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

deal. that's the way it has worked. and it's gramm- rudman, it's the 1990 balanced budget agreement or the andrews air force base agreement. it's the 1997 balanced budget agreement. it's pay-go rules that many in this committee on the other side of the aisle talk about favorably. of course, it's the 19 -- it's the most recent budget control act, just a couple of years ago. all in the context of the debt limit. so my view is kind of strange the president would, one, not want to negotiate, but, two, say we haven't added stuff. it's all that has worked to deal with this. and you indicated this earlier, it only makes common sense because it's a tough vote, as you said. why? because our constituents don't get it. you know, why would you extend the credit card again, go over the limit again without dealing with the underlying problem? and that's why, you know, the polling shows that by over two to one the american people say, yes, we should extend the debt limit but only if we deal with

the underlying problem. and that's all we're asking for. i'm speaking for myself. i will say we need to avoid a debt limit crisis. but we also need to avoid a debt crisis. so avoiding a debt limit crisis today and avoiding a debt crisis tomorrow should be our objective. the president himself said back in 2006, when the debt was half as big as it is today, $8 trillion, and this was a floor speech, america has a debt problem, and a failure of leadership. he said, i'm therefore going to oppose the increase in the debt limit. he opposed it when it was half as big as it was today. he said we needed to deal with the underlying problem. and in response to senator hatch's question earlier about why the president refuses to deal with the underlying problem, which we all know is that two-thirds of spending and the biggest part of the spending and the fastest-growing part of the spending that is on autopilot that we don't appropriate every year, which is the mandatory side, in response to that question you said, and i quote, >> "he put in his budget significant entitlement spending reforms, he wants to do this." and, in fact, you're right. the president's proposal includes a pretty long list of entitlement savings, mandatory savings, adds up to about $730 billion over 10 years. a step in the right direction. during that time, by the way, we're likely to add another $8 trillion to the debt based on cbo, congressional budget office.

but he has got $730 billion over 10 years. now not all of those choices reflect my top priorities, or others on this committee probably, but in a negotiation you don't get everything you want. so my question to you today is really very simple. by adding some of those proposals, maybe not all 730 billion, maybe it's 500 billion, maybe it's 400, but by adding some of the president's own proposals to an extension of the debt limit, consistent with what has been done historically, and consistent with what the american people are asking for, couldn't we move forward and isn't that what we ought to be doing? dealing, yes, with the debt limit, but also with the underlying problem. and taking the president's own proposals to do it. >> senator, on the history of the debt limit, you and i have been back and forth many times. i think it makes a big

difference if you tack a debt limit increase on to something that has already been agreed to. in 1997, the balanced budget agreement was all signed and sealed and then the debt limit increase was put into it. it didn't drive it. nobody threatened default. so i think we're in a given situation since 2011. and that has changed-- >> well, nobody threaten default because you've never had a president saying he wouldn't negotiate. >> and the president has said and has just repeated this week he wants to and is prepared to negotiate. i think it's important not to just go through a president's

budget and cherry-pick the things that are hard for him to do. you have to look at the things are hard for others to do, because a negotiation is give- and-take. if everything is on the table, if we're looking at entitlement reform and tax reform in a way that join together to solve the problem, there could be a serious conversation. but i just would caution to just not take one side of the ledger. >> well, let me focus on that, because the president also says in that budget that he believes

we ought to have tax reform. and specifically with regard to corporate tax reform, for the first time in your budget you indicated to be revenue neutral, and i applaud you for that, as you know. i think that's important. i think it's an urgency right now that if we don't deal with it, we're going to continue to lose more jobs in this country. my question to you would be, the president's own proposals on entitlements, i agree there should be a give-and-take, but

i'm willing to just say, let's look at the president's own proposals, putting those into this debt limit increase plus directions to the congress on tax reform, as you all have suggested. would you all be willing to move that forward? >> well, just to be clear, the president's view on the debt limit, he has stated as clearly as he can, he's not negotiating over the debt limit. the debt limit -- congress has to make it possible to pay our bills. he looks forward to negotiating.

>> senator bennet? senator bennet, you're next. senator bennet. >> senator, i hate to call attention to the time, but i'm going to be late for another commitment if i-- >> do you have just one more? >> how about two more? two more. >> i think if we do two more-- >> ok, senator bennet. >> jack, this is important, i mean-- >> no, this is very important, senator. >> nothing more important than this. and i want to make sure

everybody on our side at least has a chance. >> thank you, mr. chairman. thank you, mr. secretary, for your indulgence. i'll just take a few minutes. in your view, would failing to raise the debt ceiling make our debt and deficit situation better or worse? >> well, it doesn't do anything good. i mean, if the cost of borrowing goes up, it raises our expenditures, it doesn't reduce them. >> and if the cost of borrowing went up just 1 percent or 2 percent, we're at historically low interest rates, what would that cost us? >> you know, i would have to go back and do the numbers exactly to give you an answer. but, you know, these are -- we're talking billions of dollars, we are not talking about small numbers. >> so i think it's -- i mean, it's very clear, and ronald reagan shared this view. you quoted him earlier that this would just make matters worse.

>> yes, it -- unless we were to do something unthinkable and say, we'll never pay those bills. you've got to pay the bills or then you're going to be borrowing money at a higher interest rate, so it only costs. >> which means that our interest costs are just going to continue to go up and our ability to do things like respond to the floods in colorado or be able educate our kids will be diminished. i'm going to let you go because i know you have to go, but i've heard a lot of people on both sides of the aisle today talk about their willingness and

their desire to try to meet in the middle, and i think that's important. and i think we need to do that because i can tell you this, people in colorado, they are sick and tired of a lot of things about washington, but what they are mostly sick and tired of is our managing by crisis, and, therefore, our inability to manage the affairs of this country in the way, in this case, that threatens the full faith and credit of the united states and our ability to have the reserve currency for the world be the american dollar. thank you, mr. secretary. >> thank you, senator. senator toomey. >> thank you, mr. chairman. secretary lew, you've said a couple of times in reference to previous discussions over the debt limit that it's different now.

it's true it is different now. i would argue now it's much more urgent that we deal with the underlying fiscal problem. now, unlike in past years, we're spending $3.6 trillion. we've run up a string up unprecedented deficits. the modest improvement you alluded to, you know that's temporary. and it's scheduled, if there's no structural changes, for those deficits to get much worse not terribly far from -- from today. we now have a total debt that's over 100 percent of our total economic output, i believe

already limiting economic growth and prosperity. we have trillions of dollars of guarantees that we didn't used to have. we have tens of trillions of dollars in unfunded liabilities. we have large entitlement programs, the largest of which are all growing faster than our economy and, therefore, are on a completely unsustainable path. so what's different, it seems to me, is our situation is much more dire now than it was in previous discussions.

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

everything we intend to spend in tax revenue, the 15 percent shortfall would have to be covered by borrowing, or else we wouldn't be able to pay everything in full and on time. and that would be disrupted. but the greatest disruption by far would occur if you were to choose to not pay interest on our debt. senator cantwell made a very compelling argument about the unique role that u.s. treasury securities play in the world, and for the united states. so my question for you, mr. secretary, as the secretary of

the the treasury, are you prepared to assure us, but more importantly, the millions of americans who are investors in u.s. treasury securities and the entire american economy, that under no circumstances will you permit a missed payment on a u.s. treasury security obligation? >> senator, the only way to make sure we can pay all of our obligations is for congress to act and raise the debt limit. no president has ever had to decide whether to pay some bills and not others. >> i understand. that's a different question, though. >> the law is complicated, and i am not the one who makes that decision, as you know. >> no, i think you would make it. >> if you look -- no, no, it's actually not my decision. it is something that the president would have to decide. and i'm telling you that it would be -- put us into default if it went to a place where we could pay one bill and not others. what would you say to people on social security-- >> i have acknowledged that is very disruptive, and that is not where i hope to go, but i only control one vote in the senate, and the administration controls zero. and they control zero votes in the house. and so it would seem to me the only appropriate thing to do is plan for contingencies. so are you telling me that the president would decide to ensure that we would not miss a payment on treasury securities? >> senator, what i'm telling you is there's no good solution if congress fails to raise the debt limit. and that's why the president's called on congress to raise the debt limit. you know, you -- you used the number 80-85 percent coverage in terms of revenue. that's an annual average. >> i understand. >> some months-- >> it's uneven. >> -- it's 50 percent. >> that's right. >> so the amount that we fall behind in payments is just unthinkable. congress has to do its job and act. >> and i certainly hope that the president will work with us so

that we can avoid this. but, i'm -- i'm -- frankly, i'm shocked that the secretary of the treasury will not assure the financial markets, american investors and savers, and the millions of people who hold treasuries that they don't have to worry about the security of their treasuries. i'm extremely disappointed. >> i -- i would refer you back to statements by president reagan and secretary jim baker, who made the same warnings that i'm making. because only congress can act to raise the debt limit. no president has ever been put in a position of having to figure out what bad options-- >> ok, i understand. i'm almost out of time. >> -- [inaudible] if congress doesn't act. >> on tuesday, the president said, and i quote, "we plan for every contingency. so, obviously, you know, worst- case scenario, there are things we will try to do," end quote. could you tell us about these contingencies? >> well, you know, senator, the the options are all bad. >> i agree. >> secretary, you've been very generous with your time. we deeply appreciate it. thank you very much. >> thank you, mr. chairman. >> hearing's adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2013] >> this is two hours.

>> i call this hearing to order. the committee has many important issues to consider and plenty of challenges to solve together on a bipartisan basis. we find ourselves in day 10 of the government shutdown. it drags down our economic recovery with each passing day. the unnecessary shutdown has left us to address the long-term physical challenges and is certainly not promoting job creation. if it were not better now, we have only one week left before we reach the nation's debt

limit. if congress does not act soon, we will fail to pay our bills in the fall for the first time in history. i do not favor making the u.s. into a deadbeat nation which would be the consequence. there is little to nothing that congress could do after the fact to require -- to repair the damage that would be felt for generations. it is important to remember the real threat of a default can have significant costs. during the last major debate in 2011, the uncertainty in raising the debt ceiling cost taxpayers about $1.3 billion for that fiscal year according to t.e.o. the cost could be as high as 18 point -- $18.9 billion. before it is too late, we will hear from our witnesses about the kind of impact we should expect if the united states defaults. we will hear what this could mean not only for the financial system but also for american

families to pay their bills and the ability to create jobs and for retirees to protect their life savings. it is time to stop playing this game of chicken with recovery and time for congress to focus on the real problems that people sent us to washington to solve. we must first raise the debt limit. i recognize the ranking member for his opening statement. >> thank you for appearing today to present your thoughts on this important topic. there has been a lot of recent attention on what happens if the debt limit is not increased, but less attention on the larger and wider debt crisis. the statutory debt limit is $16.7 trillion. since 2009, the debt limit has been increased by $5.4 trillion. the cbo projects it will reach 25 trillion dollars in 10 years. the statutory debt limit is a symptom of our fiscal problems and must be addressed. since we have focused on the impact of failing to lift the debt ceiling, i would like to focus on the debt itself.

the gross debt has increased $6.1 trillion since 2009. deficits are projected to be the norm as the aging population pushes spending higher. unless we make significant reforms to entitlement programs, they will crowd out government spending from infrastructure to defense. failure to improve these programs friends them with insolvency which will happen within a generation if we don't act now. in recent years, we have made important progress.

we have begun to actually make federal agencies go through their budgets to identify and eliminate waste. and to identify fraud and abuse to set priorities and learn to do more with less. but the mid and long-term projections show that the debt crisis is only going to get worse if we don't substantively deal with the fiscal policies that we have thus far failed to a dress. namely entitlement reform. the committee for a responsible federal budget recently noted that most of the deficit reduction agreements made since 1980 have been accompanied by a debt ceiling increase. i joined fellow members in sending a letter to secretary lu suggesting that we use the debt limit as an opportunity to bring lasting reforms and debt

reduction to our nation. as a member of the commission and the gang of six, both sides can find common ground. tax reform isn't equally interesting -- important component. we need to dramatically simplify our tax code, reducing rates for taxpayers so we can create economic growth. i am interested in the thoughts on how the current tax code affects investment. the debt ceiling debate creates an opening for real progress in these areas. now is the time to work together on solutions that reduce deficits and move our economy forward. it is time to make these hard decisions. >> are there any other members that would like to give brief opening statements? senator reed? >> i think this is a very important hearing.

we are on the verge of doing something that is not only unwise policy but flies in the face of the constitution. the 14th amendment says the u.s., authorized by law, debts incurred and payment for bounties and services shall not be questioned. we are certainly questioning that. this is not a trivial matter. our forefathers and producers -- predecessors recognized the value of paying debts on time. we are on the verge of breaching that sacred commitment that we have all taken. and i think everyone is in favor of long-term and wise policies. but we are talking about within a few days reaching and defaulting on debt. i could not agree more with his comments. thank you for being here. using the debt ceiling as leverage is unwise and

dangerous. citizens are frustrated with the political stalemate and it should not be used as a bargaining chip. i absolutely agree and thank you for that statement, governor. what we can do is set off a financial chain reaction that will go from market to market with unknown and perhaps catastrophic consequences. anyone who was here in 2007,

2008, and 2009, and saw the collapse that everyone saw, it could be self-contained with a minor blip on the scene and understands the potential consequences in multiple markets. already, we are seeing credit default swaps increase. european banks said that they jumped to 150 million pounds to about 1.6 million pounds -- from 1.6 million pounds.

i just saw today that the hong kong stock exchange is basically downgraded treasuries as collateral. so you can see the ripple effect as this goes out. we have to raise the debt ceiling to avoid default. >> anybody else? >> first of all, i appreciate your leadership and having this extraordinarily timely hearing. i think the question of default is a question of both what

happens at home and abroad for us. i hope my colleagues across the aisle and in particular the house of representatives agree that defaulting would cause tremendous harm to american families, businesses, and the global economy. and it would dramatically weaken america's standing in the world. not just in respect and stature, but ways that have consequential economic significance at home.

i hope that they agree these are outcomes that no one wants to see. i would say to our friends threatening default, let's stop lurching from one manufactured crisis to another manufactured crisis and stop threatening to default on the nation's obligations. i understand that there are policy priorities, though i am never quite sure what it is we are talking about. first was ending obamacare that was passed by congress, signed by the president and affirmed by the supreme court. there were two clear choices in the election of the president. then it was the medical device tax and now i hear about that. -- debt. it was raised by president reagan 18 times, president bush nine times and president bush the second nine times. there were 34 times in which the debt ceiling was raised. i want to achieve comprehensive reform but that does not mean i will shut down the government until i get what i want. it doesn't make sense as a way of doing business. we ask countries around the world to actively pursue fiscal

and structural reforms because we think it is in our interest. we ultimately look at the cost of a default. how do we pursue those policies that promote economic opportunity at home? i think the harm of default will take a decade to recover from. it is an immediate drop in economic growth, the money that comes directly out of the taxpayers pockets. home values can very well plummet at a time in which they get recovery in the housing market. duden's loans and credit cards will become more expensive. it will seriously -- student loans and credit cards will become more expensive. going into retirement, they will get their college education decimated. i think about this, the u.s. dollar is the world's most important reserve currency. u.s. treasuries are a safe haven where investors know they can put their money in times of crisis and uncertainty. and this value to the world strengthens our economy and

lowers interest rates for american consumers at every level. why is that something that we are willing to risk? i cannot understand it, and i hope that better sense will come shortly to the congress. thank you. >> thank you, mr. chairman. i want to make a point in response my colleague or rhode island and new jersey. i could not agree more with that sentiment about the importance

of the fact that the united states -- the u.s. dollar is the world's reserve currency, and the importance of the u.s. currency cannot be overstated as a benchmark for credit markets around the world, as a source of safe investment. i hope as we have this discussion we can be candid about what we are talking about here. as we all know, if we do not raise the debt ceiling sometime soon, then at some point we will have disruptive consequences, because tax revenue is only 85% of all the money we are planning to spend, not 100%, and that means the other 15% has got to be borrowed, and if not, then you have to make some decisions about what gets cut. that is disruptive, not where we want to go, and i hope the president will agree to actually address the underlying problems that got us here so we can avoid it.

having said that, there is no circumstance under which we should ever tolerate choosing, willfully, to make sure that a missed payment would include a missed payment on the treasury security, because of the uniquely important role the treasury securities play. i was disappointed that treasury secretary lew, in a recent hearing, refused to acknowledge the obvious, because it is obvious to me -- maybe i should not consider it so obvious -- that he would not choose to default on a u.s. treasury security, precisely because of the unique role that these instruments play.

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

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

backed by u.s. treasuries? we are seeing issues in the financial markets. the cost of using short-term treasuries as collateral has increased. we reportedly sold off treasury holdings in maturity in late october. secretary lew testified in front of senators and others that yields in short-term treasuries nearly tripled from the week before. we saw in that hearing where some are sitting up a construct where government, the treasury, the president has to choose between paying off bondholders, paying off chinese investors and wall street investors, choosing between that and medicare and veterans benefits, funding everyday government in this country, a choice that no one should absolutely inflict upon a government. it has never been done before.

this week i spent a lot of time calling community bankers and business people and hospital administrators, people running major research institutions in our state, mostly, i assume republicans, and most of them are incredulous we would even be thinking about this prioritization if we reach the debt limit, that we would prioritize, even think about making these choices between paying wall street and paying main street, if you will. i cannot believe we are -- some are saying we should not raise the debt limit and took the

crisis on themselves. i think the governor's comments say that. it would be unwise and dangerous .it would be unwise and dangerous to do this. we have no business moving our country into that structure. thank you. >> are there any other -- i would like to -- senator warner? >> less than a minute. i just have to say this -- we are in uncharted territory. you do not know what would happen. why would we take that risk, and respectfully, any list of prioritization which has social security or military or the medicare may or may not work, but the thing that i find stunning is -- and when i get

the questions i will ask the governor this -- the other governors here -- none of this prioritization list includes the past dues that help fund state, local budgets, hospitals, so you could have a circumstance where america does not default, but every state and every locality, either in an immediate budget crisis, and they will have do to default, which is unprecedented. thank you, mr. chairman. >> i would like to now introduce our witnesses who are here with us today. frank keating is the president and ceo of the american bankers association. previously he served as governor of oklahoma. mr. ken benson is the president of the securities industry and financial markets association.

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

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

ordinary americans will bear the brunt of the damage if our leaders do not prevent the united states from defaulting on its debt for the first and very first time in its history. we're are much closer to disaster this year than we were two years ago when the debt ceiling standoff caused economic uncertainty to spike, consumer confidence plummet, and stock prices to spiral downward, all because of the perceived risk of united states defaulting on its domestic and international debt obligations. in 2011, that standoff cost taxpayers close to $20 billion as investors demanded higher interest on u.s. treasury bonds to account for the risk of a government default.

if our nation defaults on its nearly $17 trillion in debt, the harm is likely to be measured in hundreds of billions of dollars. even the slightest uptick in treasury interest rates would cascade throughout the economy. it would raise the cost for taxpayers to service our country's debt and would raise borrowing costs for business, meaning job losses and price increases. default would he a blow to retirement funds, leaving fewer resources available for our retirees. for banks, which hold $3 trillion in treasury agency and mortgage-backed securities, the sharp decline in value of those securities would translate into the fewer resources available for borrowers -- auto, credit card, and student loans. if congress fails to act and we hit the debt ceiling, we will set off a chain of events that will impact all americans.

the consequences will not be easily reversed, and the repercussions could lead on for year. default would put the united states in the category of reckless or nations who have broken their word in the market, which include argentina, venezuela, and cameroon. default left those countries financial pariahs. the answer is not to make our payments on money already spent. we should never inject uncertainty into the markets, that we as a country will not keep our word to pay the debts that we owe. we must pay our bills on time and in full. then we must manage our future spending and bring down our debt.

no one takes our national debt more seriously than i do. as a republican governor, working with a democratic senate and house, i balanced the budget eight years running and worked with colleagues from both sides to ensure that our state honored its debts and expanded its economy. later, i joint a task force that endorsed painful measures to put the country's house in order. i urge members of the committee and the full senate and house to engage in a way to find long- term solutions to our growing debt levels. if confidence is lost in our country's willingness to pay its bills, we will have lost

something that may be impossible to regain, the world's trust. thank you, and i will be happy to answer questions. >> thank you. you may proceed. >> chairman johnson, members of the committee, i am the president of financial markets association. thank you for asking me to testify today. given the role that debt plays as a world court see, any

default would negatively impact the economy and disrupt the operations of markets. the market has signaled concern regarding the debt limit, resulting in a dramatic pricing effect on the short end of the treasury market. investors are voting with wallets and feet. all we believe the time is long overdue for the administration and congress to develop long- term solutions to our challenges, voluntarily defaulting on the nation's obligations should not be an option. should congress failed to raise the limit, it would trigger a series of events which would lead to the american taxpayers paying more to finance the debt. even a short-term failure would

impair market obligations with consequences. [indiscernible] the threat of default rose in 2011. we believe market participants are prepared to deal with scenarios that a failure would present. a default by the government would be unprecedented and the consequences for market and economy would be dangerously unpredictable.

no amount of planning can mitigate all the potential consequences. while we assume any missed payments will be made, the impact of a missed payment on the broader market of securities may impact the price of treasury securities which could impact clearinghouses. it is entirely possible that defaulted securities would be deemed not eligible. since filing testimony yesterday, participants have continued to review enhancements that could mitigate operational risk that has been identified. it is important it avoid distractions in the market and participants review ways to improve resiliency. treasuries are the world's safest assets. shrinkage in the market would further pressure rates, raising costs, disrupting collateral markets because of the margin that would reflect the overall

pricing of collateral. given the uncertainty, economists have developed a playbook that will give providers a forum to share information about the developments, including the administration and congress and the status of the providers. of particular concern is an indication for treasury debt securities will be extended and whether processes are being or can be delayed. it is important for the market to know as early as possible the treasury intends to extends payments. securities are traded in the market, with the day beginning in asia at 8:00 p.m. eastern time. participants normally run their processes earlier to provide a

clear cut off to protect their positions. failure to provide early indication could obfuscate positions and could cause confusion in the asian markets. the disruption to pricing behavior is impossible to predict. u.s. debt obligations is the currency for the world market, and short- and long-term consequences to the taxpayer can be anticipated, but the limits on the ability to transfer, sell, and post collateral would only serve to undermine investor

confidence and hurt our recovery. members have free will he called on members of congress to put our fiscal house in order, but a default will result in permanent damage to our economy in ways both anticipated and unanticipated and must be avoided. i appreciate the opportunity to testify and i look forward to answering your questions. >> thank you. you may proceed. >> chairman johnson, members of the committee, on behalf of the one million members of the national association of realtors, whose members practice in all areas of residential and commercial real estate, thank you for the opportunity to share our concerns about the potential economic consequences of not raising the statutory limit on our nation's debt before the limit is reached. i'm gary thomas, president of the national association of realtors. i have more than 35 years experience n the business, and i am the broker-owner of evergreen realty. it is no secret that real estate is a cornerstone of our nation's economy.

it represents roughly 18% of our nation's gnp. as the housing market has recovered from the great recession, it has contributed to our nation's growth, especially since 2011. home sales, prices, and residential construction are all on the upswing. for example, home sales were 13.2% higher in august 2013 than a year earlier. home prices have increased 15%. these key housing indicators have been supported by low mortgage rates and improved confidence. the housing market has not fully recovered.

maintaining momentum in the market is particularly crucial right now. housing recovery could stall if the debt limit is not addressed. a default or even a perceived threat of a default could undermine a distinct economic advantage that has taken us centuries to build. undermining our stability and raising costs today and for generations of americans to come. it is impossible to predict the exact economic impact in the event of our nation is unable to pay its creditors. the significant economic disruptions that resulted from the 2011 debt ceiling impasse is a useful guide.

financial market disruption, reduced consumer and business confidence, and slower job growth all happened when the debt limit was not increased until the very last minute. in the event of a default, a series of events would occur causing a domino effect resulting in higher mortgage rates and increasing costs of buying a home. historically, an increase in the mortgage rates of one percentage point reduces home sales by roughly 350,000 to 450,000. this would wipe out any increase in home sales predicted in 2014. a decline in home sales would also have a broader impact on our national economy. roughly 700,000 to 900,000 fewer jobs would be created as a result in a 1% increase in mortgage rates. for a borrower earning $60,000 a year and taking out a $200,000 mortgage, that 1% increase would raise the monthly principal and interest payment by nearly 10%. any decrease in the consumer's disposable income has negative economic effects. higher mortgage rates and lower consumer confidence are both likely to follow in the event of a default. if we look back to the debt ceiling debate of 2011, consumer confidence plummeted 22% following the impasse. our economy has been able to bounce back from the 2011 that ceiling debate. but the impasse prolonged the housing downturn. the result was the real estate market did not begin to turn around in earnest until 2012. as the housing market heals, mortgage rates have increased from historically unprecedented lows. meager increases in family income have squeezed the affordability of homes. affordability has gone to the lowest levels since 2006. with sentiment already facing headwinds from rising interest rates, the recent government shutdown will likely be an additional blow to consumer confidence. u.s. economic expansion will be even more susceptible to the adverse effects from a debt ceiling impasse. we have already experienced a negative economic consequences from the prospect of a default during the debt ceiling impasse of 2011. let's not repeat this mistake again. more importantly, let's not allow a debt limit impasse lead to the united states defaulting

on its debt. thank you for the opportunity to share our thoughts, and we look forward to working with congress and the administration on efforts to address the challenges still facing this nation hostile housing market and overall economy. >> thank you. mr. stevens, you may proceed. >> chairman johnson, members of the committee, thank you for the opportunity to appear. i am pleased to have the opportunity to testify. to date members of ici manage more than $15 trillion in assets. the most recent ici report show that registered funds held more than $1.7 trillion in securities issued by the treasury and by u.s. government agencies. that accounts for more than 10% of fund assets. u.s. treasuries trade in the deepest most liquid market in the world. treasury securities have always been regarded providing the risk-free rate of return. a key factor in pricing other assets, including corporate and municipal bonds. today that notion of the risk- free rate is in serious jeopardy. today, washington, the federal government, is itself the single greatest source of risk to the

global financial system. immediate threats to the financial stability is the looming stalemate over the federal debt ceiling. we must not lose sight of longer-term hazards our nation faces if we fail to take decisive action to contain the growth of our national debt. after all, there are two things that individuals and households or nations -- must do to maintain a high level credit worthiness. they must pay their bills on time when they come due. and they must avoid taking on more debt than they can reasonably afford to service and repay. for our nation, ignoring either of these principles will be ruinous. a treasury default precipitates a sudden crisis and a degradation of the united states' financial standing. failure to bring our debt under control will be equally destructive, and with current trends is even more likely. what makes the treasury markets so deep and so liquid is the certainty of investors that the u.s. treasury will pay its obligations on time and in full when interest and principal come due. once treasury misses or delays a payment, investors will learn a lesson that cannot be unlearned. treasury securities are no longer as good as cash. future risk of missed payments will be priced in. he already can see early signs of these concerns developing in the market, as the october 17 deadline approaches. should the treasury default, the effects would quick lease will be on the treasury markets and into the broader economy. multiple shocks, cash shortfalls for holders of the treasuries, higher interest rates, the missed -- and pressure on the dollar would be likely to undermine economic activity. the impact would persist well beyond any resolution of the debt ceiling and repair of the defaults. let me stress that default is by no means uniquely a problem for mutual funds or other investment companies. nothing about their structure makes them any more vulnerable than any under investment vehicle. because the health of the treasury market underpins virtually all financial markets, the damage of a default or even of a second near miss in a little over two years' time will be visited on every american who saves, invests, or has any stake in the economy. with our focus on the debt ceiling, it is easy to lose sight of the other looming risk, the unsustainable long-term growth in our national debt.

the tax-and-spending bargains reached so painfully in the last three years have slowed the growth of that for the short term. the office latest projection shows that that progress will be short-lived. by 2018, income will be rising as a share of gdp. by 2038, federal debt held by the public will reach 108% of gdp. these scenarios in our long-term trends do not promise a bright future. i have two messages today. first, no one should take lightly a default on united states debt obligations. the creditworthiness of the united states must not be put into question. second, those who dismiss or minimize our current budget problems are also playing with fire. the risk they are taking may be less immediate, but they are no less consequential, and the longer the nation delays action, the larger and more difficult the necessary corrective measures become. thank you, mr. chairman, and i look forward to your questions. >> thank you all for your testimony. we will now begin asking questions of our witnesses. with the clerk please put five minutes of clock for each member. this question is for the full panel. no matter where you stand on fiscal issues, or even health care, should congress seriously entertain a default on our debt, and what do you believe is the most troubling long-term impact if the u.s. does not pay its bills on time? mr. keating, let's start with you. >> as noted by my fellow panelists, if the united states defaults on its debts -- a little bit or a lot -- would be calamitous. we have to think in perspective what has occurred over the course of the last number of years. from 1789 when our republic was

established until the year 2000, the debt was $5 trillion. according to the policy center, the rivlin-domenici panel, between 2000 and 2009, the national debt roughly doubled. now it will double again. the figures are scalding, and i am sure that the congressional panel, as well as simpson- bowles, and i am sure rivlin- domenici found the same thing. in 2020, it will be $1 one dollar trillion a year just to pay the interest on the debt. by the year 2025, every set of federal tax revenue will go to social security, medicare, and interest on the debt. what is required as noted is to it through the default period because it will obviously raise interest rates and create real havoc in the community bank environment, most particularly,

the ability to borrow and lend money, and then sit down aggressively and in a bipartisan fashion to focus on this runaway train. in 1950, the average person retired at 62 and died at 69. or 65 and 69. today, the average person retires at 62 and dies at 80. we are mercifully living a lot longer, which is causing huge stresses in our ability to provide for the elderly in the united states, and it will continue to diminish and darken over the course of the next 20 years. >> mr. benson?