to do that. >> the next center. just for questions but we don't have time. senator casey. >> thank you very much for your testimony. my question relates to social street and medicare investment benefits. i'm going to regionalize from a

letter that i got from a constituent talking about her parents. she said at 85 and 83 they should not have this uncertainty comes inserted by the impact. these should be their goldman years. it breaks my heart to see my mother saying she cannot sleep and has a stomach ache from the worry about where our country is headed. tell us about the impact of a oe default when it comes to so security and medicare. >> senator, i told the secretary he would have to answer questions because so many senators have asked the and i appreciate -- >> i'm happy to follow up. >> senator stabenow. >> thank you, mr. chairman. i which is like a asked the we put in the record the complete letter from the national association of manufacturers, and i would read one sense, a default would put upward pressure on interest rates raising both short and long-term cost to capital and discouraging business investment and job creation in america. >> thank you, senator. senator nelson.

>> ten seconds. mr. secretary, i'm concerned that you have indicated that we might agree to a short-term extension on the debt ceiling. and i think that would be counterproductive, back in this soup, right at the end of that short-term extension. i commend the president for standing firm. we can't negotiate over the debt ceiling. national security is another consideration. i'll put that in the record. thank you, mr. chairman. >> senator cardin. >> thank you, mr. chairman. secretary lew, thank you for being an thank you for giving us -- is our responsibility to pass the debt limit its congresses is possible to do this. uncertainty is really hurting this country and we can't govern

crisis to crisis. so i strongly support your view that the longer-term is what we need here. my question would be what legal authority they have to pick and choose? it seems to me that any analogy we use to a company or a business cannot pay its bill, there's a limit, discretion as to how you can make those chechens. i'd be interested into the legal authority you have on prioritization. >> other senators are not your obviously. >> i would be happy -- spanky been very generous with her time. we deeply appreciate it. >> thank you, mr. chairman. >> the hearing is adjourned. [inaudible conversations]

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[inaudible conversations] [inaudible conversations] >> as this thing comes to a close, some 20 top republicans will be me with president obama at the white house today to try to reach some kind of agreement on ending the partial government

shutdown and raising the debt ceiling. the president had invited the entire house gop but speaker john boehner opted for a small group. senate democrats are also meeting with president obama today on the shutdown and the debt ceiling. the senate is expected to recess midday so lawmakers can attend that meeting. and a quick look at what's happening today in congress. the senate meets at 10:30 a.m. eastern and continued speeches on the government shutdown on the debt limit. harry reid expects to make a motion that sets up a vote possibly this weekend to move forward on legislation to suspend the debt limit until the end of next year. the house continues meantime votes on short-term funding bills. today, border security. you can see live house coverage on c-span. will have the senate live right here on c-span2. again, at 10:30 a.m. eastern.

>> the senate banking committee holds a hearing this morning on how the economy would be effected by not raising the debt ceiling and defaulting but officials from banking, financial markets and the real estate markets testify. live coverage of that hearing will get underway at 10 eastern on our companion network c-spa c-span3. >> this morning treasury secretary jack lew urged congress to raise the government's borrowing limit before october 17 warn that republican idea to prioritize payment with cash on hand could cause irrevocable damage to the u.s. economy. is test monday for the senate finest in which we just showed you get secretary moosehead trying to choose between paying veterans or social street jacks

is not a good option and risks the first default on u.s. debt in history. >> this hearing will come to order. on january 27, 1838, a young state legislator named abraham lincoln spoke of our gathering in springfield, illinois. at the time america was deeply divided nation. lincoln warned the greatest threats to the young democracy were internal. he said quote if danger ever reaches us, it must spring up amongst us. it cannot come from abroad. destruction -- we must ourselves finish it. as a nation of freemen we must live through all times, or die

by suicide. the action of the past few weeks extremism of small court members in the house of representatives have crippled congress and put our nation in a very perilous have. for more than 200 years, the united states has been true to his word, it's honored its obligations and paid its debts. yet today a small group of hard-liners are using oregon as a bargaining chip to repeal the affordable care act. let me be clear. we are not going to let that happen. the affordable care act is the law the land but it is not going to be dismantled in this budget fight. the issue is not up for debate. our committee wrote the affordable care act. i'm always open this committee working together to strengthen the law to better serve the american people. but as the president said, we cannot negotiate under the threat of default on the nation's bills. before any debate, before any

deliberation, we need to reopen the government and pay the nation's bills, no strings attached. then we need to work together, return to regular order, address the nation's long-term budget challenges working together including entitlement and tax form. but right now we need to prevent another self-inflicted wound to america's economy. that is what defaulting on the debt is. a self-inflicted wound with global consequences. the deadline is fast approachi approaching. and '70s the united states treasury will have exhausted all extraordinary measures to stay under the debt limit. in seven days the united states will be at the risk of defaulting on payments. the united states of america, the richest, most powerful nation in the world will be forced to look for loose change in the sofa in order to pay its bills. while the government shutdown has been disruptive, a default

would be a financial heart attack. it would have widespread, long-term economic consequences. financial markets are already showing serious signs of stress. the dow has dropped more than 800 points over the last three weeks, and one month treasury bill rate has risen to its highest level since the 2008 fiscal crisis. if the debt ceiling is breached, the government would immediately have to slash federal spending by 20-30% to drive the nation back into recession. the pain would be felt across every sector of society. social security and medicare would be cut. veterans benefits slashed. funding for highways. every government program would be devastated by deep cuts. families would feel it first and with dramatic drops in their retirement savings. jobs would be lost. home values would plunge. interest rates on mortgages and student loans would soar.

now, some have said we can avoid default by prioritizing u.s. payment. paying bondholders and interest on the debt. but they failed to mention this scheme would force treasury to pick and choose which programs to pay, forcing vital programs like social street, medicare to compete for funding. this idea is just irrational. a default have a catastrophic impact on the global economy as well. jim yong kim, president of the world bank warned a default would have.com to quizzes for the world economy. christine lagarde, financial to the national monetary fund said it is quote mission critical that the debt limit be resolved as soon as possible. this is serious. the whole world is watching. our actions here in the next couple days will have global

implications. we are the most important economy in the world. the dollar is the worlds reserve currency. our treasury bonds are the backbone of the international financial system. a default would put the global economy in chaos. of that, there's no doubt. last week, treasury warned us a default would cause a quote recession that could echo the events of 2008, or worse. have people here forgotten what happened in 2008? the collapse of lehman brothers set off a financial earthquake. markets plunged, unemployment surged, america's confidence was shattered to the core. in 2008, upended lives across the country. the aftermath of which can still be felt today. we cannot let that happen. we have a responsibility to avoid another economic disaster. our leadership, our resolve will be tested in the coming days.

we, all of us here in this room, we have an opportunity to pull america back from the brink. .. have i seen washington so angry, so gridlocked, so broken and it doesn't have to be that way. i know the public might fi