the next short period of time. i would very much like to do it sooner rather than later. it would have been better for the country if we had been able to complete the negotiation where the president and speaker were very close until house republicans said they wouldn't vote for it. we would love to be a place where we were talking about a sensible alternative to these mindless across-the-board cuts. we have been very clear about that but it can't be with the threat the government is shut down and we're going to default on our bills. that is not the way to engage in bipartisan negotiation. ..

by businesses but in europe and china and its and network. it's 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? just google treasuries and all the things, most important market indicator, way more important than the dow and the s&p. how important it is in a number in the economy because of the interest rates 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. in the last 48 hours i wish i could print out this chart because we have seen a spike, a dramatic spike from .03%, to point to 97%. that's global in 48 hours. so my question is if the interest rate 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 and just report what seven. i'm not going to predict what markets will do. i do think that if you look from last week this week, a tripling of interest rates on short-term bills is not a good thing. we have seen stability and long-term bond market 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 every week we were all over one -- we roll

over $100 billion a treasure built and that relies on the market being open and willing to function. and 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 the thing people are missing here in d.c. is that everybody is at risk in the u.s. economy. it's not just what you just explained that everybody at home. the last time we had this discussion about whether we're going to default or not, the stock market dropped 20%. so we could have this same discussion and then by friday, on monday, you can see in fact one of my constituents who is an analyst said you could see as much as a 25% drop in the stock market. it is triggered off of treasuries. we don't have to go to default. just the talk of the fall is causing the level of uncertainty that we're all trying to avoid. >> that's what we saw in 2011. we had an 11th hour agreement and we avoided seeing what

happens when you cross the line. but we had to do damage. we had a drop in the market. we had a higher interest rate cuts. we also suffered for the first time a downgrade in u.s. credit rating. so that is what happened when we didn't cross the line. i don't think anyone should want to test what happens when we crossed the lawn. we are seeing with the government shutdown that every day new things are coming out that are really bad. people who thought it's okay to shut down the government now rushing to open up one piece or another at a time. it would be reckless to see what happens when you cross the line and don't pay america's bills. >> i think what we do right now is recklessly help our colleagues 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 we are walking toward a cliff with our wives -- 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 act, social security and come with a balanced budget act, the budget control act, and i could go on and on, referred to as, by other senators. i think it gets down to a willingness to really negotiate. that's the nsa again, mr. secretary. terrible. the president has said over and over and over again that he will not negotiate, but i don't think that's true. bears some meetings as we speak with republican leadership yesterday. he met with democrats. my question to you, you have been briefed on the agenda with regards to the time that the president would prefer with regard extension of the debt limit and the agenda, and more specially i'm talking about

sequester flexibility with appropriations committee oversight, the repeal of the medical device tax, the restoration of 40 hour work week, the aca as opposed to the 30 hour workweek causing all the problems. and perhaps even a decision or at least a timeframe 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, especially senator crapo asking specific questions on entitlement reform. that's the real cliff with our eyes wide open that i think we are walking down. and i would only opine to you that 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. but they sure get this on the debt limit. 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 chairs. maybe this morning when the president meets with republican leadership and also the democrat leadership, previously, we can get the size of the table. you all can have high chairs. we will take the load chairs. so this is silly. senator schumer said that basically we are walking toward a cliff with a blindfold. i think where the blindfold off. no action on entitlement reform. no action on tax policy. i've been to the dinner would 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, the president said he needed $800 million. that price has been raised by the distinguished majority leader to $1 trillion. i don't think you will find much support on this side of the aisle for that. then when we talked about reform he said why can't we just take, like it we take mortgage interest, charitable giving, retirement, just means tested those? and then give some specific examples. i tried to put and regulatory reform and output that in on the agenda if you would agree to it. or if the president would agree to it. we are not going to do that. we are not going to means test everything in the tax code and we are not going to raise taxes 800 billion or $1 trillion. that's a nonstarter so i hope we could do that. have you been briefed, our what is the up-to-date news that you can give us about the intent of this meeting as to the time

about and what could be on the table? >> the president has been very clear. congress need to open a government. congress needs to make it possible for us to pay our bills, and then he's open to talking about anything. it's not a question of the shape of the table or the size of the table. it's a question of whether there is 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? >> congress has to open the government. congress has to make possible for us to their bills and he's happy to talk about anything. he's made it clear what he would like to get done. we've made it clear in our budget. we've made it clear in numerous communications. give and take means as one coming and doing hard things. he demonstrated his willingness to do hard things. if others are willing, maybe 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 can be discontinued, everybody wants that, nobody wants a government shutdown. i don't want to get into that debate again, but he's willing to negotiate only if we end the shutdown and agree to an extension on the debt limit. then he may negotiate with an agenda that's just sort of -- >> he's always been one to negotiate, just not with the threat of destroying our economy. >> chairman menendez. >> thank you, mr. chairman. thank you, secretary. my colleagues have already expressed a series of dimensions in which both the shutdown and the threat a default i think affect our country domestically, economically. i want to look at a different dimension that both has domestic and global issues. in the other will i bless chairman of the senate foreign

relations committee, i worry about the incredibly extremely negative effect that the government shutdown and the threat of default have on our foreign policy and our national security. both now and can usually come. the shutdown and the default affected some of america's near-term foreign policy prior kashmir priorities such as the president not being up to go to the asian economic summit the in his absence though, certainly appropriate due to the crisis, feeds into existing fears having traveled to the region, that our rebounds age 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 and security questions. and i think our allies are going to wonder, is that united states capable of meeting its promises, whether about economic initiatives or security initiatives. and perhaps the most damaging, i think him 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 fate of 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 -- emerging

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 standing in the global economic system. it puts our dependability -- i know in your role as treasury secretary you feel -- you fill out the roles in that context. could you give the committee a sense of the consequences -- we talked about those at home 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. claim 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 counts on 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, and yesterday i met with finance ministers from africa and from latin america. and it's challenging when they

look at you and they asked what's going on in washington? it makes them nervous about their economies, and we need them to a 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 there to be a basket of currencies that might be used as an alternative to the dollar. so i have to ask a question. when our role in the world, it's so important to the united states security, 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? so i think the question you're asking are quite significant. >> let me ask you get good are those who suggest, oh, that's not a real issue, because the rest of the world has no place to go. >> you know, 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 have the economic ability to do that. it's only a matter of political will. >> there's no reason to risk that possibility, of continue to fight whether not there some of the universe of currencies are which people could look to. and there's a 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. i would go a little further to say that it is against our interests to invite that kind of 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 erupt. wyoming families are not buying these arguments.

they are saying you can't spend more than you take him. and you definitely can't keep doing it forever and ever and ever. i've got a person that interned for me some years ago are now is the owner of a major company in wyoming and operates in four states. he base his people well, but every once in a while someone 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 out go. we have a problem with out go, not income. they are not interested in having their taxes raised so that we can put more people in the wagon. i used an example on the floor the other day about how the private sector, the people working in the private sector getting a little 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 bike

and. they are getting tired of it. in fact, it's getting pretty hard to pull. we are not doing anything about it. that's the impression. they can't 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 asked for as though sometime down the road we're going to negotiate and figure out a way to solve the problem. you mentioned that you'd rather we didn't have these manufactured crisis. 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 -- shut down with government. we haven't done the budgets the way were supposed to. we are supposed to start on those april 15, do wonder we cannot get to this continuing

resolution situation on october 1. everybody will know exactly how much they can spend. it doesn't impress the sequester like it did last year. these discussions, i was invited to the white house -- to the blair house when we were doing obamacare and i spent a day of the president chopping down every suggesting the republicans made. it was a waste of a day. and so we hear this thing about willing to negotiate, and if you have any ideas, get them to me. we are in just about as thin as the sky is falling. so why do you and the president feel we should not be discussing right now is 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? if 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 that same problem. why shouldn't we present some kind of a solution? it could be a long-term solution. it doesn't just have to be a one week solution but we are not even providing a long-term solution. i put out a plan along with the sequester that would take care of the debt in two years. not the debt. it would take care of the deficit in two years and result in a balanced budget. some variation on that might be helpful. but why do you think the president shouldn't discuss right back him up with solutions right now in conjunction with the extension of the debt limit? >> senator, those wyoming families know after they run up their credit card, they don't get to ignore it. they have to pay their bill. the debt limit is just paying our bill. you and i talked.

you know that i would very much like to be in a conversation about long-term sensible entitlement tax form to give the kind of stability going forward that this country needs. that can't be done by setting we will pay our bills next week. it just -- that's what's wrong with engaging right now. the president wants to negotiate. >> we keep saying that, that this terrible thing is going to happen and that 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 are spending, not after. and if we come if congress appropriate money, if congress puts laws in place where people are entitled, congress commits mentored resources, once those commitments are made you can tell the contractor who was

doing work i'm not going to pay you, because we changed our mind spent which takes and back to my comment that we should have been doing -- >> i'm not disagreeing with you. >> mr. secretary, your time has expired to many senators who have questions as. centers have been very good about sticking within the limits and hoping you can say a little bit longer so we can have senators ask their questions. >> it's going to be very difficult to go more than five minutes. >> let's see what we can do. senator carper. >> thank you, mr. chairman. mr. secretary, thanks for joining us. i want to say to my colleagues i just got out of the room for a few minutes. i was watching on television in an adjoining room. i must say people watching this on tv must be frustrated, disappointed with us. some of the finest people who serve in the senate serve on this committee. that's what i wanted to be on this committee. find reasonable and principled compromise. the problem here is pretty simple.

democrats need to support entitlement reform that saves money. saves these programs from the long haul and is consistent with our obligation to look out for the least of these. that's what we need to do. republicans need to embrace tax reform that provides certainty, predictability for businesses and investors but at the same time generate some revenues. we go back to those four years at the end of the clinton administration where we had balanced budgets. revenue is a percentage of gdp. writer than 20% all four years. those four years, spending as a percentage of gdp was right around 20%. our deficit is down from $1.4 trillion, last year to you the just ended about 10 days ago, the deficit was about $700 billion. we cut it in half to is that enough? no. we need to do more. but we can't do more and less we get entitlement reform.

over half are spinning is in entitlement spending to we can't do more and less we generate revenue. the problem here is, what was the old line and the ball movement -- the palm newman movie? what we have here is a failed to communicate. i talk to people all the time. people have a lot of money and i tell them they will have to pay more taxes, and they say i don't mind paying more tax. i don't want you to waste my money. i don't want you to waste by money. i don't want to waste your money. tom coburn to use to serve in this committee, and i, have introduced legislation and we go at and how that reforms, not toward the least, so i can save money and preserve these programs for the long haul. everyone of you on this conejos county letter asking to join us as cosponsors to help you read the letter. i hope you would join us. tom coburn and i held a hearing on monday this week, social security disability. nobody wants to hurt people who are unable to work. but in huntington, west

virginia, one judge approved 99.7% of the people who applied for social sector disability, 99.7%. that kind of thing, that's the outlier but there's people that apply and get approved and, frankly, can work and don't deserve to be on disability. the idea we can't somehow meet our moral imperative and also meet this goal, that's a fiction. we can do both. i would say we would really, not just boost our approval ratings but we would instill a lot of confidence in the american people if we stopped talking past each other and actually worked together. we're going to be with the president today, democrats, i presume the republicans. somehow the president has to make it crystal clear that he's willing to negotiate, and i think you said, i heard him say, on entitlement stuff. our republicans, they have indicated a willingness to negotiate on tax reform that generates some revenue. end as a matter of trust. i do trust. i don't have to break through a.

i really don't know how to break through it. any ideas? >> i think that the kinds of conversations that he is having are meant to try to rebuild some of the trust, 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 it has to be a two-way \street/{-|}street and that's always been the case with any negotiation. >> thank you, mr. chairman. >> thank the senator. senator isakson. >> senator brown. >> thank you, mr. chairman. i'll be brief with my question. thank you for joining us. i heard a lot from the debt limit and deniers about october 17 is not really the day we default. we hear from the debt ceiling deniers that they are sure that even if we get there nothing will happen since we can't pay china and wall street for first it but the fact of the matter on that day, you know well the day we run out of borrowing capacity as a thursday which happens to

be the day that threshold is weekly auctions to roll over $100 billion in debt. come into force if you would look at happen if we brought not raise the debt limit, what could happen if our borrowing costs, would they substantiate increased? what would happen if he did increase on thursday? what would happen if we were unable to roll over the $100 billion in debt? >> i'm not going to comment on what markets might do. i think the history is clear that anxiety leading up to 2011 caused a bad market reaction. we have seen in the last few days and he's certainly with maturities in the period between october 17 and the carried immediately after that. i can't say what the likelihood is that it would be a problem. i can say the consequences of any inability for us to roll over would be quite serious. in terms of the household budget is like instead of having to pay your monthly payment on a mortgage, having to pay the mortgage. that would be a problem.

>> second question, and i'll be brief, mr. chairman. over the last couple of weeks i spent a lot of time just calling people in ohio, community bankers, business executives, entrepreneur's, people running research institutions, hospitals executives, small manufacturers, regardless of the party and i don't know their part in most cases. i assume most of them were republicans because they are in lines of work that might suggest that. but over and over and they say the same thing, why is this happening? we can't risk a default. they don't understand why the government shut down. they increasing understand that it's one faction of one party in one house in one branch of government that's brought much of this to a halt. the national association of manufacturers, the largest manufacturer association in the country wrote on monday the failure of policymakers to address the debt limit is injecting uncertainty in the

u.s. economy hampering the ability of manufacturers and the broader business committee is key to investing great new jobs. for the last several years since the health care act, since dodd-frank the criticism i hear more than anything business in my state is uncertainty. when our dodd-frank was going to be finished? what's going to happen with obamacare? the uncertainty, that they claim hangs over our country, our economy, i hear it 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 i 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 to differen a different e

period, retailers are very worried about what happens in november and december if we're going through what we are going through now. so i think longer is better, but avoiding the crisis it 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 economy is the basis for a compromise. he wants that to be with the kind of give-and-take that honorable compromises come from. >> thank you, mr. chairman. this is the worst uncertainty and the most precarious uncertainty i've ever seen in my comment in my time in public office. and what's tragic about is how self-inflicted it is. thank you, mr. chairman. >> thank you, senator. senator portman. >> thank you, mr. chairman. secretary lew, you said again today the president will negotiate on a debt limit. of the president as was noted earlier has asserted that there have been additional items added in the past. 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 has passed this congress in the last 30 years has become in the context of a debt limit. i found one that didn't that was in 2005 for about $40 billion. a small few. that's the way it's worked. it's gramm-rudman, 1990 balanced budget agreement or the andrews air force base a green. it's the 1997 balanced budget agreement, the pay go rules that many on this committee talk about favorably. of course, it's 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 and say we haven't had a. and you indicated earlier 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, go over the limit again without dealing with the

underlying problem? that's why the polling shows the american people say we should extend the debt limit but only if we deal with the underlying problems. that's all we're asking for. i'm speaking for myself. we need to avoid a debt limit crisis. but we also need to avoid a debt crisis. so avoiding a debt limit crisis to date 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, this was a floor speech, america has a debt problem and the failure of leadership. he said i'm therefore going to oppose the increase. he opposed to windows have as big as was today. he said we need to deal with the underlying problem. in response to sarah hatch's question earlier about why the president refuses to do with the underlying problem which although is that two-thirds of spin and the biggest part of spending, that is on autopilot the 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 entitlement spending reforms. he wants to do this. and, in fact, you are right. the fed'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 were likely to add another $8 trillion to the debt, based on the cbo. but he is $730 billion over 10 years. not all those choices reflect my top priority, or others on this committee probably, but in the negotiation you don't get everything you want. my question today is very simple. by adding some of the proposals, maybe not all 730 billion, maybe it's 500, maybe 400 billion. but by adding some of the president's own proposals to an extension of the debt limit, this is what's been done historically and what the american people are asking for, couldn't we move forward and isn't that what we are to be doing? dealing with the debt limit but

also with the underlying problems. taking the president's own proposals to do it. >> on fish of the debt limit you and i've been back and forth many times. i think it mix of big difference if you attach a debt limit increase on to something that's been agreed to get in 1987 balanced budget agreement was also intensive and the debt limit increase was put into. it didn't drive nor did it threaten to fall. i think we're in given situations since 2011. that has changed the world. >> the president is saying he would negotiate. >> the president has said and has repeated he wants to and is prepared to negotiate. i think it's important not just to go through a president's budget and cherry pick the things that hard for him to do. you have to look at the things that are hard for others to do. the negotiation is give-and-take but if everything is on the table, if we're looking at and comment reform and tax form in a way that joins together to solve the problem, there could be a serious conversation but i would just caution -- >> the president also said in

the budget that he believes we ought to tax reform, and specifically with regard to corporate tax form for the first time in your budget you indicated to be revenue neutral. i applaud you for that, as you know. i think it's an urgency right now. we will continue to lose more jobs in this country. my question to you would be the president's own proposal on entitlements, i agree there should be a give-and-take but i'm willing to stick let's look at the president's own proposal, putting those in the debt limit increase, would you all be willing to move that forward speed was just to be clear, the presidents of you on the debt limit, he has stated this clearly. he's not negotiating over the debt limit. congress has to make it possible to pay our bills. he looks for to negotiation. >> senator, i hate to call attention to the time but i'm going to be late for another commitment if i -- >> do you have just one more? how about two more? we will do two more. there you go. >> i think if we do the days

that's a little plate. >> nothing is more important than this and i want to make sure everybody on our side at least has a chance. >> thank you, mr. chairman. thank you, mr. secretary, for your indulgence. i'll take just a few minutes. in your view, would failing to raise the debt ceiling make that situation better or worse? >> it doesn't do anything good. if the cost of borrowing goes up, it raises our expenditures and doesn't reduce them. >> and if the cost of borrowing went up just 1% or 2%, what would that cost? >> i would have to go back into the numbers exactly to be an answer, but we are talking billions of dollars. we're not talking small numbers. >> i think it's very clear, and ronald reagan shared this year and you quoted earlier that this would just make matters worse. >> yeah, unless we were to do

something unthinkable and say will never pay those bills. you've got to pay the bills or you'll be borrowing money at a higher interest rate. >> which means our interest costs are just going to continue to go up and our ability to do things like respond to the floods in colorado are to be able to 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 are sick and tired of a lot of things about washington, but what they're most sick and tired of is our managing by crisis and, therefore, our inability to manage the affairs of this country in a way in this case that threatens the full faith and credit of the united states and our ability to have the reserve currency for the world, be the american dollar. thank you. >> senator toomey.

>> thank you, mr. chairman. secretary lew, you've set a couple 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 that we deal with the underlying fiscal problem. now, unlike in past years, we are spending $3.6 trillion would run up a string of unprecedented deficits. the modest improvement you alluded to, you know that's temporary and it's scheduled if there's no structural changes for those deficits to get much worse, but not terribly far from today. we now have a total debt that's over 100% of our total economic output. i believe already limiting economic growth and prosperity. we have trillions of dollars of guarantees that we didn't used to have. we have tens of tons 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. so what's different it seems to me is our situation is much more dire now than it was in previous discussions. nevertheless, the president is saying, you give me everything i want and they we could have a conversation about these things that are important to you. i still find that shocking, but here's the bottom line. 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 a debt ceiling increase, there appears to be a real chance that this congress will not pass a debt ceiling increase before october 17. i hope that we do pass a debt ceiling increase with appropriate reforms. because there's a question in my mind at some point if we don't raise the debt ceiling, it will become a 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 and tax revenue, the 15% shortfall would have to be covered by borrowings, or else we wouldn't be able to pay everything in full and on time. and that would be disruptive. but the greatest disruption by far would occur if you were to choose to not pay interest on our debt. senator cantwell made it very component argument about the unique role the u.s. treasury securities but in the world. so my question to you, mr. secretary, as the secretary of the treasury are you prepared to assure us, or more importantly, the millions of americans or investors 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 one who makes that decision, as you know. i think speed but you do make -- >> no, no. 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 we went to a place where we could pay one bill and not others. what would you say to people on social security? >> i have acknowledged it's very disruptive and that's not what i hope to go. i only control one vote in the senate and the administration controls zero, and a composer of us in the house. so it would seem to be the only appropriate thing to do is to plan for contingencies. are you telling me the president would decide to ensure that we would not miss a pen on treasury securities? >> what i'm telling you is there's 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. you did use the number 85% coverage in terms of revenue. that's an annual average.

the amount that we fall behind is just 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 assure the financial markets, american investors and savers and the millions sold treasuries that they don't have to worry about the secured of their treasury. i'm extremely 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. no president has have been put in a position to forget what that option is. >> on tuesday the president said and i quote we plan for every contingency, so obviously worst case scenario there are things we will try to do, integral. 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 a way to make our federal payment systems work well, pick and choose what we pay. we will be in a place which is uncharted territory. anyone who thinks it works smoothly has -- >> the question is whether the treasury is prepared to try to minimize disruption. >> obviously we have looked at many options. there's been reports indicating things have been looked at over the years. nobody has ever had to put any of these into effect. a. are not tested. >> the gentleman's time has expired. the sector is a patient but i also note there are four senators left who have not asked question. of what might ask mr. secretary if they could stay the questions and seven seconds each, you don't have to respond -- >> i am happy to do that. >> the next senator, just a question because we don't have time with the senator casey. >> thank you very much for your testimony. my question relates to the

associates could and medicare investment benefit. it's going to read -- i'm going to read two lines from a constituent talking about her parents. she said at 85 and 83 they should not have this uncertainty, uncertainty about 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 the default when it comes to social security and medicare. >> senator, i told the secretary who would have to answer questions because there are so many senators. i appreciate -- >> i'm happy to follow up. >> next, sender seven no. >> thank you, mr. chairman and mr. secretary. i would just like to acts that would put in the record the complete letter from the national association of manufacturer and i would read one sentence. a default would put upward pressure on interest rates raising both short and long-term cost of capital and discouraging

business investment and job creation in america. >> thank you, senator. senator nelson. >> ten seconds. >> or thereabouts. >> i'm concerned that you've indicated that we might agree to a short-term extension on the debt ceiling. and i think that would be counterproductive, we would be 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. >> thank you, senator. senator cardin. >> secretary lew, thank you for being here, and thank you for giving us -- it's our responsibility to pass an extension to the debt limit.

it's congress' responsibility. uncertainty from 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 do you have to pick and choose? it seems to me that any analogy we use to a company or a business that cannot pay its bills, there's a limit as to discretion as how you can make those judgments. i'd be interested in the legal authority to have on prioritization. >> thank you, senator. the other senators are not your obviously to ask questions. you have been very generous with your time. we deeply appreciate it. thank you very much. >> thank you, mr. chairman. >> this hearing is adjourned. >> house speaker john boehner said today republicans would vote to extend the governments ability to borrow money for six weeks but only if the president obama first agrees to fresh negotiations on spending cuts. under the republican when the

government shutdown would continue. white house spokesman jay carney said president obama would likely sign a clean bill increasing the debt kept the keys of the president wants republicans to reopen the government but he did not rule out president obama agreeing to the debt ceiling proposal if the government remained closed. democratic senators on meeting right now at the white house talk about the government shutdown. because of that the senate is in recess subject to the call of the chair. before leaving senators passed a measure providing funds for military survivor benefits. it goes to present obama for his signature. live coverage when senators return here on c-span2. the houston the early part of the afternoon on a bill providing funds for borders to providing funds for borders to to to get lawmakers to pass than a dozen such bills in the senate has approved two of them. officials representing banks, investors and the real estate market told senators that the threat of a default is already been but following through would

be detrimental cuts to the u.s. economy and credibility. they testified before the senate banking committee. here's a look at while we wait for the senate to return. >> good morning. i call this hearing to order. the committee has many important issues to consider. plenty of challenges our constituents want us to solve together in a bipartisan basis. however, we find ourselves on day 10 of a government led shutdown that is costing taxpayers money. in addition, the shutdown drags down our economic recovery with each passing day. this unnecessary shutdown does nothing to address our long-term fiscal challenges and inserting not promoting job creation in the short term.

if that were not bad enough, we have only one week left before we reach our nation's debt limit. if congress does not act soon, the united states will fail to pay its bill in full and on time by choice for the first time in history. i do not favor -- a deadbeat nation which would be the consequence if we did not raise the debt ceiling. while we must address our long-term fiscal issues, a default on the debt will not reduce -- [inaudible]. after the fact would require the families that would be felt for generations. it is important to remember that the mere threat of a default can have significant costs. during the last major debate on the debt limit in 2011, the

uncertainty in raising the debt ceiling cost taxpayers about $1.3 billion for the fiscal year, according to cbo. over a 10 year window, the taxpayer cost could be as high as $18.9 billion. so today, before it is too late, we will hear from our witnesses from the kind of impacts we should expect if the united states defaults. we will hear from -- what this could mean not only for the financial system, but also for american families and policy to pay their bills, small businesses ability to create jobs, and current as well as future retirees ability to protect their life savings. it is time to stop playing this

foolish game of chicken, and it is time for congress to focus on addressing the real problems our constituents sent us to washington to solve. to do that we must first raised the debt limit. with that i recognize ranking member carbo for his opening statement. >> thank you, mr. chairman, and thank you to our witnesses for every day to present your thoughts on this important topic. while there has been a lot of recent attention on what happens with the debt limit is not increase, there's been less attention on our larger, wider, real debt crisis. the statutory debt limit is currently $16.7 trillion. since 2009 the debt limit has been increased by $5.4 trillion. cbo projects that debt subject to the debt limit the reach

$25 trillion within 10 years. the statutory debt limit is a symptom of our fiscal problems, and must be addressed. since we've already focus on the impact of failing to lift the debt ceiling i would like to focus on the debt itself. according to the recent treasury figures the gross debt has increased $6.1 trillion since 2009. deficits are projected to be the norm as our aging population and rising health care costs pushed spending i. unless we make significant reforms to entitlement programs, they will crowd out all other government spending from infrastructure to defense. failure to improve these programs also threatens them with insolvency. which will happen within a generation if we don't act now. in recent years we've made important progress in some areas of fiscal policy. policy. for example, we've begun to actually make federal agencies go through the budgets to

identify and eliminate waste. and to identify fraud and abuse, and set priorities and learn to do more with less. but in mid-and long-term projections from cbo show that our debt crisis is only going to get worse if we did not set to do the deal with the fiscal policies that we have thus far, far failed to address. namely, and government reform and pro-growth tax reform. the committee for a responsible federal budget recently noted that most of the deficit reduction agreements made since 1980 have been accompanied by a debt ceiling increase. i joined fellow members of the finance committee recently in sent a letter to secretary lew, suggesting that we again use the debt limit as an opportunity to bring lasting reforms and debt reduction to our nation. as a member of the most sense and fiscal commission and again

in six i know there's been a lot of work done on this issue, and that both sides can find common ground. tax reform is an equally important component in getting the debt under control. the current tax vote, code is inefficient and burdensome. we need to dramatically simplify our tax code, reducing rates for all taxpayers so that we can create economic growth. i'm interested in the thoughts of our panel on how the current tax code affects investment. the debt ceiling debate creates an opening for real progress in these areas. now is the time to work together on solutions that reduce our deficits and the our economy forward. it's time to make these hard decisions. thank you, mr. chairman. >> thank you, senator crapo. are there any other memos he would like to give brief opening statements? >> mr. president speak with senator reid. i think this is a very important

hearing. we are on the verge of doing something that i think is not only unwise policy, but lies in the face of the constitution, 14 commitment says the bloody of the public debt of the united states authorized by law, including payment of pensions and bounties for services, and suppressing rebellion shall not be questioned. we are certainly questioning that as we get in this crisis. so this is not a trivial matter. our predecessors recognized the importance of paying the debt on time every time. it's right in our constitution and we are on the verge of breaching that sacred commitment that we have all taken. and i think everyone is in favor of long-term wise policies, et cetera, but we are talking about within a few days reaching and defaulting on the debt. i couldn't agree more with the

comments, using the debt thing as leverage is unwise and dangerous. citizens nationwide officer with the political stalemate in washington but our nation's financial should not be used as a boxing she. i uploaded agree and thank you for that statement, governor. what we potentially could do is stave off a financial chain reaction that would go from market to market to market with unknown and perhaps catastrophic consequences. and anyone who was here in 2007, eight and nine and saw with the collapse of lehman and the bankruptcy, which if one assumes the treasury could be self-contained, could be worked out, was a minor blip on the scene, understands the potential consequences in multiple markets. overnight, treasury markets,

mutual fund markets, et cetera. already we are seeing credit default swaps increased, european banks are pouring their jumped 150 million pounds from about 1.6 million pounds in recent months. a huge spike. rates are going up on short-term treasury bills. i just saw today that the hong kong stock exchange is basically downgraded already treasury as collateral, at least the short-term treasury as collateral. so you can see the ripple effect as this goes out. we have to raise the debt ceiling to avoid default and we have to do it promptly. thank you. >> anybody else? senator menendez. >> thank you, mr. chairman. mr. chairman, first of all i appreciate your leadership in having this extraordinarily timely hearing.

and i think the question of default is a question of both at what happens at home and abroad for us as americans. and i hope my colleagues across the aisle and particularly in the house of representatives would agree that defaulting on the nation's debt would cause tremendous harm to american families, businesses, and to the global economy. and it would, in my view, dramatically weakened america's standing in the world, not just in its respected stature leading ways that have consequential economic significance to us here at home. and i would also hopefully egregious outcomes no one wants to see. i would say to our friends, particularly in the house of representatives who are threatening default, let's stop lurching from one manufactured crisis to another manufactured crisis, and stop threatening to default on the nation's obligations. and i understand they have

policy priorities, although i'm never quite sure which one it is that we are talking about, first it was about ending obamacare which was passed by the congress, signed by the president, affirmed by the supreme court which is the final voice of what is a lot of and reaffirmed by the american people by the reelection of president obama. now i hear about debt. and in that respect, i know that this debt ceiling was raised by president reagan 18 times, and by president bush nine times and president bush the second seven times. evidently during those periods of time there were 34 times in which the debt ceiling was raised. so i know there are other policy parties people want to achieve. i want to achieve comprehensive immigration reform. that doesn't mean i am willing to shut down the government if the house of representatives doesn't do what i wanted it

doesn't make sense as a way of doing business. you know, we ask countries around the world to actually pursue fiscal structural reforms because we think it's in our interest at the end of the day. and then we ultimately look out the costs of the default and i say to myself, how do we have standing in the world to be able to pursue those policies that promote economic opportunity here at home? i think the harm from default would take not just a short term to recover from what i think it would could take a decade to recover from. i think it would see an immediate drop in economic growth. increasing -- money become strictly out of that taxpayers pocket. mortgage interest would rise, home values could very well plummet at a time in which we're finally getting recovery in the

housing market. student loans and credit cards would become more expensive. companies around because you would see the cost of borrowing spike seriously harming their ability to invest a great jobs. millions would see their savings for retirement or a home for their children's college education decimated and the u.s. dollar is the final point i will make and i think about this in my other role as the chairman of the senate foreign relations committee, the u.s. dollar is the world most important reserve currency. u.s. treasuries are a safe haven where investors know they can put their money in times of crisis and uncertainty. the value, this value to the world strengthens our economy and lowers interest rates for american consumers, businesses and government at every level. why is that something we're willing to risk? i can't understand and i hope that a better sense as well, shortly to congress. thank you, mr. chairman. >> anyone? senator toomey. >> thank you, mr. chairman. i want to make a brief point in

response to my colleague from rhode island and new jersey. i couldn't agree more with the sentiment about the importance of the fact that the united states, the u.s. dollar is the worlds reserve currency, the importance of biggest treasury, securities. sadly cannot be overstated as an investment vehicle, as a benchmark for credit markets around the world, as a source of safe and secure investment. i hope as we have this discussion we can be honest and candid about what we are talking about. as we all know if we don't raise the debt ceiling, sometime soon, then at some point we are going to have disruptive consequences. because tax revenue is an 85% of all the money we are planning to spin. not 100%. that means the other 15% has got to be borrowed. if it's not then you have to make sudden and very, very unfortunate decisions about which things get cut. that's very disruptive, is not

where we want to go. so i hope the president will agree to actually address the underlying problems that got us here so that we can avoid this. having said that, there's absolutely no circumstances under which we should ever tolerate choosing willfully to make sure that a missed payment would include a missed payment on the treasury security. precisely because of uniquely important role that treasury securities play. and so i was disappointed that the treasury secretary at a recent hearing refused to acknowledge the obvious, obvious to me, maybe i shouldn't consider it so obvious, that he would not use to default on the u.s. attorney security precise because of the unique role that these instruments play. but i hope we would agree that that would be the most disruptive of the very unfortunate and disruptive options that would be available. ..

>> yes. thank you, mr. chairman. it was a suggestion that we not do opening statements. that really just went over my head, mr. chairman. i didn't notice pity i have a few comments and i will talk more than two or three minutes. five years ago we were dealing with a financial crisis. we could be on the brink of

another one. this one self-inflicted as the governor mentioned in his comments that senator reed mentioned. in 2008 banks funding dried up in the overnight repo market because of worries about their collateral and credit worthiness. 2010 we didn't enact reforms that perhaps we should have. the repo market regulators are working on it but they are still vulnerable. i sent letters yesterday to the try party clearing banks of new york melon and jpmorgan that were in the middle of the short term funding problems for bear stearns, lehman brothers and aig. i asked what effect it would have on the repo market and 85% were backed by u.s. treasury or u.s. agency securities. we are already seeing issues in the market. wall street journal reported the cost of using short-term treasurys as collateral has already increased. the world's largest money manager as we all know reportedly sold off its treasury holdings maturity in of late october. treasury secretary lew testified

in front of senator mendez and senator toomey and others that yielded short-term treasurys and tuesday's auction nearly tripled the week before. we also saw in that hearing where some are setting up a construct where government, treasury and the president has to choose between paying off the bondholders and paying off chinese investors and wall street investors, choosing between that and medicare and veterans' benefits funding every day government in this country. a choice that no one should -- absolutely no one should at looked upon our government. it's never been done before. this week i spent a lot of time calling community bankers and business people and hospital administrators and people running major insurance in my state, mostly republicans or i don't know their affiliation most of them are incredulous that we would even be thinking of this prioritization if we

reach the debt limit that we would privatize even thinking about making these truces between paying wall street and paying main street, if you will. they can't believe we are in a position that some are saying we should raise the debt limit and of what the crisis but i think governor keating's comments say exactly that, it would be unwise and dangerous to this. we have no business -- we have no business moving or country in this direction. mr. chairman, thank you. >> are there any other -- i would like -- senator warner. >> less than a minute. i just have to say that this motion of prioritization -- we are in unchartered territory. we don't know what would happen. why would we take that risk?

and again, respectfully, any risk of prioritization that his social security, medicare, the military it may or may not work. but the thing that i find stunning, and i hope when we get to the questions i alaska governor keating this -- the former governor and governors here novelists include the pass-throughs that help fund state budgets, local budgets, hospitals. so you could potentially have a circumstance or perhaps america doesn't default. but every state and every locality either there is an immediate budget crisis or they would have to default. and again it is unprecedented. thank you, mr. chairman. >> i would like to now introduce the witnesses that are here with us today. mr. frank keating is eight ceo of the american bankers association. previously served as the governor of oklahoma.

mr. bentsen is the president of the securities industry and financial market association. he previously served as a congressman for the 21st district of texas. mr. gary thomas is the president of the national association. he's been in the real-estate business for more than 45 years. and finally, mr. paul schott stevens is the president and ceo of the investment company institute. previously he served as special assistant for the national security affairs to president ronald reagan. mr. keating, you may proceed. >> chairman johnson and ranking member of crapo, i am frank keating, ceo of the american bankers association. as noted i previously served two terms as the governor of oklahoma and recently was a

member of the bipartisan policy centers debt reduction task force. i appreciate the opportunity to be here to discuss the need to raise the debt ceiling and the consequences of failing to do so. let me be very clear. we need to meet our obligations and not create any uncertainty that we will do so on time every time. in this country, our word is our bond. the respect and admiration of the united states and its institutions inspired around the world are based on the certainty that when the nation makes a promise, we keeping. ordinary americans will bear the brunt of the damage of our leaders do not prevent the united states from defaulting on its debt for the first, the very first time in its history. we are much closer to disaster this year than we were two years ago when the debt ceiling standoff caused economic uncertainty despite consumer confidence to plummet and stock

prices to spiral downward. all because of the perceived risk of the united states defaulting on its domestic and international debt obligations. the 2011 standoff cost the taxpayers close to $20 million. as nervous investors demanded a high interest on the u.s. treasury bonds to account for the rest of a government default. if our nation default on nearly $17 trillion of debt the harm is likely to be measured in hundreds of billions of dollars. even the slightest uptick in the treasury interest rates would cascade throughout the economy. it would raise the cost for the tax payers to service the country's debt and would raise the borrowing cost for business meaning job losses and price increases. the default would be a blow to the retirement fund, leaving fewer resources available for the retirees. for the banks that hold $3 trillion in treasury agency

and mortgage-backed securities, the sharp decline in value in the securities would translate into fewer resources available for mortgages, business, although, credit card and student loans. if the congress fails to act and we hit the debt ceiling, we will set off a chain of events that will win back all americans. the consequences will not be easily read first and the repercussions could linger for years providing a constant drag on the economy. the default also put the united states in the category of reckless debt nations that have broken their word in the markets, which include argentina, venezuela and cameroon. desalts let those countries financial pariahs and debilitated their economy. the answer to managing our debt is not to simply stop making the payments on money already spent. we should never inject uncertainty into markets that we as a country will not keep our word and pay the debts that we go.

we must pay our bills on time and in full. then we must carefully managed our future spending and bring down our debt to a sustainable level. no one takes the national debt more seriously than i do. as a republican governor working with my entire year eight years in the senate balance the state budget eight years running and work with colleagues from both sides of the aisle to ensure that our state staff expand its economy. later i joined a the bipartisan policy center debt reduction task force which endorsed in a bipartisan way the painful but necessary measures to put the country's fiscal house in order. i urge members of the committee and the full senate and the house to engage in a bipartisan way to find long-term solutions to the growing debt levels. the confidence is lost in the country's willingness to pay its bills on time we will have lost something that may be impossible to free game, the world's trust. thank you. i would be happy to answer any

questions that you might have. >> thank you. mr. bentsen, you may proceed. >> chairman johnson, a ranking member crapo, members of the committee my name is kenneth bentsen in the industry. thank you for the opportunity to testify on the debt. given the important role which bet plays in the currency of historic value any such default would negatively impact the economy and disrupt the operations of the financial market. indeed the market has already signalled increasing re resulting in a dramatic price in effect on the short end of the treasury market and repurchase agreements for the repose. investors are voting with their wallets and their feet. while we believe the time is overdue for the administration and congress to come together to develop solutions to the very real fiscal challenges, voluntarily the fulton on the nation's debt obligation shouldn't be an option for policy makers to consider. should congress fail to raise the limit the treasury is unable to meet the interest payments coming due it would trigger a

series of events that would negatively lead to the taxpayers paying more to finance the debt to be even a short-term failure to fulfil the obligation would seriously impair market operations that could have significance of consequence to the recovery. the default first arose in the summer of 2011. to engage with members in developing summary as to better understand the consequences of failure to pay on treasury securities. based on the work we did in fact believe market participants are operationally prepared to deal with the scenarios that the treasury may present. however as you know redefault by the u.s. government would be an unprecedented as the consequences of market for the market and the economy would be dangerously unpredictable, some amount of planning to identify and mitigate all the potential short and long term consequences of the default. while we assume any missed payments will eventually be made, the impact of the missed payments on the broad market for treasury securities the impact the price of the treasury securities which could impact the value of the collateral held up the clearing houses. fritter it's entirely possible for the purpose of any escrow, collateral or the marginal rates

involving such securities the default of securities could be deemed unallowable and subject to replace that resulting in the dream of liquidity. since filing the written testimony just yesterday market participants have continued to meet and review enhancements that might and could mitigate operational risks that have been identified particularly in the repo market to get it's important to avoid the descriptions in the market and market participants continue to review ways to improve overall resiliency. treasuries are the world's safest asset and the most widely used collateral in the risk mitigation and financing. stringing the financial architect press the treasury's with increased raising costs, reducing the financing capability of the collateral markets because of the marginal costs throughout the financial system that would reflect the overall pricing to the uprising. given the uncertainties surrounding the failure to pay market participants to the look of the book to provide key market participants and service providers in the form to share information of the latest development in the treasury, the administration and congress, the status of the infrastructure

provided. a particular concern to market at this point with an early indication for treasury securities will be extended and whether the process these are being more can be delayed. it's important for the markets to know as early as possible of the treasury intends to extend the payment date of any principle. the treasury securities are traded at a global market with the trading day beginning in asia at 8 p.m. eastern standard time. market principles run their own internal processing springer to the opening to provide a clear cut off to reflect the decisions on the records. failure to provide early indications of the intention could further obfuscate positions and cause trading confusions in the markets. the description to pricing and trading behavior is impossible to predict. u.s. debt obligations are the currency of the global financial markets and the real economy. and the soundness shouldn't be questioned. no amount of planning can anticipate the potential consequences. short and long term consequences can be anticipated that the fervor limits on the the devotee

to transfer and sell and finance that a lateral to the collateral but only serve to undermine investor confidence and hurt the fragile economic recovery. the firm's call on congress and the administration to work together to put our house in order but unnecessarily triggering the volunteer redefault would result in a dramatic and possibly permanent damage to the economy and markets in ways with anticipated and unanticipated and it must be avoided. again i appreciate the opportunity to testify and i look forward to answering questions. >> thank you. mr. thomas, you may proceed. >> chairman johnson, ranking member crapo and members of the committee on behalf of the 1 million members of the national association of realtors, whose members practice in all areas of residential and commercial real-estate come thank you for the opportunity to share our concerns about the potential economic consequences of not raising the statutory limit on our nation's debt before the limit is reached. i am gary thomas, president of the national association of realtors. i have more than 35 years of experience in the real-estate

business and by the broker and owner of evergreen realty in california. it is no secret that real estate is a cornerstone of our nation's economy. representing roughly 18% of our nation's gross domestic product. as the housing market has recovered from the great recession, it has substantially contributed to our nation's economic growth, especially since 2011. home sales, housing prices and residential construction are all on the upswing. for example, home sales were at 13.2% higher in august of 2013 than a year earlier, with 5.48 million homes sold. home prices have increased 15%, pushing up the value of the household real-estate to 18.6 trillion at the end of the second quarter of this year. these key housing indicators have been supported by the low mortgage rates and improved consumer confidence. with that being said, the housing market hasn't fully recovered. maintaining momentum in the housing market is particularly crucial right now.

the housing recovery could stall if the debt limit is not addressed redefault or even the perceived threat of default could undermine a distinct economic advantage that has taken centuries to build to be undermining our financial stability and raising the costs today and for generations of americans to come. it is impossible to predict the exact economic impact in the event of the nation unable to pay its creditors. however, the significant economic disruptions that resulted from the 2011 debt ceiling in pass provide a useful guide. financial market disruption, reduced consumer and business confidence and slower job growth all happened when the debt limit was not increased until the very last minute. in the event of redefault, a series of eve ensler occur causing a domino effect resulting in higher mortgage rates and increasing the cost of buying a home. historical the increase in the mortgage rates are one percentage point reduces the home sales by roughly 350,000 to

450,000. this would wipe out any increase in the home sales predicted in 2014. a decline in home sales will also have a broad impact on the national economy. roughly 700,000 to 900,000 fewer jobs would be created as a result of a one percentage point increase in the mortgage rates. as a selling broker, i want to bring this down to a personal level to highlight the impact on my client's. for the border were earning $60,000 a year and taking out a $200,000 mortgage that 1 percent increase would raise the monthly principal and interest payment by nearly 10% to read any decrease in the consumers' disposable income has brought economic ripple effect. ha year mortgage rates and lower consumer confidence are both likely to follow in the event of a default. again if we look at the debt ceiling debate of 2011, the consumer confidence plummeted 22% following the impasse.

thankfully our economy has been unable to balance that from the 2011 debt ceiling debate. but the impasse prolonged downturn. the result of the real-estate market did not begin to turnaround in earnest until 2012. as the housing market healed, mortgage rates have increased from historically unprecedented los. moreover, the increases in family income have squeezed the affordability of homes. affordability has plunged 18% to the lowest level since 2006. with consumer sentiment already facing head winds from the rising interest rates, the recent government shut down would likely be an additional blow to the consumer confidence and our economic recovery. the u.s. economic expansion will be even more susceptible to the adverse effects from the debt ceiling in pass. we have already experienced the negative economic consequences from even the prospect of redefault during the debt ceiling and pass of 2011. let's not repeat this mistake

again. more importantly, let's not allow the debt limit impasse to lead to the united states defaulted on its debt. thank you for the opportunity to share our thoughts and we look forward to working with congress and the administration on addressing the challenges still facing the nation's housing market and overall economy. >> thank you. mr. schott stevens you may proceed. >> chairman johnson, a ranking member crapo, members of the committee thank you for the opportunity to appear before you again. i'm pleased to have the opportunity to testify on behalf of the institute its member funds and the 90 million american investors the serve. today members of ici manager in excess of 15 trillion of total assets. funds and investors have a fairly significant stake in the stability and predictability of the market for u.s. treasury securities. the most recent data shows as of june 30th, registered funds hold more than $1.7 trillion in securities issued by the treasury and by the u.s.

government agencies. that accounts for more than 10% of the funding assets. now u.s. treasuries as the committee knows trade them in the liquid market in the world. treasury securities and the risk free rate of return. the key factor in pricing other assets including the corporate and municipal bonds, stocks and real estate. but today that notion of the risk free rate is in serious jeopardy. today, washington, the federal government is itself the single greatest source of risk to the global financial system. the immediate threat to the financial stability is of the looming stalemate over the debt ceiling. but we must not lose sight over the long-term hazards the nation faces if we fail to take decisive action to contain the growth of our national debt. after all, there are two things that individuals, households, businesses or nations must do to maintain a high level of credit worthiness. they must pay their bills on

time when they become due. and they must avoid taking on more debt than they can reasonably afford to service and repay. for our nation, ignoring even of these principles will be ruinous read a treasury default likely precipitates a southern to the cause of increases and a good degradation of a financial and economic standing. but the failure to bring the debt under control would be equal the destructive and on the current trends is even more likely. what makes the treasury market so deep and liquid is the certainty of investors that the u.s. treasury will pay its obligations. on time and in full when the interest on the principle becomes due. once the treasury mrs. or delays in payment, investors will learn a lesson that cannot be unlearned. treasury securities are no longer as good as cash. the risk of the payment will be priced into the interest rates that investors demand. we already can see early signs of these developing in the

market. as the october 17 deadline approaches. and should the treasury default, the effect would quickly spell the a lot of the treasury markets and into the broad economy. multiple shots cash shortfalls for the holders of the people and the treasury's, higher interest rates, diminished confidence and pressure on the dollar would be likely to undermine economic activity. the impact would persist well beyond any resolution of the debt ceiling and repair of the default. now let me stress that the default is by no means uniquely a problem for the mutual-fund or other registered investment cos. nothing about their structure makes them any more vulnerable than any other public investment vehicle. because the health of the treasury market underpins virtually all financial markets, the damage of a default or even of a second near miss in a little over two years time will be visited upon every american who saves, and vests, burroughs or has any stake in the economy.

now the focus on the debt ceiling is easy to lose sight of the other looming risk. the on sustainable long-term growth of our national debt. the tax and spending bargains reached so painfully in the last three years have slowed the debt for the short term. but the congressional budget office later projection showed that progress would be short-lived. by 2018 that held would be a share of gdp. by 2013 it under the current law and budgetary policies, federal debt held by the public would reach 108% of the gdp. now these scenarios in the long term debt trends don't promise a future for the economy or the nation. so i have to unequivocal message as today. first, no one should take lightly the prospect of the default on the united states debt obligations. the credit of the united states must not be put into question. second, those who dismiss or minimize the current budget

problems are also playing with fire. the risks they are taking may be less immediate but they are no less consequential and the longer the nation delays action, longer and more difficult they become. thank you mr. treen. i look forward to your questions. >> thank you for the testimony. we will begin asking the questions of our witnesses. will the clerk please put five minutes on the clock for each member. >> this question is for the full panel. no matter where you stand on fiscal issues or even on health care, should congress seriously entertain a be sold on a debt and what do you believe is the most troubling impact if the u.s. doesn't pay its bills on time? mr. keating, let's start with you. >> as is noted by my fellow panelists, if the united states defaults on its debt level that

orloff is calamitous. we have to think in the perspective what has occurred over the course of the last number of years. when george washington became president and the republic was established to the year 2000 when the debt was $5 trillion according to the bipartisan policy center on the real and diminishing panel between 2000 to 2000 mind the national debt a little bit less than doubled. now it's going to double again. so the figures are scolding and i am sure that the congressional panelists as well as simpson-bowles and rivlin domenici found the same thing, a trillion dollars a year to pay the interest on the debt by 2025 every set of federal tax revenue will go to social security,

medicare and interest on the debt. what is required as is noted as to get through the default period because a will dramatically raise interest rates and creating havoc on the community bank and environment most of the ability to borrow money and lend money and then sit down aggressively and in a bipartisan fashion to focus on this runaway train. the average person retired at 62 and died at 69 or 65 and 69. today the average person retires at 62 and dies at 80. we are living a lot longer which is causing huge stress is on the ability to provide for the elderly in the united states and will continue to deepen and dvorkin over the next course of the 20 years. >> i would say two things.

one come voluntarily d falcon on the debt is just something that doesn't make any logical sense. it will create huge operational problems in the marketplace will permeate across the market and the treasury's are using escrow that will affect municipal bond issues. it will have dramatic consequences in liquidity and could create certain liquidity crises if it were to go on for some period of time even with a potential work around to deal with the fault coupons. with respect to the long-term fiscal condition, to default voluntarily would make resolving the long-term fiscal imbalances that much more difficult so it seems to me that it doesn't make any sense to do so if you don't have to. >> mr. thomas?

>> from the realistic perspective i think that we would have a -- we would fall back into a deeper recession. there is no doubt in my mind that what happened. if we reach a debt ceiling in past, the fault on the debt could be very long lasting. interest rates would undoubtedly rise meaningless people could afford to buy or refinance homes. housing prices and would plummet again and he would have a catastrophe in the real-estate industry which would lead the economy that into a deep recession if not a depression so it also raises the rate that we would borrow and would make it more difficult for us to meet our debt into the future. so i don't see any possibility of it being a good outcome. >> mr. stevens. >> i think the key element is confidence. we are the biggest borrower in

the world. we have to engender confidence in those people lending us money. the treasury's history of repayment and smooth operating of the treasury market has created that high level of confidence that permits us to borrow at very low rates. i don't think it's in the interest of the american people to do anything to give the investors lost confidence in the united states and that would include either failing to repay or as i said in my testimony, amassing so much that it's not going to be supported. >> mr. stevens, doesn't congress have proposed payments to bondholders to be prioritized in this default is this a workable long-term solution? >> to go back to my previous answer to some degree it misses the point. if you are a household depending upon the bank to continue financing and the banque worms this month you're going to decide to pay these bills but not those bills it doesn't engender great confidence in the

bank to continue to lend you money and that is the key point. the money that you are lent if any is going to be much more expensive and it thinks the whole that you are in that much deeper. >> senator? >> i want to come back to what i talked about in my opening statement, which is the fact that while we debate the consequences and the circumstances surrounding the battle that we are having in the senate and in the house right now the real issue that we need to be focused on -- and i agree with all of the comments about the seriousness of the consequences that would occur if we do not pay our debt, right understand that. but it seems to me the threat of default that the united states is facing is the debt crisis.

we all know that one credit rating agency has already downgraded the united states, the good faith and credit of the united states. they didn't downgrade over a debt ceiling. the downgraded it because they lost confidence that we are willing to deal with our debt. that is the issue that i believe we need to focus on. cbo has recently stated that if we continue our current path, at some point investors would begin to doubt the government's willingness or ability to pay the u.s. debt obligations. i think at some point another credit rating agency is going to become convinced that we will not deal with our debt crisis. so the question that i have to the panel if the threat of default that each of you talked about, the fault on the u.s. treasury obligations, is that greater because of the fight we

are having in washington right now over whether the debt ceiling will be extended or is it not far greater role for the fact we cannot get into the negotiations to resolve our entitlement spending and to reform our tax code? >> i know you mentioned this in your comment so let me mention this. >> center, as i said in my statement, i think that credit worthiness depends upon two things. it depends upon paying their bills on time and it also depends upon not racking up so much debt then you can't support it. and so it is a combination of two things. i don't think that you can have one without the other if you really want to maintain a good credit rating. >> mr. thomas? >> i was agreed. i think that he would have to attack both. but you have to do it in a deliberate manner that doesn't upset the international marketplace to get so, i think we would have to deal with the debt ceiling first and then go on to the really the looming

question, the elephant in the middle of the room and that is the entire debt. >> the two are certainly linked to the it seems to me just as you what if you were going to say corporate restructuring if you were going to go through a fiscal restructuring of the united states to repair the fiscal imbalances over the long run, you are still going to need to access the credit market and the capitol market to do that to me and said, you wouldn't want to do anything that impairs your ability to access the credit markets, but to get on a glide path wherever they want to take the fiscal policy. so, why why do think that they are linked. but if you do have one step in front of the other is i think you ought to be careful not to make the longer term job any more difficult by not addressing the short-term issue. >> mr. keating? >> i agree with mr. bentsen. there are two issues that are

interlinked. let's say for me as a community banker if you can to me and said i would like to borrow some money but i'm not sure that i can pay it back i assure you the interest rate would be considered high year. if you said i won't pay it back or i haven't paid back my other loans i wouldn't make that at all. that is a reality that faces families and that this is the united states. but a big part of our debt and the reason we cannot pay all bills and the reason we won't pay our bill is a violent. so they are linked together. and as i said mercifully of families are living longer but that is a cue checked real challenge that we have not prepared for. >> thank you. i'm not going to ask another question. but i will conclude with a comment. that is why i understand the linkage. there is an aspect. we just had a hearing about an hour and a half ago with the

secretary jack lew of the treasury. i asked him whether he thought that the threat we face wasn't in the long-term debt crisis. and that that was a greater threat to the credit worthiness. and his answer to me he said you know, we have been making process on our long-term debt crisis over the last couple of years. he admitted that we haven't touched entitlement for tax reforms but he said you know, we have in the last couple of years started to make some progress, i will point out that progress can in 2011 when we were fighting over the debt ceiling increase. and we adopted the budget control act that put into effect the ability to deal at least with the discretionary spending. although we can argue over whether that was done well or could have done better the fact is the debt ceiling increase was accompanied by fiscal reforms and that is what we are trying

to achieve here today. >> senator reid? >> if we default even technically come in your view i believe is that will make our ability to do almost everything including dealing with the long-term entitlement problem as much as possible to be the >> yes, senator. first of all i am already seeing a comment in the opening statement we have already seen the risk premium in the market today. so the short end of the treasury reprisal sing debate -- processing is already happening. if we miss a coupon, we would assume that the pricing of that would be exacerbated on that. the other thing that we think what happened and again, we -- our members are working to sort of work this out because no one

has ever been through that. the documents are not structured for this and the systems have never been set up. no one has ever felt that he would patricia is the same way that he would on the municipal debt offerings. and while there are efforts being made to see if we get noticed that a coupon payment will be missed and extended another day how do you keep the treasury security with the coupon payment transferable or pluggable as collateral it's not entirely clear. we think that if it is done quickly and before the market is open that it's possible but if you still have that coupon that is pulled out of the market so there is some liquid the associated and it isn't clear when that would be paid or whether it would be paid just through the state or whether the interest would accrue said you have a potential lost revenue. then it isn't clear if those securities are no longer considered eligible collateral what chain affect might occur not just with the of devotee

from the repo transaction, of whether or not they are in a municipal, whether they are pledged as collateral or swaps or any other type of transaction , whether the counterparties but ask or replace it or have to be restructured. so it has a fraction that can run across many parts of the market that would have a negative effect. >> in effect what you are describing is a potential financial meltdown. perhaps worse than in 2008 with the collapse of lehman brothers that collapsed the mass of support by the federal government to restore the confidence and stabilize the government. and frankly, i don't know if that combination of factors in the political forces would be able to support such an effort. but you raise an excellent point

which is every one might have very good intentions. it would be such that you could paralyze the market liquidity and you would have something that would make 2008 quite a walk in the park. i think that your comments were about the impact of this. they could have more steps of complications that could exacerbate those long-term trends even more dramatically as the interest rates go up and the responses and uncertainty. >> we will come back to this hearing in a few minutes. senate democrats are speaking live at the white house now after meeting with president obama to disconnect iowa

introduced the president by telling my caucus how proud i was of them and how proud i was of the president for the strength we've shown and the unity that we've shown. after having completed a one hour and 45 minutes with him today, i feel the same way. we are here. the government should be open. now we should be able to pay our debt and as we said and will continue to say, if that happens, we will negotiate on anything, anything. and the president confirmed that today. >> [inaudible] >> the house has a unique form of legislating hour by hour. i don't know what has happened in the two hours that they have been gone but this morning when it floated to the press and otherwise three different proposals. there were a couple more since

then. let's wait and see what the house does. when they send us something we will look at it as closely as we can. under the same determination that we have made. there is so much pain and suffering out there. it is really tear jerking to see. but we want the government opened. we want to be able to pay our bills this is a situation where they do not know what they want. i hope that the that republicans decide what they want. we will be happy to work with them in any way. i repeat right here. open the government, let us pay our bills. we will negotiate with you about anything. >> [inaudible] >> pardon me? >> would you accept a short-term deal? >> we are going to look at anything they send us. in the last -- coming out of this meeting we have received

e-mails. they've changed, the last we got caught on how much time they want on the debt limit forming. let's just wait and see because there are some rumors. we will wait and see because they cannot decide what they want. one more question. >> up until now there has been very clear you have a very clear position which is you need a clean cr and they will open the government for negotiation [inaudible] they want to negotiate before you reopen. >> are we any closer to this offer? >> [inaudible] >> we heard from senator reid of the senate democrats met with the president for about one hour

and 45 minutes. house republicans are due at the white house at about 4:30 eastern, about 45, 50 minutes from now. speaker bonner announcing today republicans plan to offer a temporary six week increase on the debt ceiling in exchange for negotiations on longer term fiscal issues like entitlement programs to aid the nation's borrowing limit will be reached one week from today. we are going back to that hearing on the debt ceiling before the senate banking committee today. >> what we are talking about and what we are not talking about. for instance, senator reid started his comment saying if we default next week, so i certainly want to get out there. by default am i correct we mean montana or a late payment on u.s. government securities; is the right? >> does anybody disagree? that is what redefault means. in light of all of your

testimony about the impact of that, would you all agree that if the debt limit were not extended immediately, and i understand you think it should be -- if it were not, those payments should be top priority. does anyone disagree with what? >> i would respond this way. i don't and a sense of disagree with what you are saying. but the premise is there are other payments that are not going to be named. i just refer to what i said. the effect of the confidence in the treasury market will be significant even if we are paying off those treasury securities. even if we do not have a late payment of principal. even if we keep our interest rates payments current. if we are choosing and thinking what other obligations the country has, that will be felt in the market even though you could say well those securities are technically not in default. >> i am not trying to trivialize the summary of.

but i am trying to be more precise because there has been a lot of loose language that actually is causing more premature disruption than is necessary. >> with anybody not prioritize those payments? >> senator, what we have been told by the treasury department is that they don't have the operational care debate to prioritize. i think they make something like i want to see 4 million payment today. there is a question as to whether or not they can prioritize on that. but the other point i would need is it's not clear what revenues are coming in the. and everybody tries to estimate the treasury tries to estimate the observers try to estimate but you have about 129 billion bills coming due and you have about 93 billion coming due. the following week you have the principal interest payment on the bond coming due and every week thereafter.

so, the point that i would make is perhaps they could figure out how to do it operationally. i don't know the system. that is just what they tell us. but there is a lot coming due. some can be rolled and some can't be because it would breach the debt limit and yet so it does create quite -- >> to respond, treasury has to systems. one is for payments on security obligations. one is for everything else providing your comment is possibly accurate about a second system for everything else. but there is a separate system for payment on security obligations. i don't think there is any question that they can pay those first if they want to. i'm just suggesting that in a bad scenario that should be a priority and can be a priority operationally. and if it were, those what he

paid to a i don't think there is any question about the revenue coming in and covering it. martin feldstein has said, "there is no need for the people on the debt. even if the debt ceiling is not raised later this month." the u.s. government collects enough on taxes to finance the interest on the debt." now again i'm not trying to trivialize the scenario, but i do think is important to talk a little precisely about what we are talking about and what we are not talking about putting it and i don't think it's accurate to talk about if we default next week. i don't think there is any chance of defaulting next week. does anyone disagree with about defaulting on payments on government securities? >> senator, i agree with you. however, let me tell you what is happening at the street level. the confidence of our buyers and

sellers is leaning very rapidly. we of the transaction transactions canceling right now. we can't get beyond where we are at. it's going to go backwards. very, very fast. guess you could probably mechanically do all of this. but confidence of the american people is going to be really in the toilet. i'm sorry. >> in this episode in 2011 over the debt limit it was very destructive. as senator crapo pointed out, that episode to the spending and that cuts in the recent past. to consider that positive outweighed by that episode? >> if nothing else would have

happened after that, then yes i would agree with you. if we didn't have to come out to it and we still had the same outcome by negotiating separately and got to the same point, then we wouldn't have had a falloff in confidence out that time. >> if i can guarantee somebody that was here and participating that that would not have happened, but for the deadline of the debt limit no way, know how it would have happened. so i just want to underscore the comment. there was not in my view was a distinct positive coming out of that which is the only progress that we have made on spending and debt in all of the recent past. >> senator mendez. >> what we ask the first question of the panel.

understanding your collective concerns and our collective concerns on the questions of debt is there any member of the panel that advocates as a way of reducing debt defaulting on the nation's full faith and credit? second, when we talk about the concept of prey are toys and i think americans should understand that that suggestion means that we would make sure that we would pay china, japan, the caribbean banking centers, brazil, but we would not need it to paying americans who rely on social security and medicare. as well as the concept that for anyone who is a banker or anyone who works in the concept that i make a loan or an investment some will be paid and some will not so i was working at this time to be paid in the future i

may not be fortunate to be paid. and the consequences that flow from that are inevitable. and in that respect, and then finally to suggest, that the way to reduce debt was the budget control act that i voted against because i did not see the willingness to include the revenue as well as spending cuts. and i believe that most must be achieved. but to have the across-the-board cuts that the chairman of the joint chiefs of staff says if it continues it will threaten the devotee of the defense department to meet the challenges will leah on multiple fronts that means it threatens the national security of the united states. where my colleagues go back into their home state and rail against the consequences of sequester even as they vote for

it here it's a real. >> you mentioned in your testimony, and i think this is an important point to realize. if you could give us a sense again of, you know, just the potential for the default notte the default itself, but the potential for the default actually costs taxpayers money. bye waiting until the last minute to act and threatening to default does it cause investors and u.s. treasurys to demand higher interest rates? i'm going to look at greater risk and demand higher interest rates to offset the risk. am i right in reading your testimony that as a vehicle to what happened in 2011 as the

threat of default that it costs us 1.3 billion in the fiscal year 2011. >> of the bipartisan policy center estimate was a 20 billion-dollar figure as the result of coming to the edge of the cliff and stepping back. now if you stepped over the cliff, the impact would have them then and will be obviously far more uncertain. but most likely far more catastrophic. >> so 20 million just for moving up to the deadline and not crossing over but 20 million to a i don't understand how it is fiscally responsible for those the firm driven fiscally to ultimately suggest that having the nation cost $20 billion not -- and waiting until the last minute to meet this obligation

is fiscally responsible. i also want to ask mr. bentsen i understand a large share of the financial markets is the treasury said it raised as a benchmark for evaluation and pricing war as a collateral on a wide variety of transactions. how would the people affect the market functionality in these basic areas? >> senator, there are two things you raised. treasury, securities or a reference to the security spigot is, the mortgages, credit cards, auto loans, pricing on the swaps. it's used in both the consumer and the institutional wholesale market. so if you have a short-term treasury that is the price of those instruments and that will pass through to the end users of those instruments. the second point would be the

repose and the like are you stand not just the financing markets but in the financial institutions with one or another, but for instance municipal issuers when the issue offering will often use the repos as a short-term basis to invest their money before they put that money to work with it is a hospital or wherever. so again it is used across the financial system quite a bit. and they would be affected by the price and the rest and over the long term the counterparty. >> thank you. >> senator to read >> mr. chairman thomas e3. to the ranking member also to the panel thank you for taking the time to be here today. i think that this is critical of the hearing that we could have at this date and time. i was listening to an economist on tv this morning and he talked about a lack of humility, honesty and stability. but he wasn't talking about congress. but he should have been or he

could have been. i look and what is going on here in washington, d.c., and i think we do need a humble honest conversation about why we are here and having a conversation today. we are here because we haven't passed a budget in washington, d.c. in five years. that is why we are having this conversation. we haven't passed an appropriations well, not a single appropriations bill in five years. ..

>> that's why we're here because we think 1.1 trillion is okay. after 17 trillion. by the way, it doesn't end there. we're another i don't know, 30-$52 in unfunded liability. that's why we are here. that's why we are having this conversation. we can't control ourselves. we can't control that. i think that's a very honest conversation that this committee and this congress needs to have. we go back to nevada. nevada is hurting. i don't know that i have to tell you this. we are highest in unemployment. everybody has heard me say this, highest in bankruptcy, highest inf