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.

there has been a minority that is held up the ability to go to a budget conference. quite frankly, the majority needs to speak at some point. i'm not talking about democrats or republicans. i'm talking about a majority in this body that needs to speak to stop this kind of craziness. let's get down to real life. agriculture is pretty big and oklahoma -- pretty big in oklahoma. operating loans are a pretty ommon thing. if we default, can you tell me what the impact will be on somebody going to get a oan? >> we still have to beat. hopefully the lending will be available in the borrowing will be available. any time there is the chill, the panic of uncertainty, there is a pullback. there will be a pullback. we will all scramble around to try to do the best we can to find quality borrowers and quality lenders.

you will have commercial ctivity. in the act particularly, as you well know, there is a real linkage between what happens in washington and what happens on your farm or ranch. we have to be sensitive to that. those of us who are conservative who say this government is too big and out of control, fine, but it is reality of the marketplace right now. whether it is a veterans benefits or social security or medicare or medicaid reimbursement or in the act space, hummers will not function efficiently and well in a climate of uncertainty. it just simply won't happen. >> ok. senator warner talked about state and local governments. i've only got a couple minutes. i will throw to anybody who wants to answer it. if you thought about this issue, could you give me an idea on how a default might impact local and

state governments? >> senator, i would say one thing in particular that could be of concern -- state and local governments that have refunded outstanding debt, municipal or state that, and using a treasury ask her, they already suffering right now because the market has been closed down in terms of extraordinary members. that means there escrows are not as efficient as that might be. the other thing that could happen is if an escrow is ffected by a security, a treasury security that is deemed not eligible collateral, then the state or local government would be on the hook to make up any other shortfall in that escrow. there could be a cash effect to state and local governments, depending on how there escrows

structure. the only the -- the only other thing i would say, among the largest holders of treasury securities are banks of all hapes and sizes. if you affect the liquidity operations of the bank and their ability to pledge those securities, that is going to affect their ability to put money out on the street. it may be far down the road, and it could be short, but they ultimately are affected across the system. >> thanks. i think i will just close it out right there. i would say this -- we have seen the worst recession since the 1930s. i know thomas has felt it in the big -- in a big way in the housing industry. it would seem to me that certainty and predict ability and confidence are huge if we are going to talk about growing this government and growing the

tax revenue that comes around that growth, and i just want to say, i appreciate you guys tanding up and telling it like it is very much. i certainly appreciate you being here today. >> senator berkeley? >> thank you, all of you, for your testimony. mr. thomas, your testimony laid out a 1% increase in real estate rates could have a dramatic impact. a lot fewer homes sold, a lot higher payments per month, i think it was $120 more per month more, a decrease of 700,000 jobs. that is just in the real estate arket. that is a pretty significant part of our economy, home construction and home sales. could one anticipate that there will be less revenue coming from hat sector of the economy into the federal government if we

continue on this path? >> absolutely. ou would have less revenue coming into the federal government as well as the state governments. you are not going to have the same revenue base because of that. this is 1% rate increase just because of this. it does not encrypt -- considering the rate increases we will have over time, which we will have. this is a bump in the rates immediately because of the risis. it is going to have a detrimental effect on the housing industry, which obviously has a detrimental effect on the overall economy. >> is it reasonable to assume that other sectors of the economy -- for example, car loans -- car lots would make less money, pay less in taxes, nd people would be paying more a lot -- paying more for that purchase?

>> the payments you have to make, whether it is rolling over an existing loan or purchasing a new home, it is that much less that they can spend on other items. cars, groceries, gas, you name it. it impacts all of that. >> it really seems like the path we are on right now is the equivalent to creating a huge tax on the american economy, one that really hurts families cross the board, hurts usinesses, hurts employment, and yet, we get nothing roductive. you have tax revenue that can do something valuable, build infrastructure, and in this case, it is like taxing families with no value. >> we need to keep the economic growth that we are seeing right now intact and continue to grow. if we don't, we are going to

fall backwards rapidly. >> i really hope this point gets through to all of the colleagues on capitol hill of how this impacts ordinary working families. hen the there is the sort of ysfunction here in this square miles capitol hill, how people across america are hurt. i want to turn to an issue which is the potential impact on tier one capital that occurs if treasury bonds basically dropped in value because interest rates increase. is that a concern of the industry? >> it certainly is. it is very much a concern among he community banks out there.

whether it is oregon or massachusetts or oklahoma, whatever the state might be, there are only so many places you can go to make up for the lost opportunity that the diminished value of the securities that you hold make you face. i know my grandfather in illinois is a community bank or. he had everybody in town on his board. if he had to go out and get money quickly from some other source, if people needed to know where salem, illinois was, he would be very hard-pressed. this could create real issues for the community banking environment. >> my time is running out. i will note concern about the impact on repurchase agreements or repo lending that is very important to many institutions. it sounds to me like the path we are on can decrease revenues and raise costs. families can lose their job, may be more likely to need food stamps, for example. isn't it possible that in the

name of reducing the deficit, this path could increase the deficit? is that possible? would it be fair to me -- for me to call that extraordinarily wrongheaded? thank you, i'm out of time. >> senator warren? >> thank you, mr. chairman. i appreciate your being here today. mr. keating, i read your article in "the washington post," that using the debt ceiling as leverage is unwise and dangerous. you also noted that the respect and admiration of the united states and its institutions inspire around the world are based on the certainty that when our nation makes a promise, we

keep it. i take it from what i've heard here today that all of you agree with that same sentiment. i've read yours, mr. benson, that it is on acceptable for congress to either voluntarily default on the debt and a continual short-term extension of the debt limit increase is unnecessary market uncertainty and raises questions about our nation's credit worthiness. i think we're all on the same page here. i agree. think that makes sense. here's my question. if the very prospect of the default costs us money and our good name, i don't understand why we keep voluntarily raising the prospect of default with all of these votes on the debt limit. congress already controls the size of the debt. it gets to decide how much the government taxes and how much it spends. on't you think would be better if congress replaces the arbitrary debt limit with the

commitment that treasury can borrow exactly as much as it needs to pay our bills? >> the issue of how you change the process, if you change the process, will have to be esolved between you and your colleagues. there are probably many different approaches that make sense. i think what we are saying is, when it is all said and done, whether you scrap the debt ceiling process as it exists now, if you go to another structure or system, if you include or don't include the president in the process, then fine. just get it fixed. i don't know what the very best solution would be. i think it is very important to look for a solution, that we don't do this every year, every two years. >> i think we are in the same place. we can't do this every year, every two years, every six weeks. the very -- the very threat is costing us money. it is costing us our good name

in the marketplace. the way we stopped doing that, it seems to me, is to take responsibility for these debts. does that make sense? >> you are right. there are debts. you have to pay them eventually. >> does anybody disagree with that? >> senator, i would just say that so much of our spending is on autopilot already. if you look at the next 10 years, mandatory spending, which doesn't get a vote in the congress, is 61% of outlays. interest on the federal debt is 11%. that is about three quarters of all of our spending. my worry is, if there wasn't a gut check about increases in the debt, that those numbers would simply get worse. if you sit down with your spouse and say, where are we, you've got to make a decision about whether you want the next credit card or the next purchase, because at some went, it gets unmanageable. >> you want some accountability in the system. it seems to me that accountability means that we ant to reduce wasteful and unnecessary spending even if

those votes are not clinically popular. >> -- the american history has allowed our country to default, and it is my sincere hope that this congress will not be the first. among the risks that we control, the biggest threat to sustained growth in our economy is recurrence of manufactured crises in washington and self-inflicted wounds. unfortunately, today we face a manufactured political crisis that is beginning to deliver an nnecessary blow to our economy ight at the time when the u.s. economy, the american people have painstakingly fought back from the worst recession since

he great depression. in addition to the economic cost of the shutdown, the uncertainty around raising the debt limit is beginning to stress financial markets. four-week treasury bills on tuesday, the interest rate nearly tripled prior to the -- relative to the prior weeks auction. an expected volatility in the stock market has risen to the highest levels of the year. the only way to avoid inflicting further damage to our economy is for congress to act. i know from my conversations with a wide range of business leaders, representing industries from retail to manufacturing and banking, that this is a paramount concern for them. that is why it is important for congress to reopen the government, to raise the debt ceiling, and then to work with the president to address our fiscal challenges. in a balanced fashion. republican and democratic presidents and treasury secretaries alike have universally understood the full faith and credit of the united states. president reagan wrote to congress in 1983 "this country now possesses the strongest credit in the world." befall consequences of a default or even the serious prospect of a default or impossible to predict and also to contemplate. denigration of the full quicken right of the u.s. would have a substantial effect on the market and the doll you of the market and exchange markets. if congress fails to meet his responsibility, it could deeply damaged financial markets, the ongoing economic recovery, and we have passed a resolution

saying everyone is not working. do you know how absurd that is to farmers in my state they've had a natural disaster they can't report anything to the f.s.a. now we are representing disfaungsd now we're willing to take the greatest threat of all and jeopardize this economy and jeep diaz this recovery. we came to listen to your thoughts and i want to reiterate some of the wise things you have told us today. mr. vincent you said no amount of planning could take into consideration all the amount of consequences. no amount of planning can take into consideration the consequences. and i want to finish with a couple of statements of yours mr. stevens. lessons cannot be learned. if we default, if we continue to do this we will reap the world

wind of consequences of that. and damages will be visited on every american if we do this. there are people in this body who are trying to find a way forward to say it doesn't matter. it matters dramatically and not just to the livelihood and political popularity of this group and whether we're going to get pots in all your house. that should be most irrelevant. what should be relevant is the consequences on the american people. if understanded we're going to pick and choose our dets we are going pay. every american when they look at their credit score. i always paid off my car loan, always late on my credit card. what is my credit rating? i tell the bank don't worry about all those credit cards i haven't paid because i always paid my car loans. that's not how it works in the real world and they know it. they know this is dysfunction that has to be addressed and i

agree with my friend and colleague on the other side we have a debt and deficit problem and anyone who wants to ignore that is not looking at facts or staths that you have raised here. but we cannot do it. we had boles simpson. they want to negotiate. when have we heard this before? boles simpson, super committee and all along all the ultimatums of we're not going to raise taxes or touch entitlements have led us to this point where we are not functioning the way we need to function on behalf of the american people. and i have been hearing lots of great questions but i want to thank you and i want to encourage you to tell your story. continue to do what you are doing here reiterating we cannot let this happen. i don't want to be here saying i told you so and you don't want to be here saying i told you. this nonsensestop

from happening and abide by the full faith and credit of the american people. that's what we represent. it's not the american government. it's the trust and the responsibility we have to the american people. so thank you so much. cont your good work. i'm almost out of time. i know there is no question there. i do want to tell you how invaluable your work on this is and how important it is that you continue to ring the bell and sound the alarm. because in the end, it's not about us in this room. it is about people who are getting car loans, it is about people who are retiring and people what want to finances a house and can't go and get approval because we're shut down. that's who we're here to represent, those farmers the senator talked about. thank you. it's so important your voice get

heard in the next couple of days here. >> i'm told that senator shermer is on his way. >> mr. benson, t.a.o. has said the cost from the event inancial crisis may exceed $13 trillion. and someone suggested default could be even worse? what would a default mean for investors including both current retirees and future ones? >> mr. chairman, i think that in the case of current investors, if there was a default and coupon payments were missed, then at least immediately they would be out money for some period of time. it's not clear whether they

would be paid acrude enter from the due date or the date of actual payment and if they weren't they would have lost earnings associated with that. if they are holding treasury securities at this point in time as treasury securities move down in price then they would take a loss on that as well. i think it's fair to say current investors would have negative consequences as a result of this. >> what do you think in >> it will hurt in some fashion or other everyone who saves, everyone who vests, everyone who borrows and everyone who has a stake in the economy and not people in one category or another uniquely. but retirees would be among those and people saving for long term purposes. the effects will be very broadcast i think. >> thank you.

thank you mr. chairman, i appreciate the courtesy. thank you for holding this hearing. it's very important at a crucial time and i want to thank all the witnesses. first i want to make a few responses to some of the committees made earlier today that the major threat to our country is debt not debt limit. i agree we're going to have to make serious adjustments to deal with our debt load. we've made progress there. middle class incomes are declining in america. that's a greater problem than debt. if it happens for another five or ten years, it's a different america. having said that i don't want to gain say the importance of getting our deficit down. but we've made some decent progress there. i heard you mr. steevens speak about confidence earlier.

americans have confidence in the united states to pay its obligations. if that changes interest rates will go up and the country will be less strong. i would argue one of the best ways to increase our debt is to not pay our debt obligations, to not pay our bills, plain and simple. the two are not unrelated. they are very related. it's mind boggling we are even discussing this here. here we are just two years after the last discussion about whether we pay our debt and we have to ask the question. an important part of this hearing to deal with the debt ceiling deniers. one group is confined to a small minority in the house that thinks default doesn't matter, that it's all a lie by the obama administration. one of the people most quoted is

congressman brown from georgia who says it doesn't matter. he said a third of what he learned in medical school were lies. if we're having someone like that lead this country we're in trouble. but there is a more sober group which has gained steam in the senate over the last few weeks and maybe that's more troubling. they think it's a magic solution as a way out of our predict dickment. we can pick and choose which payments to make and we'd avoid default. want to ask you to elaborate on priorityation a bit and the effects it could have on the market. that is default by another name and i agree with that statement. we have hundreds of billions of dollars of treasury securing

between october 17 and the end of the month. $97 million october 24 $89 billion october 31. we rely on them to roll over as they mature. you've talked about confidence today. how confident can we be they will roll over these dets that we won't repay some of our creditors? >> as i said, if you think about a household that relies upon the bank for financing on an ongoing basis. if they find out the household is paying some bills and not others it doesn't inspire them to lend and to the extent it does, it's going to charge a higher interest rate. i believe the confidence of this vast market of lenders that we depend upon to finances debt at the level of $17 trillion will

take a blow irrespective of which bills we pay. >> isn't it true we've never had that before? except a mishap. we have never had an active decision we're going to pay some dets or others. >> it's not an speerpt we have run or should run. >> i yield back my remaining time. >> thank you again to all of our witnesses for being here today. this hearing is adjourned.

>> president obama hosted republican leaders at the white house thursday amp to discuss the government shutdown and gop proposal for raising the debt ceiling. after ward heir reid spoke with reporters at the white house. and you'll hear reaction from earthquake cantor. >> i introduced the president by telling my caucus how proud i

was of them and how proud i was of the president for the strength and unity we've shown. after an hour and 45 minutes with him today i feel the same way. we are here. the government should be opened. now we should be able to pay our dets and as we said and will continue to say, we if that happens will negotiate on 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 i've been gone. but this morning there were floated to the press three different proposals. let's wait and see what the house does. when they send us something we'll look at it as clearly and

closely as we can under the same determination we've made. open the government. here is so much puffer out there. -- pain and suffering out there. it is tear jerking to say the least. we want the government open. we want to pay our bills. this is a situation where they do not know what they want. i hope the republicans decide what they want. and we'll be happy to work with them in any way. i repeat for the fourth time. open the government, let us pay our bills we'll negotiate with you about anything. >> would you accept a short term deal to raise the debt limit? >> we're going to look at anything they send us. in the last coming out of this meeting they've the last we got on ow much time they want

debt limit. so let's just wait and see because there are rumors they want it tied to the c.i. because they cannot decide what they want. >> up until now it has been very clear you have a very clear position which is give me a clean c.r. and open the government before you will engage in negotiations. the republicans were clear earlier today they want to negotiate before you reopen the government. >> not going to happen. >> are we close tore a solution now? -- closer to a solution now? >> we had a very useful meeting. it was clarifying i think for both sides as to where we are and the takeaway from the meeting was our teams are going to be talking further tonight.

we'll have more discussion. we'll come back to have more discussion. the president said he would go and consult with the administration folks and hopefully we can see a way orward after that. >> treasury secretary jack lew says if the debt sealing is reached there is no way for the government to pick and choose which financial obligations to pay. testifying before the senate finances committee he says the government shutdown has made it difficult to predict how much revenue the government will have to pay for social security and interest on the debt. this is a little less than two hours.

>> at the time america was a deeply divided nation and lincoln warned the greatest threats to the young democracy were internal. he said "if danger ever reaches us, it must spring from up amongst us, it cannot come from abroad. if destruction be our lot, we must ourses be its author and finisher. we must live through all time or die by suicide". the actions of the past few weeks. he extremism of members have crippled congress. for more than 200 years the

united states has been true to its word and honored its obligations and paid its dets. yet today, a small group of hard liners is using our economy as a bargaining chip to repeal the affordable care act. we're not going to threat happen. the affordable care act is the law of the land. it is not going to be dismantled in this budget fight. it is not up for debate. our committee wrote the affordable care act. i'm open to streppingten the law to better serve the american people. as the president said we can't negotiate under the threat of default on the nation's bills. before any debate, before any deliberation, we theed to reopen the government and pay the nation's bills no strings attached. then need to work together, trourn regular order and must address the nation's long term

budget challenges working together including entitlement and tax reform. right now need to prevent another self-inflicted wound to america's economy. that is what defaulting on the debt is, a self-inflicting wound with global consequences. the deadline is fast approaching. to even days all measures stay under the debt limit are exhausted. the united states of america, the richest most powerful nation in the world be forced to look for loose change in the sofa in order to pay its bills. while the government shutdown has been disruptive, a default would be a financial heart attack. it would have widespread, long term economic consequences. financial markets are showing signs of stress. the dow has dropped 800 points

in the last three weeks and one many treasury bill rate has risen to its highest level since 2008. if the debt sealing is reached the government would have to lash federal spending by 20 or 30%. the pain will be felt across every sector of society. social security and medicare would be cut. funding for highways would be hit. every government program would be devastated by cuts. families would feel it, jobs would be lost. interest rates on mortgages and student loans would sore. some have said we can avoid de fault by proirpttiesing, paying bond holders. but they fail to mention this would force treasury to pick and

choose which programs to pay forcing vital programs like social security and medicare to compete for fuppeding. his idea is just irrational. a default would have a catastrophic impact on the global economy as well. a default would have dire consequences for the world's economy. it is quote mission critical that the debt limit be resolved as soon as possible. this is serious. the whole world is watching. our actions here in the next couple of days will have global implications. we have the most important economy in the world. the dollar is the world's reserve currency. our treasury bond are the backbone of the international financial system. a default would put the global

economy in chaos. of that there is no doubt. a default would cause a recession that could ecothe events of 2008 or worse. have people here forth whan happened in 2008? the collapse of lehman brothers sent off a financial earthquake, markets plunged. america's confidence was shattered to the core. the 2008 crisis up ended lives across the country, the aftermath of which could be felt today. we cannot let that happen. we have responsibility to avoid another economic disaster. our leadership and resolve will be tested in the coming days. we, all of us here in this room. we have an opportunity to pull america back from the brink.

>> it will help us pull back from the edge. it will help to us pause and try ooned come together and move forward. of e seen my fair share partisan fights but never i have seen washington so angry and broken and it doesn't have to be that way. i know the public might find it hard to believe but there are some very reasonable people here in congress. there are many who want to do what is right. there are many who want to work together to conduct the business of our nation. i would say to them and all my colleagues now is the time.

now is the time for congress to stop fighting old battles. now is the time for congress to come together and do what is right for our nation. and now is the time for congress to come together, reopen the government and fulfill america's financial obligations. i began my remarks with a quote from president lincoln and i thought appropriate to conclude with another one. lincoln once said and i quote him i'm a firm believer in the people. if given the truth, they can be depended upon to meet any national crisis end quote. that is why we are here today. we need to give the american people the truth, the real facts. and only then when everyone understands the real risks at hand, the facts and the truth will be able to meet this national crisis. >> thank you mr. chairman. i want to thank you for holding today's hearing on the debt

limit. i also want to welcome you to the committee. we appreciate you coming at this early time. during debate over the debt limit increase in twho,000 six, then senator obama stated the fact that we are here today to debate raising america's debt limit is a sign of leadership failure. leadership he said quote that the buck stops here. instead washington is shifting the burden of bad choices today on the backs of our children and grandchildren. america has a debt problem and a failure of leadership. americans deserve better unquote. on the day then senator obama spoke about our debt problem our ross debt was $8.3 trillion. that represents 107% of the size of our economy and as the congressional budget office has

made clear this poses large economic and fiscal risks. during that same 2006 debt limit debate, then senator biden said "why vote against the debt limit increase, cannot change the fact or my vote cannot change the fact that we have incurred this debt already and will no doubt incur more. it is a statement i refuse to be associated with the policies that blauth us to this point." what a difference in attitude there has been since then. now they preside oh over an administration that tells us that raising the debt limit "simply allows us to pay our bills." you have also publicly stated that only congress has the power to lift the debt limit. while it is extensively true the congress has power to raise the debt limit, there will be no

increase if the president does not agree. at the same time despite your public statements to the contrary, it doesn't have to do with only spending congress has already approved. this is based on a premise that ngress makes decisions unilaterally. that is false. no amount of spending can be enacted without the president signing it into law. further more while president obama's budget versus not been well received even by democrats in congress, the president has been deeply involved in congress' efforts to set spending priorities. the administration issues statements of administration policy and veto threats on spending bills and other pieces of legislation. the president has worked with congress to enact their domestic agendas. we all remember how president obama unveiled and pushed his

trillion dollar stimulus to congress that he then signed into law. he has made unilateral decisions with no input from congress that had an impact on federal spending. for example there was the decision to delay the employer mandate under obama care which will put an additional $12 billion to our deficit. congress never voted on the delay. it was a unilateral choice made through rule making at the treasury department. so the notion that questions surrounding spending and the debt limit are congress alone to answer is to put it mildly a case of false advertising on the part of the obama administration. there have been several other instances of false advertising from the administration concerning the debt limit. one is the president's claim that non-budget items have never before been attached to the debt limit increase. a claim to which a fact checker

at the washington post assigned pinocchios as we have on the chart over here. under both republican and democratic presidents, only 26 were quote clean unquote. another is that in 2011, we entered some sort of a brave new world in which for the first time in recent history people were commenting on the inability of treasury to make timely payment on incoming obligation. if you go back to clinton's administration and read some press conferences you will see this claim is also false. mr. chairman i ask permission to enter a reprint of the press conference from 1995 that support this is position along with an associated article from the "new york times".

>> without objection. >> i hope that during today's hearings we do not regress into recommend leckoffs history. what is at stake is too big for that. the issue we face is yet another debt limit incries. there have been seven increases since the president came into office. raising the limit from $11.3 to $16 trillion. an increase of $5.4 trillion. when talking about the future increases in the debt limit, all the administration will say is that one they want a quote clean increase and two, they refuse to negotiate. we don't know what they mean by a "clean" increase. we don't know for how much or how long. making such decires known would constitute a negotiation. the posture is not help to feel

resolving the current impass over the debt limit. what the administration appears to be saying is it is entirely up to congress to increase the debt limit and to decide how much and for how long. this of course raises more questions than it answers. for instance does it mean that if congress chooses to enact a two week clean debt limit increase the president will sign it? according to the administration's public statements because congress is solely responsible for increasing the debt limit, such a hypothetical stop gap would be fine if congress chose that to do. in just the past couple of days the president has expressed willing tons entertain a short term increase in the limit which sounds like a limit to negotiate term. sadly the statements are still short on details. the lack of real engagement on the part of the administration is one of the almosts of the

debt limit debate that i find disconcerting. it is also disconcerting to have officials like you questioning participants and suggesting that people may be too calm in an apparent effort to whip up uncertainty in the markets. it is disconcerting that you have suggested that payments of social security benefits are at risk. especially since you are a trustee of the social security trust funds. it is disconcerting that an administration officials are sounding alarms of the risk to financial stability arising from the debt limit impass. well at the same time the financial stability oversight council which you chair has been silent and refuses to tell the american people how it would respond to these risks. finally it is disconcerting how the administration refuses to even have a conversation with

anyone concerning our unsustainable entitlement programs which everyone agrees are the main drivers of our debt. the president has refused to seriously discuss entitlement reforms without assurance he first gets another tax hike. what we hear from the administration on entitlements is a series of disclaimers what reform proposals they will no longer consider and that list seems to get larger every day. the biggest question i have is if the obama administration won't negotiate on entitlements in the context of the debt limit, when will they negotiate? i've put forth five bipartisan reform proposals for our health entitlement spending and personally gave them to the president earlier this year. have you copies yourself. yet to this day i've yet to hear a response.

i cannot even get mere conversations from the administration about my propose thals i naufered good faith well before the debt limit was even an issue. most recently the senate majority leader issued a clean bill that would increase the debt limit until january 1, 2015 which will raise the limit by $1.3 trillion or more that. is the position of the democratic leadership but not with the president's willingness to increase a short term increase in the debt limit. my hope is we can get a real sense of where the administration wants to go with regard to the debt limit. i hope we can get past the argument that is have dominated the administration's rhetorics regarding this issue. our nation's debt is larger as a share of our economy that at any

time since the spikeup in world war two. despite the rhetoric of the administration it is not solely the result of decisions made by congress. it is not all due to the financial crisis and it is not all the result of tax relief enacted during the bush administration. instead it is a problem that both congress and the executive branch need to deal with. and the only way to deal with it is to confront our unsustainable spending which will require the administration to do something it is now refusing to do which is negotiate. as president obama said in 2006 regarding the debt limit, americans deserve better. i want to thank you, mr. chairman, and appreciate you holding this hearing. >> thank you. with ke to remind members full attendance we have to be

very efficient with our questions and answers. the secretary has an engagement so i urge us all to respect others as requested so we all have a chance to have our questions answered. >> thank you mr. chairman. ranking members of the committee, i appreciate the opportunity to appear here today and tin i haveation to discuss the impact of a failure to increase the debt limit. congress has an important choice to make. and congress has the power to act that the full faith and credit is never called into question. never has our country defaulted and it's our hope this congress will not be the first. among the risk that is we control, the biggest threat to sustained growth in our economy

is manufactured crisis in washington and self-inflicted wounds. unfortunately we face a manufactured political crisis that is beginning to deliver an unnecessary blow to our economy right at a time when the people .ave pain stakingly fought back from the worst recession since the great depression. in addition to the economic cost of the shutdown, the uncertainty around raising the debt limit is beginning to stress financial markets. four-week treasury bills on tuesday, the interest rate nearly tripled prior to the -- relative to the prior weeks auction. an expected volatility in the stock market has risen to the highest levels of the year. the only way to avoid inflicting further damage to our economy is for congress to act. i know from my conversations with a wide range of business leaders, representing industries from retail to manufacturing and banking, that this is a paramount concern for them.

that is why it is important for congress to reopen the government, to raise the debt ceiling, and then to work with the president to address our fiscal challenges. in a balanced fashion. republican and democratic presidents and treasury secretaries alike have universally understood the full faith and credit of the united states. president reagan wrote to congress in 1983 "this country now possesses the strongest credit in the world." befall consequences of a default or even the serious prospect of a default or impossible to predict and also to contemplate. denigration of the full quicken right of the u.s. would have a substantial effect on the market and the doll you of the market and exchange markets. if congress fails to meet his responsibility, it could deeply damaged financial markets, the

ongoing economic recovery, and the jobs and savings of millions of americans. i have a responsibility to be transparent with congress and the american people about these risks. i think it would be a grave mistake to discount or dismiss them. for these reasons, i have repeatedly urged congress to take action immediately so we can honor all of our country's pas commitments. the treasury department has regularly updated congress over the course of the last five months as new information has become available about when we would exhaust our short in area measures. in addition, treasury has provided information about what our cash balances will be when we exhaust our ordinary measures. as our forecasts have changed, i have consistently provided updates and urged congress about the urgency with which they should act. i met with the committee to discuss these issues. the treasury continues to project at the its ordinary measures will be exhausted no

later than october 17, 2013. at which point the federal government will run out of borrowing authority pier we will be left to meet our country's commitments with only the cash on hand and incoming revenues, placing or cut economy and a interest position. it would be impossible for the u.s. to beat all of its obligations, including social security and medicare benefits, payments to our military and benefit -- and veterans, and payments to contract suppliers for the first time in our history and we are relying on investors to the day to hold .s. bonds. every week, we rollover approximately $100 billion in the u.s. bills. if u.s. bondholders decided that they wanted to be repaid rather than continuing to roll over their investment, we can unexpectedly dissipate our entire cash balance. let me be clear -- trying to time a debt limit increase to the last minute could be very dangerous. if congress does not act and the

u.s. cannot pay its bills, the repercussions would be serious. raising the debt limit is congress' responsibility because congress is empowered to set the limitations. some have suggested that raising the debt limit to be paired with accompanying spending cuts and reform. the debt limit has nothing to do with new spending. it has to do is spending that congress has already approved and built that have already been ncurred. failing to raise the debt limit would not make these bills disappear. the president remains willing to negotiate over the future direction of fiscal policy but he will not negotiate over whether the united states should pay its bills. certain members of the house and senate also believe it is possible to protect our economy by simply paying only the interest on our debts while stopping or dealing payments on a number of our other legal commitments. how can the united states choose whether to send social security

checks to seniors or pay benefits to veterans? how can the united states choose whether to provide children with food assistance or meet our obligations to medicare providers? the united states should not be put in a position of making such perilous choices for our economy and citizens. there is no way of knowing the irrevocable damage such an approach would have in our economy and financial markets. leaders have responsibility to make our economy stronger, not to create manufactured crises and inflict them it. 1987, president reagan delivered a message that is applicable to us today. this brinkmanship threatens the holders of government bonds and those who. rely on social security and veterans benefits interest rates would skyrocket and instability would recur in financial markets and the federal deficit would soar. the united states has a special responsibility to itself and the world to meet its applications. the very last thing the was economy needs now is a fight over whether we raise the debt

ceiling. not one with a serious challenge is domestically and internationally require our full attention. and not when we know the kind of damage of financial and economic crisis and cause. thank you and i look forward to answering your questions. >> i would like to focus a little bit on the concept that some suggest it is a way out of this problem and some suggest is feasible. i disagree with the prioritization. you touched on it. can you briefly tell us what decisions you would have to make as treasury secretary assuming interest was paid on the debt and you then had to choose which other obligations had to be paid? i know you cannot tell us which ones nor should you -- social security, medicare, military, whatnot -- but if you could go through the process and described what the actual legal and administrative problems and consequences would be and

include how much total that would be. and my understanding is it is about 80% of those programs could be paid. also, what effect would it have on the gross domestic output. walk us through prioritization difficulties, please. >> mr. chairman let me start by , saying what i think should be obvious. if we don't have enough cash to pay all our bills, we will be failing to meet our obligations and under any scenario, we will be defaulting on obligations. there is no plan other than raising the debt limit that permits us to meet all of our obligations. when questions are raised about prioritization, the first question is interest and principal on the debt and, as you said, what else? the legal issues even regarding interest and principal on the debt are complicated. let me remind everyone that principle on the debt is not

something we pay out of our cash flow of revenues. principal on the debt is something that is a function of the markets rolling over so there is a question of what we can do as a government and how the markets function when the government is failing to pay all of its bills. we have never been there and i think anyone who suggests they know exactly what that means would be projecting after 224 years of history paying all of our bills, what happens if we stop paying all of our bills. mr. chairman, i don't know how you could possibly choose between social security and veterans benefits. or between medicare and food assistance. these are obligations we have made. we would not have the money to necessarily pay our troops in full. we would not have the money to pay our veterans the benefits in full. our systems were not designed to not pay our bills. our systems were all designed to pay our bills. the legal issues are many. i do not know how you could make

the decisions and i do not think the legal authorities are clear at all and i do not think the administrative process would permit the system to work. we write roughly 80 million checks per month. the systems are automated tube a -- automated to pay because for , 224 years, the policy of congress and every president is we pay our bills. you cannot go into those systems and easily make them pay some things and not other things. they were not designed that way because it was never the policy of this government to be in a position that we would have to be in if we could not pay all our bills. >> if you were to prioritize, it's my understanding, we know what you're out pay obligations are to some degree. we have a social security payment due and major medicare bills do. on the other hand, knowing the revenues are a little bit sketchy.

it comes in unanticipated amounts. could you go over that a little bit? >> we have estimates and if these estimates are wrong, there is the real risk, of miscalculation. in the time of which i have kept congress informed, we have seen real swings in the normal .ourse of things i would also remind everyone that we are now in an unusual position with the government shut down not having economic consequences that we are just beginning to understand. all of the revenue projections we have based our analysis on were based on a world where the government was functioning and where all the services related to government activity were happening.

it's not a can to account any layoffs that might occur or any reduction in payroll or payroll taxes. i have to assume that the estimates from before the shutdown are likely not to be an accurate predictor of exactly where we are. >> how do you reprogram computers? >> mr. chairman, i don't believe there is a way to pick and choose on a broad basis. this system was not designed to be turned off selectively. anyone who thinks it can be done just doesn't know the architecture of our multiple payment systems that are very complex and designed properly to pay our bills. they were not designed to not pay our bills. >> so prioritization does just not work? >> i think prioritization is default by another name. it is just saying we will default on some subset of our obligations. by definition, if we don't have enough money to pay all of our bills, we will be in default on our obligations. >> thank you. senator hatch. i want to be clear about the

>>i want to be clear about the administration's position on the debt limit. as i understand it, the position is the president will only accept the so-called clean debt limit hike with no other accompanying policy or fiscal considerations. i have asked you repeatedly, how much of a debt limit increase would you like and for how long? you have responded that it is up to congress. i believe the administration's position is unfortunate because it is clear that we have a debt problem and the fundamental driver of our debt is unreasonable and unsustainable spending in our entitlement programs. i believe we can answer uses as an opportunity to address these promises and i mentioned five modest bipartisan proposals on entitlement reform to the president earlier this year. you have received copies but i have heard no response to that. i sincerely did that. nevertheless, the administration is entitled to its opinion and position. i want to be clear concerning the debt limit. as long as there is nothing attached to a debt limit

increase, the administration will say nothing more about it including its preferred outcomes in terms of how much of an increase and for how long? is my understanding correct? if you wish to give me your preferences how big of a debt limit increase you would like to have and for how long you would like it, at least we can begin discussions and negotiations on this particular issue. >> senator, we have discussed this a number of times. we have corresponded a number of times. i wrote to you just last week, a few days ago, stating what error -- stating what our view is. our view is that this economy would benefit from more certainty unless you mentioned. -- from more certainty and less brinksmanship. the longer the period of time is, the better for the economy. it is congress's decision how often it wants to vote on the debt limit.

i believe that more certainty is better. i think the senate leader and the chairman have put forward a proposal -- >> i'm just asking how much do you want and how long? those are two simple questions. how much do you want us to raise and how long? >> senator, the question of how long is one i think i'm answering as clearly as i can. the longest that congress is prepared to extend it for is the best. the president tried to be clear in his statements in recent days that if congress passes something shorter, he was hoping he is not looking for there to be a crisis here. congress would be right back dealing with it so the good -- the better solution is to do it longer. everyone knows the numbers associated with different areas of time. >> it's not clear to me. between 2009-2012, the federal government recorded the largest deficit since 1946 crossing federal debts to soar to an

amount higher than at any point in u.s. history except during world war ii. gross debt now stands at 1.7% of gdp. second, our debt path is unsustainable, threatening to bring us to this fiscal crisis. third, the root of our spending problem is the government's major healthcare programs. that includes not just obamacare but medicaid and medicare as well. trust funds on social security and their health entitlement programs face exhaustion. when it comes to negotiating solutions to our entitlement spending problems, all i hear from the administration is that negotiations can only proceed if first the president is guaranteed yet another tax hike or if the only spending restraint we enacted thus far is turned off. when it comes to so much that is even discussing entitlement spending programs, all i hear is that negotiations can only

proceed if we pass a clean continuing resolution and a clean debt limit increase. what does it take beyond a guarantee to the president and congressional democrats that they first get another tax hike or that the sequester be undone to get the administration to the table to talk about entitlement reforms such as the ones i have proposed and which have been met with total silence from the administration? is it reasonable to say that there can be no negotiations unless there is another tax hike when we know this very day that disabled american workers face a benefit cut of 20% or more under current law when the disability trust fund is exhausted in 2016 or earlier? >> i think the record is clear that the president has negotiated and wanted to negotiate and remains anxious to negotiate on a bipartisan basis to have a fair and balanced approach to dealing with our fiscal problems.

>> it's not clear to me. >> he has been on the verge of deals twice and it was not acceptable to republicans in congress where he was prepared to do very hard things and was ready to have an agreement twice in 2011 and at the end of last year. he put in his budget tough policies, that many democrats on this committee find very challenging because he wanted to make clear he was looking for a balanced approach to entitlement reform and tax reform to settle our fiscal matters in a sensible way for the medium and long- term. the president's record on willingness to negotiate is clear. i would make comment briefly on the trajectory of our deficit -- when the president took office in january, 2000 nine, we were in the middle of the worst recession since the great depression and in the middle of two wars and we had a deficit that was 9% of our economy. we have cut that in half and are making progress. we have more to do but but i don't it's fair to say that we are in the same place we were. we have made tremendous

progress. >> thank you, mr. chairman. it seems to me, in the event of a default or near default, the dominoes are going to fall fast and hard. those hit early on will be older people who depend on their own retirement savings to get by. these are the older people who saw much of their life savings evaporate during the recession. they are struggling just to get those private savings back to the water line. be as specific as you can with respect to what to default or neuter default would mean for those seniors who depend on their private savings. >> i can only begin to imagine what it would mean to a retired american who relies on social security as their major or sole source of income if we had to tell them their check was going to be late. i remember my late mother lived

her social security check. many of us had relatives who lived on that. if the check did not come, if they did not have the ability to call someone who can help them out, you are in trouble. anyone thinks that anything short of default has never experienced what it means to live on social security. in terms of medicare -- >> what about private savings especially? i share your view about the others but the public has heard you given comments with respect to mortgages but i am concerned about those retirees and their private savings as well. >> let's talk about retirees because workers have their savings at stake. the effect is the same, it's just more immediate for retirees. they have no time to catch up. we saw during the financial crisis, people's retirement assets fell quite dramatically in value. it reduced what retirees had to live on and caused anxiety among the working people as to how they could catch up.

we are now in a place where because of the resilience of the american people, the recovery of the american economy, the good policy decisions made by congress and the federal reserve board, we are in a better place. we have a lot of work to do but i think you can see from the economy that people are beginning to feel the economy is moving in the right direction. if you create a crisis that causes assets to shrink and -- to shrink in value, for retirees, they don't have time to catch up. even if it all rights itself over a period of time, for the retirees, they are in a bad spot. i think it is very unfair to have manufactured crises that have a real-life impact on working americans and retirees who should be able to worry about market risks, not government policy risks. >> let me ask you about the effect of default and the deficit.ault on the

budget sequestration has not been an ideal instrument, it's not perfectly targeted for driving down the budget deficit but it has produced budget savings that actually accrue to the benefit of the american taxpayer. in the event of a default or near default, is it fair to say that some of those budget savings would be eaten up to pay higher interest costs, a substantial amount of which would go to foreign governments and other foreign creditors? >> we have seen just this week that for the bills that mature at the end of october, the rates have almost tripled over the last week. we still have access to the credit markets but it's more expensive and for no reason. it could be resolved by just settling this issue and making it clear that the debt limit will not be breached and we will not have any problems. >> what's troubling to me is

after the american taxpayer has gone through something of a painful process and you see the savings, in effect, the results of the default would produce higher interest payments and in effect transfer of american wealth from our taxpayers to foreign creditors. >> i would add that higher interest rates also flow through the economy in terms of higher mortgage rates and higher student loan interest rates. the costs of multiple levels of impact on real people. >> thank you, senator. senator grassley. >> majority leader reid cleaned debt limit increase in to the beginning of 2015 likely be an increase of around $1.3 trillion. my understanding is that it is leaving the debt limit increase up to congress and that you won't negotiate, require a

clean debt limit increase and will say nothing about its negotiating preferences regarding how long or how much the debt limit increase is desired. with that being the case, if the majority leader clean debt limit bill raise the limit for one month and the amended bill was passed through congress, than the president will sign it, i assume. is that correct? >> i would have to see a bill and the president would have to look at it to say what he would not sign. he made clear that dealing with this for a longer period of time would be better for the economy but he did not rule out something shorter. i think we have been very clear about what the right thing to do is. >> both you and president obama have repeated the talking points that negotiating deficit reduction policies on the debt ceiling increase is

unprecedented, the debt limit has been used in the past as a means to enact deficit reductions, policies i quote congressional research services since 1978, congress has voted to raise the debt ceiling 53 times, 27 of those, the debt limit increase was tied to the reforms. i assume you are aware that more often than not, the debt ceiling is raised with other policy or reforms. if you are aware of that history, why do you and president obama continue to use the talking point that negotiating debt limit will is unprecedented when the facts demonstrate otherwise? >> i don't think that is an accurate version of history. it is not what i recall having lived through many of the budget debates over the last 35 years.

in the last nine budget limits, only three have them have involved the debt limit. if you look at the budget agreement that did involve the debt limit, in several of them, the debt limit was just added onto a bill. it was not driving the debate. what i think changed in 2011 was the affirmative case was made in 2011 that a certain faction -- i'm not saying the people in this room -- but a certain faction of the house, if they did not get their way, they would prefer default over a compromise they found unsatisfactory. that is different. we cannot have the debt limit be something that's a threat to the economy unless policy concessions are made. that's not our democratic system works. a minority cannot do that. >> secretary lew, before i go onto my next question, at least you cannot say it is unprecedented to have negotiations and reforms tied to

a debt increase. >> i have never said it's unprecedented for an increase -- it has always been a hard vote . since 1917, this country has work to turn it into a more ministerial vote. congress used to have to vote on every bond issue and the debt limit was put in place to reduce the number of times congress had to on debt. in the 1970s, we tried to turn it into an automatic vote so there would not have to be a vote on the debt limit. two years ago, senator mcconnell put in a mechanism to make it easier to vote on the debt limit. it has always been a hard vote. the question is is it going to , be used as a threat to the economy? that cannot be. >> the president has made clear that if we pass a clean cr and a clean debt limit extension, he is ready to negotiate. where we need to negotiate is obvious. if you look at long-term protections and spending on

health care entitlements demands our attention. in the next 25 years, spending on medicare and medicaid as a percentage of gdp is expected to nearly double. if i ask you if the president is willing to negotiate on health care entitlements, i think you have already said what the president put in his budget. you are probably going to cite the president's budget. you have already done that. i don't consider that negotiation. i consider it a restatement of your position. negotiation means you are willing to give serious consideration to the other side's ideas. senator hatch has made numerous proposals on health care entitlements. i am told the message of the 2012 election was that democrats no longer have to negotiate on health issues. can you convince me that is wrong? >> senator schumer. >> can he answer the question?

>> in about 10 seconds. >> i think the budget reflects the president's openness to entitlement reform. he has been willing to work in a bipartisan basis to do things that are unpopular on the demo side. and is looking for a partner who has given take. >> thank you, mr. chairman and thank you for coming, secretary lew. this hearing is much needed. it is about dealing with the debt ceiling deniers. they try to claim that default will not be a big deal and middle-class families will not be hurt, we can just pick and choose which bills to pay, prioritization, they call it. the debt ceiling deniers need a dozen debt ceiling reality and you have given them that today. you have said prioritization is default by another name. prioritization is extremely difficult, as you have said. do we pay foreign debts or veterans benefits? do we make sure social security benefits go out or pay medicare, do we pay for education or our

troops? american people don't want that. they would certainly want us to pass a clean debt ceiling bill and avoid those awful choices. i would like to talk about the other -- by the way, one of these debt ceiling deniers, a congressman named brown, he said that much of what he learned in medical school relies that came from the pits of hell. if we are letting people like this lead us, god save america. i would like to deal with the second issue which is the timing. in my view, we are like a blindfolded man walking towards a cliff and if we keep walking in that direction, very soon, we will fall off. we may fall off on october 16 or

october 17 or november 25, but we will fall off. the most interesting -- the most important point is we don't know which day we will fall off. the markets are somewhat mystical. they can come to the view that the u.s. will default and anticipate that and treasuries go down in value and interest rates go up much of our financial system freezes and we are back where we were in 2008 when aig failed. i want to ask you this question to be clear, isn't there a risk almost every single day starting around october 17, even perhaps a day or two earlier, and we can't tell exactly when we will not have enough money to pay our bills and default could occur? even if you laid out the most meticulous plan and the world. >> i have been trying to be as transparent as possible for several months. i very much fear that miscalculation is something that could lead to a very severe consequence.

since august, i have been very clear -- we are already on overtime. we hit the debt limit in may. we have been using extraordinary measures. we call them that that everyone assumes they are infinite. they are not infinite. i warned in august that we were going to run out of extra and -- extraordinary measures sometime in the middle of october and i went a step or their which mostly has never been done and said we are going to have roughly $50 billion in cash. one month later, based on the year end tax receipts and expenditures, i updated that and said no later than october 17 we would run out of our own capacity and instead of $50 billion, we would have roughly $30 billion. now, i think that should indicate that what i said at each of these correspondences is true. it's impossible to predict with accuracy. we are talking about in norma's

variations in day to day expenses and an economic activity which generates tax revenues. it is impossible to predict with accuracy. it's typical to keep roughly $50 billion in reserve at all times just as a cushion against the unknown. when you talk about having less than $50 billion in drawing it down, that's a dangerous place to be. that's why congress needs to act to raise the debt limit sooner rather than later. >> they would avoid a potential cataclysm. they should not delay and say we can wait until the eve of october 17 or 19 or october 31, is that right? >> well, i must say there is a parlor sport in washington of when is the last minute. you cannot do that with the debt limit. if you look for the last minute and you make a mistake, you have done serious damage to the u.s. economy, to the world economy. it's just not responsible. it's reckless. >> would you would gree with my analogy of a blindfolded man and

we don't know exactly what date we will fall off? >> i have tried to describe it in my own words. >> thank you. ew, you indicated in your beginning remarks that we face a terrible threat to the economy from a manufactured crisis. i understand the fact that the issue of whether the federal government's borrowing limit should be raised is problematic and creates serious concerns with regard to our economy. the fact is, we do face a debt crisis. it's manufactured but we face a real debt crisis. as we hear the discussion about whether the united states is going to lose its good faith and credit, ultimately default, the real crisis is that default. it's the one we are screaming toward because of our refusal to

engage as a country. congress and the president, with regard to reforming our failed entitlement and tax policy and dealing with the real debt crisis that we face. i think senator schumer's comment about the blind man walking toward the cliff is more appropriate with regard to the debt crisis we face with almost $17 trillion debt. so my question to you is -- don't you believe the long-term trajectory of our debt gives our economy a greater threat and gives investors even more concern in terms of their confidence about the ability of the united states to avoid default? >> we clearly have long-term challenges but i think the financial markets and when you talk to financial policymakers around the world, they see that we have made a lot of progress in the last few years. we have more to do in terms of

entitlement reform and tax reform but we have taken a deficit that was 9% of gdp and brought it in half to 4%. if anything, we are getting criticized around the world for having too much deficit reduction too fast because they want more growth. i agree we should be dealing on a bipartisan basis with sensible balanced approaches for medium and long-term reforms. i would love to be engaged in that conversation. >> the very progress you are talking about occurred as a result of significant tax increases and the debt ceiling compromise that was breached -- was reached with the budget control act. the fact is that we have not dealt -- in that compromise, we dealt with discretionary spending almost entirely. we have not dealt with title men's -- entitlements which the administration says is off the table but now we have

more demands for greater tax hikes. that's what the negotiations we want to engage in are about. >> the president has engaged on multiple occasions. i have been part of those negotiations. we very much believe that a balanced approach where you do entitlement reform and tax reform would be good for the country. we tried in 2011, we tried in 2012 -- we are ready to try again. the president said when we take away the threat of economic disaster, he is ready to engage. if i heard him correctly in his press conference, he said he would pay for dinner. he is willing to talk and wants to talk but it cannot be with the u.s. economy being threatened if one small part of congress does not get its way. >> so we need another $1 trillion or more of debt the -- of debt authorized before we can even discuss whether to start reforming entitlements and reforming the tax code? >> what we believe is the government needs to open, congress needs to open the

government, and congressman needs to make it possible to pay our bills and we need to engage and we are ready to do that. >> well, just to conclude my questioning -- back to the issue of our long-term debt and the threat it poses to our economy are you telling me those fears ? >> what ilayed tried to say and i hope i was not confusing -- there is a challenge to deal with in the medium and long-term. it is not the same as a crisis which is what happens if you fail to act on the debt limit in period of time. i would like to do it sooner rather than later and i think it's better for the country and it would've been better for the country if we had been able to mix -- to complete the negotiation where the president and speaker were closed until house republicans said they would not vote for it. we would love to be in a place where we were talking about a sensible alternative to these mindless across-the-board cuts. we have been clear about that. it cannot be with the threat that the government is shut down and we will default on our

bills. that is not a way to engage in the kind of bipartisan negotiation that we need to happen. >> thank you for your testimony about how you think this serious prospect and uncertainty to the market are right now. i guess that is my question to you. everybody is talking about default as if that's the triggering point. i think your testimony lays out that this moment could happen at any time according to your testimony. the reason i brought this chart if you're not involved in the financial markets, it is a mysterious thing. this chart shows the treasury is held in the u.s. by businesses but in europe and china and there is -- it is a network, complicated and complex. it comes to all the individuals involved. it is not just picking up the phone and calling wall street and telling them to settle down.

my question is -- i just went on the web and and said ok, what about treasuries. if you google treasuries, it it comes up the most important market indicator, way important than the stock markets, how important a number it is in the economy because of interest rate being pegged off its interest rate. here we are now basically almost talking the interest rate up with the talk in the city -- with the talk in d.c.. in the last 48 hours i can point out this chart because we have seen a dramatic spike from .03% -- more than doubling in 48 hours. if the interest rate on treasury's in the next 48 hours i am, aren't we already to that

tipping point? >> i have been trying to careful and report what has happened. i cannot predict what markets will do. i think if you look from last week to this week, a tripling of interest rates on short-term bills is not a good thing. we have seen stability in the long term bond markets but markets are delicate things. i don't know how markets will translate one day's news or actions into discomfort. that everynow is week we roll over $100 billion of treasury bills. that relies on the market eating -- on the market eating open and willing to function. i think everyone has to remember it's not just interest, it is also the principal. the markets have to keep working. >> i think the thing that people are missing in dc is that everybody is at risk in the u.s. economy. it's not just what you just explained, but everybody at home. last time, we had this discussion about whether we were

going to default or not and the stock are could drop 20%. -- and the stock market dropped 20%. we could have this discussion and by monday, one of my constituents that you could see as much as a 25% drop in the stock market. this triggered off of treasury. so we don't have to go to default. just the talk of default is causing the level of uncertainty we are 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. we had the damage spread we had the drop in the market, we had the higher interest rates and we suffered a downgrade in the u.s. credit rating. that is what happened when we did not cross the line. i don't think any one should want to test what happens when we cross the line. we are seeing, with the government shutdown, we are seeing every day that new things are coming out that are really bad. people thought it was ok to shut down the government and are 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 are doing is reckless and i hope our colleagues will come together. thank you. >> senator roberts. >> thank you. i don't think we have a blindfold on and walking toward a cliff. i think we are walking toward a cliff with their eyes wide open. that's the problem. all this talk about self- inflicted wounds -- it was not a self-inflicted wound when we raised the debt limit and we also achieved the hollings act, the balance of budget act. it has been referred to by other senators. it gets down to a willingness to really negotiate. [feedback] it's the nsa again.

the president said over and over again that he will not negotiate but i don't think that's true. there is a meeting as we speak with republican leadership in yesterday he met with democrats. you have been briefed on the agenda of this meeting with regards to the time that the president would defer to an extension of the debt limit and the agenda, i'm talking about sequester flexibility with the appropriations committee oversight, the repeal of the medical device attacks, the restoration of the 40 hour workweek to the aca as opposed to the 30 hour work week causing all the problem and perhaps even a decision or at least a time frame on a decision on the keystone pipeline. there is a long list that all of us have that we have talked about.

senator crapo asked specific questions on entitlement reform. that's the real cliff i think we are walking toward. theuld only opine to you that why this is so tough, the reason american people get this. maybe not on the shutdown, although there has been a lot of debate back and forth, but they sure get this on the debt limit. do not want any increase in the debt limit. they get it. they look at this is their own family budget and they understand this. 70 -- 80% say no spending -- no increase without any spend reform and we hear no negotiation. it reminds me of the debate of the paris peace talks in the vietnam era, thus size of the table in the height of the chairs. maybe this morning when the president recently republican leadership and the democratic

leadership previously, we could get the high chairs and we will take the low chairs. this is silly. senator schumer said that basically we are walking toward a cliff with a blindfold. i think we have the blindfold off. no action on entitlement reform, no action on tax policy -- i have been to the dinner with senator isaacson at the white house, it was a privilege. when we talked about how we achieve the grand bargain on tax reform, the president said he needed $800 billion. that price has been raised by the distinguished majority leader to $1 trillion. i don't think you will find much support on the side of the aisle for that. when we talked about reform, he said why can't we take mortgage interest and charitable giving and retirement?

just means test those. he gave some specific examples. i tried to put in regulatory reform and i would put that in on the agenda if you agree to it. or if the president would agree to it. we will not do that. we will not test everything in the tax code and we are not going to raise taxes $1 trillion. that's a nonstarter. i hope we can do that. have you been briefed or what is the up to date news you can give us about the agenda of this meeting as to the time amount and as to what could be on the table? >> the president has been very clear. congress needs to open the government. congress needs to make it possible for us to pay her bills bills, and then he is open to talking about anything. it is not a question of the shape or size of the table. it's a question of whether there is give and take. >> you indicate that the

president is willing to negotiate but he is not willing to tell us what agenda or what specific arts of the agenda he might be interested in or not or the time frame? >> congress has to open the government, congress has to make it possible for us to pay his -- to pay our bills and he is to and he is happy to talk about anything. he is clear about what he wants to on in our budget and numerous communications. give and take means everyone coming and doing hard things. he demonstrated his willingness to do hard things. if others are willing to do hard things, maybe we can do something important. >> i am over 13 seconds, i apologize. i think what you are saying is if the government shut down can be discontinued, everybody wants that, i don't want to get into that debate again, but he is willing to negotiate only if we and the shutdown and agree to an extension of the debt limit and then he may negotiate with an agenda that's just amorphous. >> he has always been willing to negotiate just not with the

threat of destroying our government. >> my colleagues have already expressed a series of dimensions in which both the shut down and the threat of default affect our country domestically economically. i want to look at a different dimension that has domestic and global issues. in the other role i play as chairman of the senate foreign relations committee, i worry about the incredibly extremely negative affects the government shut down and the threat of default have on our foreign policy and our national security, both now and in years to come. the shutdown and the default affected some of america's near- term foreign-policy priorities such as the president not being able to go to the asian economic summit.

his absence although appropriate due to the crisis feeds into existing fears having traveled to the region that our rebalance to asia is more rhetoric than reality. who showed up and was more than willing to fill the void, china. in doing so, america's loss is china's gain. this is an opportunity about opening markets for u.s. businesses, and to sell products and services, this is an opportunity to promote economic and security questions. i think our allies are going to wonder -- is the united states capable of meeting its promises whether about economic initiatives or security initiatives. perhaps the most damaging and difficult thing to reverse is the impact this has on america's reputation in the world and the economic consequences that flow

from that. the entire global financial system depends in large measure on the faith that the united states government can and always will pay its debts. america enjoys the unique privilege of having its currency act as the world's reserve currency. it seems to me but playing games,laying political we give credence to other 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 in question with allies. in your role as treasury secretary, you fill various international roles. can you give the committee a sense of the consequences at home but there are consequences abroad that affect us here at

home. >> i think it would be impossible to overstate the importance of playing the role we do in the world in terms of the stability we provide. there's a reason why the dollar is the the reserve currency. the world counts on us being responsible and making the kinds of decisions they can continue to look to washington for that kind of stability. we have finance ministers from around the world gather in washington this week. yesterday, i met with the finance ministers from africa and latin america. it is challenging when they look at you and they ask what is going on in washington. it makes them nervous about their economies and we need them to have growing demand because that is good for our economy. on 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. i have to ask the question -- when our role in the world is important to our economic stability and to the world, why

would this kind of a manufactured crisis be seen as something that is necessary to pursue when it undermines that? the questions you are asking are quite significant. >> limit just ask, there are those who suggest that is not a real issue because the rest of the world has no place to go. >> i'm not going to speculate on whether someone else will emerge as an alternative. we are in a place right now where it's important for the united states and 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 medical of lyrical -- it's only a matter of political will. >> and there is no reason to risk that possibility, to continue to find out whether there is some other universe of currencies for which people could look to and there is no reason to risk having the potential economic impacts we can have globally that provide

domestic opportunities for growth and jobs and opportunities? >> i think there is no reason and i would go further and say it is against their interest to invite that kind of discussion. >> thank you, mr. chairman. mr. secretary, i think this is the 11th time i have been through this discussion about the sky is falling and the earth will erupt. wyoming families are not buying these arguments. they say that you cannot spend more than you take in. you can't definitely do it for ever and ever. i've got a person that in turn -- that interned for me several years ago who now is the owner of a major company in wyoming and operates in four states. he pays his people well but every once in a while, somebody comes in and says i need a pay raise. he hands them a copy of dave ramsey's basic look and says you

-- basic book and says you don't have a problem with income, you have a problem without go. that's what wyoming people think. 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 of how the private sector are getting upset because government keeps growing and when it grows, that means there are more people in the wagon and less people pulling the wagon. they are getting tired of it. in fact, it is getting pretty hard to pull. we are not doing anything about it. that's their impression. they can't increase their income, why should we be able to increase our income? how do we solve this problem of outgo? we keep asking for this debt limit increase and it's always asked for as though sometime down the road, we are going to negotiate and figure out a way to solve the problem.

you mentioned that you would rather we did not have these manufactured crises. america would prefer that as well. i think this is a manufactured crisis again because we did not work on it yesterday. the shutdown with government, we have not done the budgets the way we are supposed to. we are supposed to start on those on april 15 and do one per week and not get to this continuing resolution situation on october 1. everybody will know exactly how much they can spend. it does not compress the sequester like it did last year. these discussions -- i was invited to blair house when we were doing obamacare and i spent a day of the president chopping down every suggestion that republicans made. it was a waste of a day. when we hear this thing about willing to negotiate and if you have any ideas get them to me --

it is wearing as thin as the sky is falling. why do you and the president feel we should not be discussing, right now, this dire financial situation and commenting -- and coming up with a solution that will put a little bit of room and ever -- 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 need to raise their limits, they are expected to say what they will do in order to be able to take care of their debts. they are not real interested because the interest rate goes up, which is the same thing we are facing here. you said it has tripled in the last week. we are running into the same problem. why should we not present a solution? it could be a long-term solution. it doesn't have to be a one-week solution. we are not even providing a long-term solution. i put out a penny plan along that wouldquester

take care of the deficit in two years. some variation on that might be helpful but why do you think the president should not discuss right now and come up with solutions right now in conjunction with the extension of the debt limit? >> the wyoming families know that after they wrap their -- after they run up their credit card, they don't get to ignore it. they have to pay the bill. the debt limit is just paying our bills. you know that i would very much like to be in a conversation about long-term, sensible and title and and tax reform to give the kind of stability going forward that this country needs. that cannot be done by saying we will not pay our bills next week. that's what's wrong with engaging right now. the president wants to negotiate. >> we keep saying that this terrible thing will happen and this is just paying our bills. how many times can we say that?

the public does not 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. if congress appropriates the money and puts laws in place for people are entitled to benefits and commits military resources, once those commitments are made, you cannot tell a contractor who is doing work that i will not pay you because we changed their -- because we changed our mind. >> that takes me back to my comment that we should take care of this one at a time. >> the senators time has expired. many senators here have questions to ask. many senators have been good about sticking to the limits. i hope you can stay longer. they will shorten their question so you can stay. >> it will be difficult to go more than five minutes.

>> thanks for joining us. i just stepped out of the room for a few months and was -- for a few minutes and was watching the hearing on the television in an adjoining room. people watching this on tv must be frustrated and disappointed with us. some of the finest people who serve in the senate served on this committee there are people and that's what i want to be here. who are willing to be pragmatic and find compromises. the problem is simple. democrats need to support entitlement reform that saves money, saves these programs for 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 and predictability for businesses and investors in this country but generate some revenue. we go back to the four years at the end of the clinton administration where we had for

four balanced budgets in a row and revenues as a percentage of gross domestic predicted around 20% all four years. -- gross domestic product around 20% all four years. our deficit is down from $1.4 trillion. last year, the deficit was about $700 billion. we cut it in half. it's not enough. we need to do more. we cannot do more unless we do entitlement reform. over half of our spending is entitlement spending and we cannot do more unless we generate revenues. the problem here is, what we have here is a failure to communicate is part of our problem. we are talking past each other. i talked to people all the time and people have a lot of money and i say they will have to pay more taxes and they say i don't mind paying more taxes but don't i don't want you to waste my money. i don't want to waste their money either. none of us do. tom coburn used to be on this

committee and i introduced legislation. it was not to hurt the least of these or the wealthiest of these to help everyone. everyone has gotten a letter from tom coburn to ask as a cosponsor and i hope you will join us. we held a hearing on monday this week on social security disability. nobody wants to harm people. one judge in west virginia approved 99.7% of the people who applied for social security disability. 99.7%. that kind of thing is the exception. there are people applying that get approved who can work and don't deserve to be on disability. the idea that we cannot meet our moral imperative and meet a fiscal imperative is a fiction. we can do both. i would say we should not just boost our approval rating but instill confidence in the american people and stuff talk

-- and stop talking past each other and work with each other. we will meet with the president today. somehow, the president has to make it crystal clear that he's willing to negotiate and i have heard him say it on the entitlement stop. the republicans have a willingness to negotiate on tax reform that generates some revenues. there is a matter of trust here and i don't know how to break through. any ideas? >> i think the kinds of conversations that he is having are meant to try to rebuild some of the trust and make it clear that once we get beyond where we are right now and 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. it has to be a two-way street and that has always been the case with any negotiation. >> thanks mitch chairman.

>> thanks mr. chairman. i will be brief with my comments. i've heard a lot from the debt limit deniers about how october 17 is not really the day we default. we hear from the debt limit deniers that they are sure that even if we get there nothing will happen since we can pay china and wall street first. the fact of the matter is that on that day, the day we run out of borrowing capacity is a thursday. it happens to be the day the treasury holds it's weekly auction to roll over $100 billion in debt. , at 4s what could happen at that auction if we have not raise the debt limit trade what could happen for borrowing costs. with a substantially increased? what would happen if they did increase on thursday. would happen if we were unable to roll over the hundred billion dollars in debt? >> i'm not good to comment on what markets may do. i think history is clear that anxiety leading up to 2011

caused a bad market reaction. we have seen in the last few days unease, certainly with maturities in the. between october 17 and the. immediately after that. i can't say what the likelihood is of there being a problem. i can say with the consequences of any inability for us to roll over would be quite serious. in terms of a household budget it is like instead of having to pay your monthly payment on a mortgage having to pay the mortgage. that would be a problem. and i will belem brief mr. chairman. over the last couple of weeks i have spent a lot of time calling communityohio, bankers, business executives, entrepreneurs, people running research institutions am a some hospital executives, smart manufacturers. i don't know their party in most cases, i assume most of them are republicans because most of them are in lines of work that might suggest that.

but over and over they say the same thing. why is this happening? we can't risk a default. didn't understand why we are having a government shutdown. the understand it is one faction of one party and one house in one branch of government that has brought much of this to a halt. the national association of manufacturers the largest manufacturing association in the country road on "the failure of monday policymakers to address the debt limit is injecting uncertainty in u.s. economy, hampering the ability of manufacturers and the broader business community to compete, and invest, and create new jobs." for the last several years, since the health care act, since dodd-frank, the criticism i hear more than anything from business in my state is uncertainty, uncertainty, when are the dodd- frank rules going to be finished? what's going to happen with implementation of obamacare? all of these. the uncertainty, that pall that they claim hangs over our country, our economy, i hear, and especially from politicians who are critical of many of these programs.

so my question is, if we agree to a short-term clean debt limit increase, does that provide the certainty that we would need to compete? >> senator, i've tried to be clear that i think longer certainty would be very good for the economy, and the shorter the period, the less stability it provides. you know, when you talk about shifting debates to different time periods, retailers are very worried about what happens in november and december if we are going through what we're going through now. so i think longer is better but avoiding a crisis is 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 compromise. he wants that negotiation to be with the basis of the kind of give-and-take that honorable compromises come from. >> this is -- thank you, mr. chairman. this is the worst uncertainty and the most precarious uncertainty i've ever seen in our economy in my time in public

office. and what's tragic about it is how self-inflicted it is. thank you, mr. chairman. >> thank you, senator. senator portman. >> thank you, mr. chairman. >> thank you, mr. chairman. secretary lew, you've said again today the president won't negotiate on the debt limit. and the president, as was noted earlier, has asserted that there haven't been additional items added to debt limits in the past. and, as you and i have talked about, and as you know, when you look back at the last 30 years of the history of debt limits, 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 come in the context of a debt limit. i found one that didn't. it was in 2005 for about $40 million, a relatively small