a unique form of legislating. it is our by our. i do not know what is happening in the two hours we have been gone. tos morning there floated the press three different proposals. i assume there is 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 clearly and under the samean determination we have made. open the government. there is so much pain and suffering here. tearjerking to say the least. we want the government open. we want to be able to pay our bills. situation where they do not know what they want. i hope the republicans decide what they want and we will be happy to work with them in any way. i repeat the fourth time right here. open government. let us pay our bills.

we will negotiate with you about anything. >> would you accept a short-term deal? >> we are going to look at anything they send us. meeting,ng out of this they have changed on how much time they want on the debt limit. let's just wait and see. we will just wait and see. they cannot decide what they want. >> up until now, there has been a very clear position which is, we need a clean cr. we need to open the government before we engage in negotiations. to negotiateant before you reopen the government. >> not going to happen. >> are we closer to a solution now with this?

bysenator harry reid joined his fellow senate democrats chuck schumer of new york, dick durbin of illinois, patty murray of washington state speaking to reporters following their meeting with the president. tomorrow, the president has his final session with members of congress. senate republicans will be at the white house. we are rejoined by carrie budoff brown who is following all of this as senior white house reporter for "political pico --"politico." walk us through what you think will happen. >> it is pretty hard to predict at this point given that we don't know what the house republican conference will come onk with on their offer reopening the government. we have to wait to see that. i think at the very least, we are going to see some continued negotiations in the senate between republicans and democrats, possibly the vote on

a longer-term debt limit increase. if the offer to reopen the government by house republicans does not fly with the white house, you could see them moving forward with a dividend increase. -- debt limit increase. just to get that off their plate. i think really the next 24 hours are crucial in terms of where this all heads, if there is some breakthrough -- even the next 12 hours. i would say maybe my midday -- by midday tomorrow we will have a sense of that. it is unclear which way it is going to break at this point. people on all sides do feel pretty positive. >> after all the discussion back and forth, the loss of life of five soldiers over the weekend. the family members received

$100,000 in emergency death benefits to cover expenses. today, after the senate passed the bill, the president signed this into law. a lot of blame the -- blame game back and forth on that issue. >> that was a tough one for the president and really all sides of congress. having to of knowledge that they screwed that one up pretty badly. for now, i think if we look back over the last week at some sort of key moments or even the last two weeks, when you saw things moving toward some kind of finish. i would say the realization of that falling through the cracks humanized the impact of the shutdown. congress and the white house didn't have any choice but to fix that as quickly as they could. >> nbc news out with a new poll tonight. by a 2-1 margin, republicans get much more blame for the shutdown then democrats.

drive thisn any way tomorrow and into the weekend? >> i think it really does. probably been the clearest indication of where the public is at this point. the poll is very well respected. it is done by a republican pollster who is very well respected. that really seems to be having -- is driving the train here quite a bit. republicans, particularly senators, senate republicans who think they have a shot at retaking the senate next year are looking at that poll and seeing their chances maybe slip away. we are seeing a ton of movement and the senate on this. that is a chamber to watch. you have the house really dominating the conversation today. senate republicans, they have a clear shot at taking the majority. the results in this poll tonight have to be frightening for them.

>> carrie budoff brown is following all of this for "politico." thanks very much for joining us tonight. >> my pleasure, take care. >> we want to open our phone lines to hear from you as we move into the 11th day of the shutdown. you can also join us on facebook or send us.com/cspan a tweet. #cspanchat.is >> good evening. i don't really understand why there are so many people who do not want there to be health care for everybody. when you take into consideration that we are the only industrialized developed country in the world that does not have universal health care and that we spend more than twice as much -- capita for health care they are taking care of everybody in their country and

we are not taking care of thousands of people. we have a lot of people died because of that. truthfully, i never thought i would say in my lifetime that anybody would even try to do that. i don't understand why people don't consider -- if the republicans would just -- they kept saying they were going to have their own health care plan. if they would just show people because they don't have all the same system, and decide what would be best for us, they could make a good impression by bringing down the cost. it could be brought down erie it we just have to be smart about it. >> thanks for the call. the devil will come back in tomorrow morning at 9:00 eastern time. live coverage of the senate on our companion network c-span2 and from our facebook page, we share with you a couple of continents. linda says, i am elderly and not affected by this. stop the scare tactics.

>> richard says >> michael is joining us from winston salem, north carolina. good evening. >> i know i called from the democratic line but more than that i am for what makes sense. one of the comments i wanted to make, just to put this out there , i am a vietnam veteran. if this is a true government shutdown, if you shut down everything connected to the -- that would include .choolteachers, drivers

how long would that last? highways are also state and government regulated. we need to come to an agreement trying to actop like teenagers about this. >> michael, thanks for the call. pat on the phone, corpus christi, texas. republican line, good evening. >> hello. >> go ahead. say that obama didn't want to listen to republicans when he brought up -- the speakerct of the house shut the republicans out so they couldn't say anything about it.

tv thatearlier on the obamacare is 50% of what people make. that is a lot more -- i am on disability and i have a thyroid problem. if i don't get my check november 1, i won't get my thyroid medicine. i am going to be in deadly circumstances. my neighbor across the street comer she turned 65. we called her up and said, congratulations, you're not disabled. you were on social security. she said, good, so i can go find a job? but she is crippled and she is 70 years old. who is going to hire her? who is going to hire me with all my illnesses? where am i going to get the money to pay for my medications? >> thanks for the call from

texas. erin is joining us from lafayette, indiana. good evening. >> hello. .y name is erin -- aaron i want to say that this is a total sham. i want to put an important forefather of hours when he said, let's not trade one tyrant a thousand miles away for a thousand tyrants one mile away. this is a complete disgrace to our country and our constitution. it is a spit in the face of us citizens that our government would be held hostage over something that cannot be sit down and negotiated with. they are arguing over a jungle gym on a playground. they are a bunch of little kids that can't get their minds right and learn how to run our government that has been so strong for almost 250 years. i went to see this problem resolved and get it fixed. there is no need to go back and forth and play this little kiddy game on the playground. that is all i have to say. >> thanks for the call. let me share with you a

statement from rendon bach. -- brendan buck. "this evening in the roosevelt room, the leaders laid out the house proposal to temporarily extend the deadline it, formally appoint budget negotiators and begin a discussion over how to reopen the government. no final decisions were made, however, it was a useful and productive conversation. the president and leaders agreed that communication should continue throughout the night. house republicans remain committed to good faith negotiations with the president and we are pleased that there was an opportunity to sit down and begin a constructive dialogue tonight." that is from the press secretary to the speaker of the house, john boehner. there is also a statement from jay carney. first, let's hear from kimberly from detroit. democrats line, good evening. >> hi, how are you? thank you for sharing your time with me.

the american public expects a lot better from what is being displayed. these people have been elected by the public. people went out and voted for these people that are simply displaying characteristics of teenagers in high school on the playground at lunchtime, at recess. of whatst unethical they are saying to each other, the habits they are showing. it is embarrassing to us as a country. just imagine what other countries are looking at us, saying. imagine what terrorists are looking at us, saying. if we were going to be attacked, this would be a good time. it is completely embarrassing to

us as a nation that this is even going on. thear as the debt ceiling, $7 trillion that president george bush signed before he left out -- office, that could have taking care of our generation and five generations under us if that hadn't been done and the insurance companies gave those bonuses to those people -- come on. >> camilli, are used you still with us? >> yes. >> you're calling from detroit. i want to get your reaction from the other story getting attention today. your former mayor sentenced to 28 years in prison. your reaction? what, when you stick your hand in the cookie jar and get caught, then things happen. you get what happens. he stuck his hand in the cookie jar and he got caught and this

is what happens. i feel bad for him. when you break the law, then this is what happens. "ias he told the judge, really really really messed up. -- messed up." , they have capitals stuck their hand in the cookie jar, they just haven't gotten caught. unfortunately, he was the one that got caught. he is the one they are making an example out of. they have drug him through the mud. there is a lot of things that happened. he was attacked by the media. there is a lot of stuff that went on with him that wasn't quite right but i won't go into that. however, he did do some things that caused him to go to jail. >> thanks for calling. the other story, 28

years in jail, former mayor of detroit. the québec to calls. -- let's go back to calls. both sides resumed talks today including a 90 minute session between the president and congressional republicans. richard is calling on the republican line from kentucky. your senator will be at the white house tomorrow. mitch mcconnell. what is your take on all of this? >> thank you very much. i am a marine corps veteran. i was in the marine corps for 13.5 years. motto,a marine corps death before dishonor. obviously our government doesn't share our motto. another year and then five years, how long is the debt if we don't solve the

problem now, eventually it will go over the top and we will be worse off than we are now. >> richard, thanks for the call. it was $10.6 trillion when barack obama was sworn in. we are now approaching $17 trillion. for every u.s. taxpayer, that averages out according to usdebtclock.org -- in statement from jay carney the roosevelt room, 20 members of congress, republican leaders, speaker boehner, republican leader cantor and commerce and paul ryan and representatives. secretary carney said this, "the president had a good meeting with members of the house republican leadership.

the meeting lasted approximately an hour and a half. the president along with the vice >> audrey is joining us from new mexico. democrats line, good evening. >> hello. >> if you could turn the volume down, that would eliminate the echo. go ahead with your comments. >> i put it on mute. you are speaking to an 81-year- old senior that lives in new mexico. for the past few days, i have been listening to c-span and i have heard everything from the government shutdown to how things are being handled with

the administration and general questions. it has taken me three days to get through to you folks. i am an 81-year-old senior and i am tired of the government messing with my medicare and my social security. i totally live on social security. i look forward to when we get a tiny little bit of increase. i don't see where the representatives give up their increases that they get in their wages. i don't see them giving up their vacation time especially in the republican party. where john boehner dictates how things should be done. all day, i listen to the various democrats telling about their constituents. it is just deplorable. they said they want to vote and apparently, john boehner is the one that holds the reins and is forbidding them from voting.

i don't understand this. i thought we lived in a democratic country. obviously, it just seems to be run by the select few. i would certainly like some answers. i put a phone call into john boehner's office. and although -- i don't know if i will get a return call. i don't understand how one or two people can dictate how things should be done. the three days that all of this negotiating has been going on, it just sounds like a bunch of backfighting and bickering and forth. if i don't get my way, you won't get your way. are they basically caring about anything that happens with the american people? we send money by the billions over to third world countries, what about the people here in our own country that desperately need help? my second has been retired after 20 years with the air force. my son retired in 2000 from the air force. they have all given and

sacrificed for their country. i am grateful for my little apartment. i don't ask for much. all i want is what is due me. am i going to have to sweat out if i get my social security every month? if i don't get my social security, i want be able to pay my rent. does that mean i will be out in the street? does boehner care? do any of the republicans care what happens to the american people? i just had to state my case and i don't know what is going to happen. the usually say, if you don't like how things are running, just voice your opinion. when you voice your opinion, you get shutdown. >> not here on c-span. we are glad to hear from you. you said you were 81? >> 81. i have tried for three days to get through to you people.

>> thank you for being so patient. we are glad to hear from you. let me ask you one question before i let you go. how would you fix the system? >> first of all, i would take a vacuum and suck out all the representatives and clean house and start putting people off the street. household the way the government runs, i would have lost my mortgage. i would have lost everything. i was raised in a family where we had to tighten our belts. soundse government, it like the select few, we will do this, we will do that. i don't know how long is john boehner going to be in office? >> audrey, thank you. thank you for being so diligent in trying to get through. don't be a strand or. phone and again. >> you're not answering me.

>> he runs every two years. >> witnesses term up? term up?s his >> you mean as house speaker? >> know, john boehner, when is his term up? >> it is up every two years. his term as speaker is based on whether he has a republican caucus. >> i am a little confused. when is his two-year term up? >> next year. >> ok. i do think c-span for taking my call. >> audrey, thank you. we will go to matt next. thanks for waiting. >> hello. i am worried about our dollar in general. seems like it is real, real week and it is like a house of cards. i am curious, why is china buying up so much gold at this moment?

>> a lot of attention on the market today which is up in excess of 300 points. nasdaq and s&p also up. still no agreement the twin white house and congressional republicans. doris is next joining from georgia. >> good evening. how you doing? >> fine, thank you. >> when they are talking about the affordable care -- i think -- theshould know insurance that i have, i can keep that insurance. they are not understanding what everyone is telling them. you still have to have medicare or medicaid. if i don't kill my papers out in time to let them know -- fill my papers out in time to let them

know, i wouldn't find. fined.d get why do you think the united states -- supposed to be the richest country in the world -- now, someone is taking it over and using it the way they want to. >> thanks for the call. billy is next from arkansas. to getgovernment needs this solved. they will be out on the street. >> we will stop you there. please, no profanity. this is from one of our viewers. we do need to get the budget passed.

minutes with your phone calls. larry from st. paul, minnesota on the democrats line. >> hello, this is larry. what i am not seeing out of the politicians is the gang of six -- the negotiations to were , there was aack discussion which got precious little attention in the press. it still has merit today. >> those hearings still getting a lot of attention. they have been archived as with all of our programming on our website. you can check out any time at [indiscernible] -- c-span.org. the statement by senator reid earlier today outside the white house and the briefing with secretary carney, all of the events related to this shutdown are available on our website at www.c-span.org.

john is joining us. john, you get the last word. good evening. i will try one more time. >> hello, i'm sorry. 29 years as a republican, self- employed. , i have to years renegotiate my contracts. that said, i get a check out of the blue for like $1000 for the affordable health care act. i am like well, what is this? my new insurance is half of what it was. half. confused about the whole thing. i am a diehard republican my entire life. here i am, hearing all of this news and publicity about how much more it is.

i am half. how is that possible? >> john, thanks for the call. steve has this point on our twitter page. speaker dinner leaves the government shut down another day. >> he makes this point. physical response ability? sponsibility? tomorrow, representative leonard lance from new jersey. house democrat george miller of california, the ranking member of the education and workforce committee. here is the very latest. the white house and the republicans failed to reach a deal but they agree to keep talking. the story by russell berman begins by saying the president and house republicans did fail to reach a deal to end the government shut down and raise

the debt ceiling at the white house. both sides describe it as constructive and said the talks would continue throughout the night. speaker boehner brought an offer that he presented to republicans earlier in the day that would lift the debt ceiling for six weeks but keep the government shut down while parties negotiated. we know that congressman pete sessions and the president talked about that. the president saying, he wants to see the government reopened. we have more on this tomorrow morning. you can check out all of our information online at www.c- span.org. update, the senate banking committee heard testimony today from a number of key players involved in finance including former oklahoma governor, former texas congressman and representatives of financial institutions and realtors. here is the entire hearing from capitol hill as the senate banking committee looked at what would happen if the u.s. actually defaults on its loans and congress fails to reach an

agreement on raising the debt limit. our coverage continues here on c-span. >> i call this hearing to order. the committee has many important issues to consider and plenty of challenges to solve together on a bipartisan basis. we find ourselves in day 10 of the government shutdown. it drags down our economic recovery with each passing day.

the unnecessary shutdown has left us to address the long-term physical challenges and is certainly not promoting job creation. if it were not better now, we have only one week left before we reach the nation's debt limit. if congress does not act soon, we will fail to pay our bills in the fall for the first time in history. i do not favor making the u.s. into a deadbeat nation which would be the consequence. there is little to nothing that congress could do after the fact to repair the damage that would be felt for generations.

it is important to remember the real threat of a default can have significant costs. during the last major debate in 2011, the uncertainty in raising the debt ceiling cost taxpayers about $1.3 billion for that fiscal year according to t.e.o. over a 10 year window, the cost could be as high as $18.9 billion. before it is too late, we will hear from our witnesses about the kind of impact we should expect if the united states defaults. we will hear what this could mean not only for the financial system but also for american families to pay their bills and

the ability to create jobs and for retirees to protect their life savings. it is time to stop playing this game of chicken with recovery and it is time for congress to focus on the real problems that people sent us to washington to solve. we must first raise the debt limit. i recognize the ranking member for his opening statement. >> thank you for appearing today to present your thoughts on this important topic. there has been a lot of recent attention on what happens if the debt limit is not increased, but less attention on the larger and wider debt crisis. the statutory debt limit is $16.7 trillion.

since 2009, the debt limit has been increased by $5.4 trillion. the cbo projects it will reach 25 trillion dollars in 10 years. the statutory debt limit is a symptom of our fiscal problems and must be addressed. since we have focused on the impact of failing to lift the debt ceiling, i would like to focus on the debt itself. the gross debt has increased $6.1 trillion since 2009. deficits are projected to be the norm as the aging population pushes spending higher. unless we make significant reforms to entitlement programs, they will crowd out government spending from infrastructure to defense. failure to improve these

programs threatens them with insolvency which will happen within a generation if we don't act now. in recent years, we have made important progress. we have begun to actually make federal agencies go through their budgets to identify and eliminate waste. and to identify fraud and abuse to set priorities and learn to do more with less. but the mid and long-term projections show that the debt crisis is only going to get worse if we don't substantively deal with the fiscal policies that we have thus far failed to a dress. namely entitlement 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 in

sending a letter to secretary lew suggesting that we use the debt limit as an opportunity to bring lasting reforms and debt reduction to our nation. as a member of the commission and the gang of six, both sides can find common ground. tax reform is an equally important component. we need to dramatically simplify our tax code, reducing rates for taxpayers so we can create economic growth. i am interested in the thoughts 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 deficits and move our economy forward. it is time to make these hard decisions.

>> are there any other members that would like to give brief opening statements? senator reid? >> i think this is a very important hearing. we are on the verge of doing something that is not only unwise policy but flies in the face of the constitution. the 14th amendment says the u.s., authorized by law, debts incurred and payment for bounties and services shall not be questioned. we are certainly questioning that. this is not a trivial matter. our forefathers and predecessors recognized the value of paying debts on time. 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 and wise policies. but we are talking about within a few days reaching and defaulting on debt. i could not agree more with his comments. thank you for being here. using the debt ceiling as leverage is unwise and dangerous. citizens are frustrated with the political stalemate and it should not be used as a bargaining chip. i absolutely agree and thank you for that statement, governor. what we can do is set off a financial chain reaction that will go from market to market with unknown and perhaps catastrophic consequences. anyone who was here in 2007, 2008, and 2009, and saw the collapse that everyone saw, it

could be self-contained with a minor blip on the scene and understands the potential consequences in multiple markets. already, we are seeing credit default swaps increase. european banks said that they jumped to 150 million pounds from 1.6 million pounds. i just saw today that the hong kong stock exchange is basically downgraded treasuries as collateral. so you can see the ripple effect as this goes out. we have to raise the debt ceiling to avoid default. >> anybody else?

>> first of all, i appreciate your leadership and having this extraordinarily timely hearing. i think the question of default is a question of both what happens at home and abroad for us. i hope my colleagues across the aisle and in particular the house of representatives agree that defaulting would cause tremendous harm to american families, businesses, and the global economy. and it would dramatically weaken america's standing in the world. not just in respect and stature, but ways that have consequential economic significance at home. i hope that they agree these are outcomes that no one wants to see. i would say to our friends threatening default, let's stop

lurching from one manufactured crisis to another manufactured crisis and stop threatening to default on the nation's obligations. i understand that there are policy priorities, though i am never quite sure what it is we are talking about. first was ending obamacare that was passed by congress, signed by the president and affirmed by the supreme court. there were two clear choices in the election of the president. then it was the medical device tax and now i hear about debt. it was raised by president reagan 18 times, president bush nine times and president bush the second seven times. there were 34 times in which the debt ceiling was raised.

i want to achieve comprehensive reform but that does not mean i will shut down the government until i get what i want. it doesn't make sense as a way of doing business. we ask countries around the world to actively pursue fiscal and structural reforms because we think it is in our interest. we ultimately look at the cost of a default. how do we pursue those policies that promote economic opportunity at home? i think the harm of default will take a decade to recover from. it is an immediate drop in economic growth, the money that

comes directly out of the taxpayers pockets. home values can very well plummet at a time in which they get recovery in the housing market. student loans and credit cards will become more expensive. going into retirement, they will get their college education decimated. i think about this, the u.s. dollar is the world's 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. and this value to the world strengthens our economy and lowers interest rates for american consumers at every level. why is that something that we are willing to risk? i cannot understand it, and i

hope that better sense will come shortly to the congress. thank you. >> thank you, mr. chairman. i want to make a point in response my colleague from rhode island and new jersey. i could not agree more with that sentiment about the importance of the fact that the united states -- the u.s. dollar is the world's reserve currency, and the importance of the u.s. currency cannot be overstated as a benchmark for credit markets around the world, as a source of safe investment. i hope as we have this discussion we can be candid about what we are talking about here. as we all know, if we do not raise the debt ceiling sometime soon, then at some point we will have disruptive consequences, because tax revenue is only 85% of all the money we are planning

to spend, not 100%, and that means the other 15% has got to be borrowed, and if not, then you have to make sudden decisions about what gets cut. that is disruptive, not where we want to go, and i hope the president will agree to actually address the underlying problems that got us here so we can avoid it. having said that, there is no circumstance under which we should ever tolerate choosing, willfully, to make sure that a missed payment would include a missed payment on the treasury security, because of the uniquely important role the treasury securities play. i was disappointed that treasury secretary lew, in a recent hearing, refused to acknowledge the obvious, because it is obvious to me -- maybe i should not consider it so obvious -- that he would not choose to

default on a u.s. treasury security, precisely because of the unique role that these instruments play. i hope we would agree that that would be the most disruptive of the very unfortunate and disruptive options that would be available. that is the context in which we are having this discussion. i thoroughly agree with the comments of the ranking member that at some point it is just irresponsible to not deal with the underlying problem that gets right to the need for all of this debt, and, frankly, it is not clear to me why this administration should be the first administration in modern history to simply refuse to have a discussion about how we got here at a moment like this. thank you. >> i would like to remind my colleagues that the record will be open for the next seven days for additional statements and other materials. >> thank you, mr. chairman. my guess is what you just said is a suggestion we not to opening statements, but that

really just went over my head. i did not notice. thank you. i have a few comments, and i will not talk more than two or three minutes. five years ago we were dealing with the financial crisis. we could be on the brink of another one, one self-inflicted, as the governor mentioned in his comments, and as senator reid mentioned. 2008, the repo market was dried up overnight. 2010, we did not enact reforms. perhaps we should have. regulators are working on it, but they are still alterable. i sent a letter to two banks yesterday that we are in the middle of a short term funding problem. i asked them what effect default would have on the tri-party repo market where the government is backed by u.s. treasuries? we are seeing issues in the financial markets.

the cost of using short-term treasuries as collateral has increased. we reportedly sold off treasury holdings in maturity in late october. secretary lew testified in front of senators and others that yields in short-term treasuries nearly tripled from the week before. we saw in that hearing where some are setting up a construct where government, the treasury, the president has to choose between paying off bondholders, paying off chinese investors and wall street investors, choosing between that and medicare and veterans benefits, funding everyday government in this country, a choice that no one should absolutely inflict upon a government. it has never been done before. this week i spent a lot of time calling community bankers and business people and hospital administrators, people running

major research institutions in our state, mostly, i assume republicans, and most of them are incredulous we would even be thinking about this prioritization if we reach the debt limit, that we would prioritize, even think about making these choices between paying wall street and paying main street, if you will. they cannot believe some are saying we should not raise the debt limit and took the crisis on themselves. i think the governor's comments say that. it would be unwise and dangerous to do this. we have no business moving our country into this direction. thank you. >> are there any other -- i would like to -- senator warner? >> less than a minute.

i just have to say this -- we are in uncharted territory. you do not know what would happen. why would we take that risk, and respectfully, any list of prioritization which has social security or military or the medicare may or may not work, but the thing that i find stunning is -- and when i get the questions i will ask the governor this -- the other governors here -- none of this prioritization list includes the past dues that help fund state, local budgets, hospitals, so you could have a circumstance where america does not default, but every state and every locality, either in an immediate budget crisis, and they will have do to default, which is unprecedented. thank you, mr. chairman. >> i would like to now introduce our witnesses who are here with us today.

frank keating is the president and ceo of the american bankers association. previously he served as governor of oklahoma. mr. ken benson is the president of the securities industry and financial markets association. he previously served as a congressman for the 25th district of texas. mr. thomas is the president of the national association of realtors. he has been in the real estate business for more than 35 years. mr. paul stevens is the president and ceo of the investment company institute. previously he served as special assistant for the national security affairs to president reagan. mr. keating, you may proceed. >> chairman johnson and ranking member crapo, i am frank

keating. i previously served two terms as governor of oklahoma, and recently was a member of the bipartisan policy center's debt reduction task force. i appreciate the opportunity to discuss the need to raise the debt ceiling and the consequences of failing to do so. let me be clear, we need to meet our obligations and not create any uncertainty that we will do so on time, every time. in this country, our word is our bond. the respect and admiration of the united states and its institutions inspire around the world are based on the certainty that when our nation makes a promise we keep it. ordinary americans will bear the brunt of the damage if our leaders do not prevent the united states from defaulting on its debt for the first and very first time in its history.

we're are much closer to disaster this year than we were two years ago when the debt ceiling standoff caused economic uncertainty to spike, consumer confidence plummet, and stock prices to spiral downward, all because of the perceived risk of united states defaulting on its domestic and international debt obligations. in 2011, that standoff cost taxpayers close to $20 billion as investors demanded higher interest on u.s. treasury bonds to account for the risk of a government default. if our nation defaults on its nearly $17 trillion in debt, the harm is likely to be measured in hundreds of billions of dollars. even the slightest uptick in treasury interest rates would cascade throughout the economy. it would raise the cost for taxpayers to service our country's debt and would raise borrowing costs for business, meaning job losses and price increases.

default would he a blow to retirement funds, leaving fewer resources available for our retirees. for banks, which hold $3 trillion in treasury agency and mortgage-backed securities, the sharp decline in value of those securities would translate into the fewer resources available for borrowers -- auto, credit card, and student loans. if congress fails to act and we hit the debt ceiling, we will set off a chain of events that will impact all americans. the consequences will not be easily reversed, and the repercussions could lead on for -- linger for years. default would put the united states in the category of reckless or nations who have broken their word in the market, which include argentina, venezuela, and cameroon. default left those countries financial pariahs.

the answer is not to make our payments on money already spent. we should never inject uncertainty into the markets, that we as a country will not keep our word to pay the debts that we owe. we must pay our bills on time and in full. then we must manage our future spending and bring down our debt. no one takes our national debt more seriously than i do. as a republican governor, working with a democratic senate and house, i balanced the budget eight years running and worked with colleagues from both sides to ensure that our state honored its debts and expanded its economy. later, i joined a task force that endorsed painful measures to put the country's house in order. i urge members of the committee and the full senate and house to engage in a way to find long- term solutions to our growing debt levels.

if confidence is lost in our country's willingness to pay its bills, we will have lost something that may be impossible to regain, the world's trust. thank you, and i will be happy to answer questions. >> thank you. mr. benson, you may proceed. >> chairman johnson, members of the committee, i am the president of financial markets association. thank you for asking me to testify today. given the role that debt plays as a world court see, any currency, any default would negatively impact the economy and disrupt the operations of markets. the market has signaled concern regarding the debt limit, resulting in a dramatic pricing effect on the short end of the treasury market. investors are voting with wallets and feet.

while we believe the time is long overdue for the administration and congress to develop long-term solutions to our challenges, voluntarily defaulting on the nation's obligations should not be an option. should congress failed to raise the limit, it would trigger a series of events which would lead to the american taxpayers paying more to finance the debt. even a short-term failure would impair market obligations with consequences. the threat of default rose in 2011. we believe market participants are prepared to deal with scenarios that a failure would present. a default by the government would be unprecedented and the consequences for market and economy would be dangerously unpredictable. no amount of planning can mitigate all the potential consequences. while we assume any missed payments will be made, the

impact of a missed payment on the broader market of securities may impact the price of treasury securities which could impact clearinghouses. it is entirely possible that defaulted securities would be deemed not eligible. since filing testimony yesterday, participants have continued to review enhancements that could mitigate operational risk that has been identified. it is important it avoid distractions in the market and participants review ways to improve resiliency. treasuries are the world's safest assets. shrinkage in the market would further pressure rates, raising costs, disrupting collateral markets because of the margin that would reflect the overall pricing of collateral. given the uncertainty,

economists have developed a playbook that will give providers a forum to share information about the developments, including the administration and congress and the status of the providers. of particular concern is an indication for treasury debt securities will be extended and whether processes are being or can be delayed. it is important for the market to know as early as possible the treasury intends to extends payments. securities are traded in the market, with the day beginning in asia at 8:00 p.m. eastern time. participants normally run their processes earlier to provide a clear cut off to protect their positions. failure to provide early indication could obfuscate positions and could cause confusion in the asian markets. the disruption to pricing behavior is impossible to predict. u.s. debt obligations is the currency for the world market,

and short- and long-term consequences to the taxpayer can be anticipated, but the limits on the ability to transfer, sell, and post collateral would only serve to undermine investor confidence and hurt our recovery. i look forward to your questions. of the one million members of the national , theyation of realtors

queue for the opportunity to share our concerns about the essential economic consequences the debt limit yet. it is no secret real estate is the cornerstone of our nations economy. as the housing market has sincentially contributed 2011. home sales, prices, and residential construction are all

on the upswing. for example, home sales were 13.2% higher in august 2013 than a year earlier. home prices have increased 15%. these key housing indicators have been supported by low mortgage rates and improved confidence. the housing market has not fully recovered. maintaining momentum in the market is particularly crucial right now. housing recovery could stall if the debt limit is not addressed. a default or even a perceived threat of a default could undermine a distinct economic advantage that has taken us centuries to build. undermining our stability and raising costs today and for generations of americans to come. it is impossible to predict the exact economic impact in the event of our nation is unable to pay its creditors. the significant economic disruptions that resulted from the 2011 debt ceiling impasse is 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 a default, a

series of events would occur causing a domino effect resulting in higher mortgage rates and increasing costs of buying a home. historically, an increase in the mortgage rates of one percentage point reduces home sales by roughly 350,000 to 450,000. this would wipe out any increase in home sales predicted in 2014. a decline in home sales would also have a broader impact on our national economy. roughly 700,000 to 900,000 fewer jobs would be created as a result in a 1% increase in mortgage rates. for a borrower earning $60,000 a year and taking out a $200,000 mortgage, that 1% increase would raise the monthly principal and interest payment by nearly 10%. any decrease in the consumer's disposable income has negative economic effects. higher mortgage rates and lower consumer confidence are both likely to follow in the event of a default.

if we look back to the debt ceiling debate of 2011, consumer confidence plummeted 22% following the impasse. our economy has been able to bounce back from the 2011 that ceiling debate. but the impasse prolonged the housing downturn. the result was the real estate market did not begin to turn around in earnest until 2012. as the housing market heals, mortgage rates have increased from historically unprecedented lows. meager increases in family income have squeezed the affordability of homes. affordability has gone to the lowest levels since 2006. with sentiment already facing headwinds from rising interest rates, the recent government shutdown will likely be an additional blow to consumer confidence. u.s. economic expansion will be even more susceptible to the adverse effects from a debt

ceiling impasse. we have already experienced a negative economic consequences from the prospect of a default during the debt ceiling impasse of 2011. let's not repeat this mistake again. more importantly, let's not allow a debt limit impasse lead to the united states defaulting on its debt. thank you for the opportunity to share our thoughts, and we look forward to working with congress and the administration on efforts to address the challenges still facing this nation hostile housing market and overall economy. >> thank you. mr. stevens, you may proceed. >> chairman johnson, members of the committee, thank you for the opportunity to appear. i am pleased to have the opportunity to testify. to date members of ici manage more than $15 trillion in assets. the most recent ici report show that registered funds held more than $1.7 trillion in securities

issued by the treasury and by u.s. government agencies. that accounts for more than 10% of fund assets. u.s. treasuries trade in the deepest most liquid market in the world. treasury securities have always been regarded providing the risk-free rate of return. a key factor in pricing other assets, including corporate and municipal bonds. today that notion of the risk- free rate is in serious jeopardy. today, washington, the federal government, is itself the single greatest source of risk to the global financial system. immediate threats to the financial stability is the looming stalemate over the federal debt ceiling. we must not lose sight of longer-term hazards our nation faces if we fail to take decisive action to contain the

growth of our national debt. after all, there are two things that individuals and households or nations -- must do to maintain a high level credit worthiness. they must pay their bills on time when they come due. and they must avoid taking on more debt than they can reasonably afford to service and repay. for our nation, ignoring either of these principles will be ruinous. a treasury default precipitates a sudden crisis and a degradation of the united states' financial standing. failure to bring our debt under control will be equally destructive, and with current trends is even more likely. what makes the treasury markets so deep and so liquid is the certainty of investors that the u.s. treasury will pay its obligations on time and in full when interest and principal come due. once treasury misses or delays a payment, investors will learn a lesson that cannot be unlearned. treasury securities are no longer as good as cash.

future risk of missed payments will be priced in. he already can see early signs of these concerns developing in the market, as the october 17 deadline approaches. should the treasury default, the effects would quick lease will be on the treasury markets and into the broader economy. multiple shocks, cash shortfalls for holders of the treasuries, higher interest rates, the missed -- 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 defaults. let me stress that default is by no means uniquely a problem for mutual funds or other investment companies. nothing about their structure

makes them any more vulnerable than any under investment vehicle. because the health of the treasury market underpins virtually all financial markets, the damage of a default or even of a second near miss in a little over two years' time will be visited on every american who saves, invests, or has any stake in the economy. with our focus on the debt ceiling, it is easy to lose sight of the other looming risk, the unsustainable long-term growth in our national debt. the tax-and-spending bargains reached so painfully in the last three years have slowed the growth of that for the short term. the office latest projection shows that that progress will be short-lived. by 2018, income will be rising as a share of gdp. by 2038, federal debt held by the public will reach 108% of gdp. these scenarios in our long-term trends do not promise a bright future. i have two messages today. first, no one should take lightly a default on united states debt obligations. the creditworthiness of the united states must not be put into question. second, those who dismiss or

minimize our current budget problems are also playing with fire. the risk they are taking may be less immediate, but they are no less consequential, and the longer the nation delays action, the larger and more difficult the necessary corrective measures become. thank you, mr. chairman, and i look forward to your questions. >> thank you all for your testimony. we will now begin asking questions of our witnesses. with the clerk please put five minutes of clock for each member. this question is for the full panel. no matter where you stand on fiscal issues, or even health care, should congress seriously entertain a default on our debt, and what do you believe is the most troubling long-term impact if the u.s. does not pay its

bills on time? mr. keating, let's start with you. >> as noted by my fellow panelists, if the united states defaults on its debts -- a little bit or a lot -- would be calamitous. we have to think in perspective what has occurred over the course of the last number of years. from 1789 when our republic was established until the year 2000, the debt was $5 trillion. according to the policy center, the rivlin-domenici panel, between 2000 and 2009, the national debt roughly doubled. now it will double again. the figures are scalding, and i am sure that the congressional

panel, as well as simpson- bowles, and i am sure rivlin- domenici found the same thing. in 2020, it will be $1 one dollar trillion a year just to pay the interest on the debt. by the year 2025, every set of federal tax revenue will go to social security, medicare, and interest on the debt. what is required as noted is to it through the default period because it will obviously raise interest rates and create real havoc in the community bank environment, most particularly, the ability to borrow and lend money, and then sit down aggressively and in a bipartisan fashion to focus on this runaway train. in 1950, the average person retired at 62 and died at 69. or 65 and 69. today, the average person retires at 62 and dies at 80. we are mercifully living a lot longer, which is causing huge

stresses in our ability to provide for the elderly in the united states, and it will continue to diminish and darken over the course of the next 20 years. >> mr. benson? >> i say two things. one is voluntarily defaulting on the debt is something that does not make any logical sense. it will create huge operational problems in the financial markets that would permeate across the markets. treasuries are used in escrow. it will affect municipal bond issues. it will have profound consequences in liquidity and could create crises if it were to go on, even with potential workarounds, to deal with defaulted t-bonds. the other thing i would say is with respect to the long-term fiscal condition, the default voluntarily would make resolving the long-term fiscal imbalance is just that much more difficult.

it would make the long-term fiscal imbalances that much more difficult. it seems to me it doesn't make any sense to do so if you don't have to. >> from the real estate perspective, i think that we would have, we would fall back into a deeper recession. there is no doubt in my mind that that would happen. if we reached a debt ceiling impasse, the default on u.s. debt could be very long-lasting. interest rates would undoubtedly rise, meaning less people could afford to buy or refinance homes. housing prices would plummet again. you could have a catastrophe in the real estate industry, which would lead the economy back into a deep recession if not a depression. it also raises the rate at which we would borrow and would make

it more difficult for us to meet our debts in the future. i don't see any possibility of it being a good outcome. it is going to be disastrous. >> mr. chairman, i think the key element is confidence. we are the biggest borrower in the world. we have to engender confidence in those people who are lending us money. the treasury's history of repayments and the smooth operating of the treasury market has created that high level of confidence that permits us to borrow at very low rates. i don't think it is in the interest of the american people to do anything to give our investors less confidence in the united states. that would include either failing to repay, or as i said in my testimony, so much debt that it will not be supportable. >> mr. stevens, some in congress have proposed payments to bondholders should be prioritized in the event of a default. is this a workable long-term solution? >> to go back to my previous answer, i think it, to some degree, misses the point. if you are household and depending on the bank for continuing financing, and the bank learns this month you will

decide to pay these bills but not those bills, doesn't engender greater confidence in the bank to continue to lend you money. that is the key point. the money that you are lent, if you are lent any, is going to be much more expensive. it makes the whole that you were in that much deeper. >> senator crapo? >> i want to come back to basically what i talked about in my opening statement, which is the fact that while we debate the consequences and circumstances surrounding the debt ceiling battle we are having in the senate and house right now, the real issue that we need to be focused on -- i agree with all the comments about the seriousness and consequences that would occur if we do not pay our debts, i

understand that -- it seems to me that the real threat of default that the united states is facing is the debt crisis that we are facing. 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 it over a debt ceiling. they downgraded it because they lost confidence that we are willing to deal with our debt. that is the issue that i believe we need to focus on. the cbo has recently stated that if we continue our current path, at some point, investors will begin to doubt the government's willingness or ability to pay u.s. debt obligations. i think some point soon, another credit rating agency will be convinced that we will not deal with our debt crisis. the question i have for the

panel is, is the threat of default that each of you have talked about -- default on our u.s. treasury obligations -- is that threat greater because of the fight we are having in washington right now over the whether the debt ceiling will be extended or is it not far greater over the fact that we cannot get into negotiations to resolve our entitlement spending and to reform our tax code? mr. stevens, i know you mentioned this in our cash in your comments. >> senator, as i said in my oral statement, i think credit worthiness depends upon two things. it depends upon paying your bills on time. it also depends on not racking up so much debt that you cannot support it. it is a combination of the two things. i don't think you can have one without the other if you really want to maintain a good credit rating. >> mr. thomas? >> i would agree. i think you have to attack both.

you have to do it in a deliberate manner that does not upset the international marketplace. i think we have to do with the debt ceiling first and then go on to the looming question, the elephant in the room, and that is the entire debt. >> mr. benson? >> the two are certainly linked, senator, but it seems to me, just as you would if you were going through corporate restructuring, if you are going to go through a fiscal restructuring of the united states to repair fiscal imbalances over the long run, you are still going to need to ask as credit markets to do so. you wouldn't want to do anything that impairs your ability to access the credit markets to get on a glide path. while i do think they are linked, no question, and they both need to be resolved, you do have one that is in front of the other.

we ought to be careful not to make a longer for job any difficult by not addressing the short-term issue. >> mr. keating? >> i agree with ken benson. there are really two issues. they are interlinked. in the case -- for me as a unity banker, if you came to me and said, i'd like to borrow some money, but i'm not sure i can pay back, i assure you that the interest rate would be considerably higher if i made the loan at all. if you said, i won't pay it back or i haven't paid back my other loans, i wouldn't make the loan at all. that is a reality that faces families, and that is a reality that faces the united states. a big part of our debt, the reason we can't pay our bills or won't pay our bills, is entitlements. they are linked together. as i said, mercifully, our families are living longer, but that is a huge actuarial challenge that we have not prepared for. >> thank you.

not going to ask another question, but i will conclude with a comment. i understand the linkage. there's another aspect of the linkage. we just had a hearing about an hour ago with secretary jack lew, the secretary of the treasury. in questioning him, i asked him whether or not the real threat we faced was in the long-term debt crisis and that that was a greater threat to our credit worthiness. in his answer to me, he said, we've been making some progress on our long-term debt crisis over the last couple of years. he admitted that we haven't touched entitlements, haven't touched tax reform, but he said, we have started to make some progress. i pointed out to him and i will point out to, that progress came in 2011 when we were fighting over the debt ceiling increase and we adopted the budget

control act, which put into effect our ability to deal at least with discretionary spending. although we can argue over whether that was done well or whether it could have been done better, the fact is that that debt ceiling increase was accompanied by some fiscal reforms. that is what we are trying to achieve here today. >> senator reed? >> thank you very much. mr. benson, if we default next week, even technically, your view, i believe, is that will make our ability to do almost everything, including deal with the long-term economic problems, much more difficult. is that fair? >> first of all, you made this comment in your opening statement. we are already seeing the risk premium being priced into the market today. the short end of the treasuries

are up 30 basis points. a dramatic shift. the haircuts of repose are going up. the pricing effect is already happening. if we miss a coupon, we would assume that that pricing effect would be exacerbated. the other thing that we think would happen -- again, our members are working to gain this out because no one has ever been through this, the documents are not structured for this, systems has never -- have never been set up for this. while there are efforts being made to see if we get notice from treasury that a coupon payment will be missed and extend it to another day, how do you keep the treasury security with the missed coupon payment transferable or pleasurable as collateral -- it is not entirely clear. we think if it is done quickly and before the asian markets open that it is possible, but you still have that coupon that is pulled out of the market. there is some liquidity associated with that. it is not clear when that would be paid. it it is not clear whether interest would accrue.

you have potential lost revenues there. then it's not clear whether if those securities are no longer considered eligible collateral, what change effect might occur, not just with the ability from a repo transaction, but whether or not they are in a municipal escrow, whether they are pledged as collateral for flops or any tort -- sort of transaction, whether counterparties would ask for replacement, or whether escrows would have to be changed. it has a friction that can run across many parts of the market. >> in effect, what you are describing is a potential financial meltdown, perhaps worse than in 2008 with the collapse of lehman brothers, which required massive sport by the federal government to restore confidence and stable as

the government. frankly, i don't know if that combination of factors would be able to support such an effort. you raised an excellent point, which is -- everyone might have very good intentions of trying to manage through this crisis, but software systems, documents, legal requirements, uncertainty would be such that you could really paralyze the market. liquidity could freeze. you would have something that would make 2008 look like a walk in the park. governor keating, again, i think your comments were about the impact of this. the proportionality. we are looking at a crisis that could trigger, ironically, worse deficit complications that could exacerbate the long-term trends

even more dramatically as interest rates go up. you have a particularly valuable point of view, representing bankers all across the country. the impact on main street. one of the issues with prioritization, we are not prioritizing between paying federal debt and trivial expenses of government. we are talking about social security payments, medicaid payments to states. states could basically start buying into their own competitions. if you were told by hhs that no medicaid payments were going in, what you do? are you on the hook for it? what do your hospitals do? do they declare bankruptcy because governments require that they receive a certain amount of income each month? in some cases, yes. then we go down to social security benefit payments.

are we telling social security recipients they are going to take a 5% haircut because we are going to pay our credit? as i read all of these constitutional advocates, as i read the fourth amendment, it doesn't make any distinction between types of debt. it's a public debt. all of this would be construed as public debt. can you tell us on the street with your impression would be? >> community banks and even large institutions that i work for are very alarmed. because of the uncertainty, because of the panic, because of the potential for long-term, destructive results. if i were secretary of the treasury, if you are secretary of the treasury, and we had somebody dollars, you would say, we technically in default if we don't pay social security? i don't know. i know we are technically in default if we don't pay all of

these bonds. we've got to pay the bonds. then we've got to continue to pay the bonds. the investments, the coupons on treasuries. then what? at some point, you're going to run out of money. at some point, because of the fear in the marketplace, there'll be less lending, less borrowing, less buying, less tax revenue. you are trying desperately to figure out who you pay first. i would try to figure out who i pay first. most of us would do that. that is a crazy way to run the greatest economy the world is ever seen. the history of the united states, it was after the revolution that we had a very hard time -- that is when robert morris, the financer of the revolution, made it very clear, we will not pay our bills plus we have access to credit. you better have gold and silver, or else nobody will do with you. that was a calamity about to happen. we never default it, even in those days when we didn't have anything. here we are, we are seriously

contemplating that as a sensible, intelligent reaction to a political stalemate? i hope not. as i used to say in oklahoma to my democrat friends, if the uss oklahoma goes down, we all go down together. if the uss united states goes down, we all go down together, democrats and republicans. >> senator ritter? >> thank you, mr. chairman. thanks to all of our panelists. i know all of you agree that the dent it should be extended because disruption would occur otherwise. i understand that. i do think it is important to be precise about what we are talking about and what were not talking about. for instance, senator reid started his comments saying, if we default next week. i want to pick it up there. by default, we mean nonpayment or late payments on u.s. government securities is that

right? does anybody disagree with that? that is what default means. in light of all of your testimony about the impact of that, would you all agree that if the debt limit were not extended immediately -- i understand that you think it should be -- if it were not, those payments should be top priority? does anyone disagree with that? >> senator, i would respond this way. i don't disagree with what you are saying, but the premise is that there are other payments that will not be made. i refer to what i said. the effect on confidence in the treasury markets will be significant, even if we are

paying off those treasury securities. even if we don't have a late payment of principal, even if we keep our interest rate payments current, if we are failing and choosing in picking what other obligations the country has, that will be felt in the market even though you could say, well, those securities are not in default. >> i'm not trying to trivialize this scenario, but i'm trying to be more precise. i think there has been a lot of loose language that actually is causing more premature disruption than necessary. would anyone not prioritize those payments? >> senator, what we have been told by the treasury department is that they don't have the operational capability to prioritize. i think they make something like 4 million payments a day. there is a question if they can prioritize on that trip the other thing is, it is not clear what revenues are coming in. treasury tries to estimate. observers try to estimate. on the 17th, you have about $129

billion in a t bills coming due. the next week, about $93 billion in t-bills. the following week, principal and interest payment on bonds. every week thereafter. the point i would make is, perhaps they could figure out how to do it operationally -- i don't know their systems, but that is what they tell us -- but there is a lot of debt coming due. some can be rolled, some can't be rolled. it does create quite a -- >> treasury has two systems. one is for payments on security obligations. one is for everything else. i think your paper -- your comment is accurate about the second system for everything else, but there is a separate system for payments on security

obligations. i don't think there is any question that they can pay those first if they want to. i'm just suggesting that in a bad scenario, that should be a priority. it can be a priority operationally. if it were, those would be paid. i don't think there is any question about revenue coming in to cover it. for instance, martin feldstein has said "there really is no need for a default on the debt, even if the debt ceiling is not raised later this month. the u.s. government collects enough in taxes each month to finance interest on the debt." again, i'm not trying to trivialize this scenario, but i do think it is important to talk precisely about we are -- about what we are talking about. i don't think it is accurate to talk about if we default next week. i don't think there's any need, any chance of defaulting next week. does anybody disagree with that, defaulting on payments on government securities?

>> senator, i agree with you. however, let me tell you what is happening at the street level. the confidence of our buyers and sellers is waning very rapidly. we have transactions canceling right now. we have people not being able to get loans. we can't get beyond where we are at. it is going to go backwards very fast. yes, you could probably mechanically do all of this, but the confidence of the american people is going to be really in the toilet. >> mr. thomas, let me pick up on another comment of yours. in your testimony, you sort of bemoaned this episode in 2011 over the debt limit. you said it was very disruptive. as senator crapo pointed out, that episode led to the bca, the only spending and debt cuts in

the recent past. do you consider that positive outweighed by the episode? >> if nothing else would have happened after that, then yes, i would agree with you. if we didn't have to come up to it and still have the same outcome by negotiating separately and got to the same point, then we wouldn't have had a fall often confidence. >> i will say this -- i can guarantee you as somebody who was here in participating that that would not have happened but for the deadline of the debt limit. no way, no how. it wouldn't have happened. i just want underscore senator crapo's comment. there was a distinct positive coming out of that, which is the only progress we've made on spending and debt in the recent past. >> senator menendez? >> thank you, mr. chairman. i almost think we are in a surreal conversation.

but asked the first question. understanding your collective concerns on the question of debt, is there any member of the panel who advocates as a way of reducing debt defaulting on the nation's fullface and credit? all right. when we talk about this concept of prioritizing, think americans should understand that that suggestion would mean that we would make sure we pay china, japan, brazil, but we would not maybe get to paying americans who rely on social security or medicare. as well as the concept that for anyone who is a banker or anyone who works under the concept that

if i make a loan, we will make a payment or not. the consequences that flow from that are inevitable. finally, to suggest that the way to reduce debt was the budget control act, which i voted against because i did not see the willingness to include revenue as well as spending cuts i believe both must be achieved but to have across the board cuts that the chairman of the joint chiefs of staff says if it continues will threaten the ability of the defense department to meet the challenges globally on multiple fronts, that really means that threatens the national security

of the united dates. my colleagues go back home to their home states and rail against the consequences of sequester, even as they vote for it here. it is surreal. my question is, governor keating, you mentioned in your testimony -- i think this is an important point to realize -- if you could give us a sense again, just the potential for default, not the default itself, but the potential for default actively cost taxpayers money. by waiting until the last minute to act and threatening to default, they caused investors and u.s. treasury securities to

demand higher interest rates. i'm going to look at greater risk and i'm going to demand higher interest rates to offset the risk. is it right that i read in your testimony that, as a result of what happened in 2011, that it cost us $1.3 billion in fiscal year 2011? >> the bipartisan policy center's estimate was a $20 billion figure as a result of coming to the edge of the cliff and stepping back. >> over the course of 10 years. >> if you stepped over the cliff, the impact would have been and will be obviously far more uncertain, but most likely far more catastrophic. $20 billion just for moving up to the deadline and not crossing over it. >> $20 billion. i don't understand how it is fiscally responsible for those who are driven fiscally to suggest that having the nation cost $20 billion and waiting until the last minute to meet

its obligations is fiscally responsible. i also want to ask mr. benson -- i understand a large share of the financial markets use treasuries as a benchmark for evaluation and pricing or as collateral in a wide variety of transactions. how would a default affect the market function of the in these areas? >> there are two things that you raised. treasury securities are a reference security. mortgages, credit cards, auto loans, pricing on swaps. both in the institutional or consumer also market. if you are affecting prices of treasuries, particularly short-

term treasuries, you will affect the prices of those instruments. that will pass through to the end users of those instruments. the second point would be that these repos used not just in financial markets between financial institutions, but for instance, municipal issuers -- when they do their initial pricing debt offering, they will often use repose to invest their money before they put that money to work, whether it is building a road or hospital -- again, it is used across the financial system quite a bit. they would be affected by the price and risk. over the long-term, there would be concerns about counterparty risk. >> thank you, mr. chairman. >> mr. chairman, thank you. thanks for holding this hearing. to the ranking member and to this panel, thank you very much for taking the time to be here today.

i think this is as critical of the hearing as we could have at this date and time. i was listening to an economist on tv this morning. he talked about a lack of humility, honesty, and civility. he wasn't talking about congress. he should have been. he could have been. i watch what is going on here in washington, d.c., and i think we do need a humble, civil, honest conversation about why we are here. 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 bill, not a single appropriations bill, in five years. i haven't been here that long, but boy, i certainly haven't seen this process move. we now think cr's are the norm. a continuing resolution is the norm. i have staffers who have been here long enough who tell me and

have told me that this place would freak out under those scenarios years ago, but there are a lot of people who haven't been here since last time we actually passed a budget or past appropriations. that's why we are here. we don't budget. we have no financial responsibility. i'm not telling you something you don't already know. we are $17 trillion in debt. we want to add another $1 trillion to it? we think $1.1 trillion is ok. it doesn't end there. we are in other $30 trillion to $50 trillion in unfunded liabilities. that is why we are here. we cannot control ourselves. we cannot control that. i think that is a very honest conversation that this committee and this congress needs to have. we go back to nevada, and that is hurting. i don't know that i have to tell

you this, but we are highest in unemployment. everybody has heard me say this highest in bankruptcy, highest in foreclosures. i just got a letter from the governor, and i think some of you may know this, he was talking about how tough the shutdown will be for the state of nevada, programs like child nutrition programs, unemployment insurance, dozens of other programs. he says, this undermines the economic security of nevadans. i agree with that. a default, that is due to a shutdown -- default brick matters even worse. i'm concerned. i'm concerned about the direction of this country and the effect it has on my own state. if i can ask the governor a question, you said that when you were governor -- i hope it is fair to say you did a good job you said you had both houses

with democrats of the time. under what circumstances did you tell the leaders to the other party that you wouldn't negotiate or would not come from ice? what were the scenarios of -- that you had that would make you say that? >> my grandfather was congressman at-large from illinois, democrat. in oklahoma when i was in the house and senate, republicans sought us out with slides on sunday night. as governor, the legislation was overwhelmingly democrat, but i had oklahoma state examine what we report, and they said, workers comp is too expensive, the kids don't take hard enough courses in school, you have a personal and corporate income tax. you need to address that. i sat down with the pro tem and

the speaker and said, here it is. we went through every one of those things, even a right to work vote in the constitution, and got it all done together. if we crash and burn, texas would laugh at us with -- at us. [laughter] who in the world wants that to happen? i don't think the analogy to the federal government is misplaced. >> mr. stevens, you talked about compromise -- i'm sorry, confidence. i want to stick to confidence for a minute. what sense does it make to raise the debt ceiling if you have to do so without any structural changes to this government? would you have confidence with just raising the debt ceiling?

>> i think there has to be high serious about both of them. in the near term, there is a need to do with that because it would be a hugely self-inflicted wound, but there needs to be promptly attention to the longer problem. as i said, they are linked in terms of what creates and builds confidence. millions of people and thousands of institutions we turn to to help finance the united states. >> mr. chairman, thanks for allowing me to vent some of my frustration. >> senator brown? >> i was in the house of representatives a dozen years ago with congressman benson and others when we got to a balanced budget with a budget surplus. look what happened in 2001, 2002. an unpaid for more. tax cuts that went to the wealthiest people in this country. medicare benefits that were, shall i say, generous to the health insurance companies. this budget surplus, the largest surplus in history went to the largest deficit in history. lectures about spending, when some of us opposed those

actions, is not necessarily welcome, but more importantly, never during that time did any of us say, if you don't stop this war, or if you don't to this, we will shut the government down or we are and not going to honor our debts and obligations. i appreciate senator heller saying we need to do some of both, but first, we need to pay our bills. this isn't accruing more bills. it is paying the things -- it is the american way, you pay your bills. it is so clear. let me talk about one issue in particular. i was downstairs two hours ago listening to secretary lu on the finance committee. he said, "every thursday we rollover approximately $100 billion in u.s. bills. if u.s. bondholders decided that

they wanted to be repaid rather than continuing to roll over their investments, we could unexpectedly dissipate our entire balance." it is really like -- when i asked him about it this morning, it would put us in a situation where we are a homeowner one- month quest to pay the entire mortgage off instead of the monthly payment. mr. thomas is the one not in the most vigorously. effectively, the u.s. government could face the same kind of funding crunch lehman brothers had in 2008. this discussion of uncertainty and the uncertainty in our economy has always been there to a point, but never is endemic or penetrating as this uncertainty we are facing this week and next week. talk to me about this uncertainty. what do you think will happen if there is debate on the 17th and all of that -- it is a thursday, and it is possible we could experience something the secretary alluded to -- what you think will happen, or do we throw up our hands and really just not know what will happen come thursday when this $100 billion is rolled over,

connected or not to the actual debt ceiling? mr. stevens, d want to start? >> i appreciate all the contingency planning and analysis that has gone into the what if's. we should all be aware, we are on terra incognito. we really don't know what the impact would be. there will be lots of individuals and rushed decision makers -- individual decision- makers. that assumes, frankly, if fairly short duration default, if you will, or whatever the temporary measures are that are taken to

avoid a technical default. if we entertain this idea over a longer period, there is no question that it would be cataclysmic. >> thank you. mr. thomas? >> i think the problem is, even if we went right up to the precipice and came to an agreement, the problem is, to me, it is like a lender lending to my company, and i come up to the deadline of the payment and say, i'm not sure if i can make it or not. i will let you know by next thursday. then i do it again two years later. eventually, they're going to say, i'm not sure i want to continue to lend to you. that is the problem we have. i think in any future, the rates have to go up. there is no doubt in my mind. >> a couple things i would say,

senator. we already know. we have an." evidence. that is in the pricing of the auction earlier this week. that is what is going on in the repo market right now. certain investors moving out of short treasuries. that is what is going on and other funds that are moving out of what they believe will be affected coupons. we already know what is going to happen, at least in the short run. even with all the contingency planning my members are doing, we can do contingency planning. we can think what we know is good to happen. but we don't know. we will have to work our way through it. we know we have deadline set the asian markets opening and what the reaction will be there. we don't know >> >> what we don't know. >> thank you. governor keating? >> who knows? i would say, accurately --

empiracally, the market went up. they were saying, people are working together. no default. if we do default, for a time, there will be an attitude on the part of markets and banks, well, they will fix it. it won't be that bad. then we get to our argentina moment, our cameroon moment, our venezuela moment which could definitely happen if people conclude that this whole thing is a train wreck and they are not going to fix it. >> mr. stevens, i didn't take high school latin, but i know terra incognito is a place we don't want to be. [laughter] >> senator moran? >> perhaps because we are working so little on the senate floor, we are having a debate about the senate -- the debt ceiling increase here in the committee. i think what you are getting from us is a number of statements testing the waters,

telling how we feel, and trying to find some common ground to follow -- to solve a problem. let me pose this issue. i hate where we are. i like certainty. this makes me uncomfortable. we often complain about the uncertainty in the economy that government provides. my guess is that your folks that represent your industry has been in my office and spoke about the uncertainty of the tax code, the regulatory environment. we know it is damaging to business, which means it is damaging to job creation. this is one more instance of more uncertainty. this is not a good place to be. i understand that. i think the deficit and the debt is a defining issue for my generation. i think i have an obligation to my kids and grandkids and americans i have never met something during my time in congress to get us on a path that lends itself where we are working to balancing the budget. i don't expect it to happen overnight, but i want to know there is a path that we are following that lends itself towards a brighter future for

future generations of americans. the issue that i face in trying to resolve how we come to resolve this is, what moments of leverage do we ever have in congress? what is the moment in which we are so worried that texas is going to laugh at us that we do something? we don't do things unless there is this moment that we come together, fearing more dramatic consequences, to force us to do things that apparently we are never willing to do on our own. we ought not be having this debate about raising the debt ceiling. except, we never have a serious debate or any resolution of how we solve our deficit problem in the absence of these moments. do you have some suggestions, any belief that congress and the

president will actually deal with this other issue? if your advice to me and us is, raise the debt ceiling, ok, what is your advice to me about getting something done about the deficit that is not just prolonging? i think what we are talking about here is -- we are demonstrating our willingness to pay our bills when we raise the debt ceiling, but we are doing nothing about our ability to pay our debts when we do that. how do we do both, how do we demonstrate we are willing to pay our bills, but in the longer term, we demonstrate we have the ability to pay our bills? do you want to indict congress and the president to respond to that? it is the frustration i have. if we are never going to come together and solve the deficit problem, unless we have a crisis, and do you have to take advantage of the crisis? what do you do? >> everybody is flipping coins to see who takes that first. senator, if we raise the debt ceiling and six weeks we are

back at it again, and six years we are back at it again, this will never be resolved sensibly, intelligently, patriotically unless and until, with the president's leadership and the goodwill of everyone in this room, democrats and republicans alike, and recognize that in the year 2025, our latest estimate, every cent of federal tax revenue will go to social security, medicare, and medicaid, and interest on the debt that is -- on the debt. it is an actuary ok's. to tie in the debt ceiling with some kind of long-term reduction in a long-term liability of the country is the only way to go. how'd you do that? bringing together men and women of goodwill, everybody in the congress. i really believe that. under the leadership of the president, shut the door, sit

around the table and say, ok, this is what we've got to do. the ideas i've heard from both sides of the aisle, whether it is chained cpi or a link to the index on social security, all of that makes good sense. it has been presented to this body in the house and the public at large in a bipartisan way. it can't be that difficult. >> i would say very quickly. you raise a very serious political question. we are not political scientists i guess. it is a difficult question. what i would say is, today, the united states is not greece. we are not italy. we are not in a situation, why we do have a series that problem, no question about it, we are able to access the credit markets because of an understanding of our ability to repay, the strength of our underlying economy, the fundamentals of the nation's economy. we want to avoid getting into a

situation down the road that would put us in a situation like greece or other countries who either have to pay a tremendous premium on their debt or can't sell their debt whatsoever. we obviously don't want to get that situation. again, that's where i go back to my comment with senator crapo -- we don't want to impair our ability today to fix our problems for tomorrow. we don't want to get to those problems tomorrow. let's not create any more difficulty today. i grant you it is a difficult political question you are faced with. >> i'm not sure it is a clinical question. there is a moral question. there is an issue that is really important to the future of our country. at what point in time do you get the leverage to force us to do things that cause us to come together and do things that not

all of us want to do? >> senator chris -- chiesa? >> thank you, mr. chairman. and little editorial comment. i can't tell you how many times in the state legislature and -- i've heard to raise -- when i look at my own farm, i asked myself, what i do this to my own farm? the answer to that is when i look at my own farm, i asked myself, what i do this to my own farm? the answer to that is resoundingly no. i think it is important for everybody to understand -- i don't think there is anybody comfortable with where we are at debt-wise in this country, democrat or republican. there are ways we can address it, but not this way. ot being held hostage. i think there are ways to do it through the budget process, which, by the way, has been frustrating.