, as we move beyond the debt ceiling issue we want to focus on foreign policy. writer us as the senior of foreign policy. thank you for joining us. first question. what i wanted to ask you about egypt. elected democratically president overturn in july. he has been held at an undisclosed location. we heard he will be put on trial in november. given the fact this was almost any other country in the world we would have cut off all of our aid, what are you opposed to what the president decided to do? i know you expressed concerns. can you tell us why. >> you have to look about the total picture. egypt has been a strategically important country to the united states for 30 or 40 years. thet of the fulcrum of

policy stance with having a good relationship military to military with egypt's military and our military. think that when a government or a country with which you are allied does something that you do not like, i think there are different ways of reacting than simply saying we're going to punish you or cut this off or that off. we have very close military to military ties. let's use it. i think you have to look at the biggest picture. when mr. morsi was in power with the muslim brotherhood, we had no assurances that the alliance between our two countries would continue. we had no assurances that the peace treaty with israel would continue. we had some assurances but it was lukewarm and half-baked. tunnels forof

instance going from egypt into the hamas terrorist carry out. that was not done under the previous administration. i think you have to temper it. mistake.t was a i think it should not have been done. family.t things in a there were times it you have disagreements with your spouse or your children or parents or what ever. you try to look at the big picture. you do not adjust/break ties. ties but did not break i think particularly with egypt, we had to be very careful. we have to get it right in egypt. i would prefer to engage the

military rather than punch them, which i think makes it harder to engage them. >> do you think the military is really responding to any of our jesters, -- gesutretures? they seem to be operating without much u.s. influence. what influence do we have? >> i mentioned the tunnels from have closed about 57 or 58 of them. there are all kinds of things behind the scenes river where they are cooperating with us. doing some things i dislike. i think we need to keep pushing them. youoint is where can have more influence on them? can you have more influence if you are working closely with them and you have access behind the scenes, trying to nudge them in a certain direction or you have more influence if you say

we do not like what we're doing -- you are doing and we are not going to send you all the things we told you you're going to send you? is the former purity you stay engaged. you try to gently nudge them. see a civilian return rule in egypt. the bottom line for me is this. .e have two choices in egypt the egyptian people have two choices. we don't. there are two choices. it is the muslim brotherhood or it is the military. we are not going to have a western-style democracy anytime soon in egypt. given those two choices and given how mr. morsi and the muslim brotherhood ran egypt, it is much more important and better to engage of the military than with the muslim brotherhood. >> the white house has been reluctant to say a cu took place. what happened? was it a queue? >> you could say it was a cu or

you could give excuses and say egyptianto derail democracy. >> what would you call it? >> i think it is a semantical question. i think what the administration is trying to do is trying to walk the middle path. they didn't want to call it a not want toy do condone it. i think what they did this week was to go down the middle path. i just disagree with what a middle path is. i think it is better to keep egypt engage. if you call it a coup and you cut off aid, that is cutting off your nose and despite your face. i think it will come off to fight us in the end. you cannot do these things in a vacuum. you have to look at how it affects what you attempt to do,

what you want to do, what the greater policy should be. i am against anything precipitous. >> as you know, for a long time we were charged with having backed a military autocrat. heart of the narrative was that they were replaced by a how murkyno matter and how muddled. israel is more comfortable with the military government. do you think we should be too? >> i do. , right nowneed to the military took over. we need to nudge them and push civilian and control as soon as possible. i think right now it is what it is.

we spend billions of dollars every year in aid to egypt. now is the time to use the ties. we do it with what is practical. we do it with the rainy day. will it do things we do not like? sure. i go to the premise that you are better off in the same room with them talking with them, being their ally. you can have more influence over what you do than saying we're going to turn our backs. we turn our back. we had both sides with us. choose from an american perspective dealing with the egyptian military with whom we have had ties for many years or the muslim brotherhood,

i will take the military. i think that is what american policy should be. not to condone some of the excesses. it is helping to change it. you're better off doing it from inside the room then from outside. said there was a dichotomy. if there was a restoration of civilian rule or a vote, is there a possibility the muslim brotherhood or a group similar would win again? if that happens, what do we do then? >> i think they would not win again. there are a lot of egyptians who voted for the muslim brotherhood who expected a different type of went the muslim brotherhood took over. i think they sell that when morsi took over he was a dictator. he was autocratic. he was squelching democracy into the enhancing democracy. i think there are a lot of egyptian voters who would not

vote that way. let's remember that the uprising started the arab spring started with all good intentions. it is a lot of by groups who do not believe in democracy or in the values that the initial people who revolted believe in. we have seen it actually in syria as well. it started out as people who are just fed up with the autocracy of the government in syria, assad and his people, the free syrian army. we really wanted to bring democracy to that country. now you have had it co-opted by all these jihadist groups. 1979w that with the iranian revolution. the people rose up against the they thought was

autocratic. i do not think they thought they were going to get a theocracy. i am confident the egyptian people would not vote for the same kind of government. they saw what the muslim brotherhood do it. it was not good for egypt. the israelis have signaled their discomfort with the obama administration's decision on egypt. they also are nervous about the recent charm offensive the new president has conducted with the and when the president bag down on his intention to strike in syria, that reverberated. hurtingdministration its credibility with the israelis? does that heighten the chance the israelis might do something on their own when it comes to iran? asthe relationship is strong it has always been and will remain. regardless of who the president

,re or the prime minister members of congress come and go, the u.s./israel relationship has a bedrock of u.s. foreign policy years.y the information that the united states and israel shares is almost like no other relationship in the world. think there is a problem with the relationship at all. they are differences opinions ns. i things that are important, think israel and the united states are marching as one. i think both of our country see the iranian nuclear threats. i think there were similar feelings in syria. the recipient of u.s. aid. the iron dome system preventing

missiles from killing civilians. champion ofama is a that. it has been focused on diff. from time to time there were disagreements. i go back to the family and analogy. you understand from time to time you may disagree. aims are thed same. i think that history with the united states and israel. >> if the thread dissipates with a wrong, would you support lifting economic sanctions? >> yes. the devil is in the details. it is not as simple as lifting economic sanctions if the irani and talk with us. we do not have a lot a time to stay and decide is seriousnot this or not. they have played this game in the past. they are masters that find time

and nothing happened. very quickly we have to assess is this offensive for real. there are people that say rouhani is a moderate. in my view he is no moderate. no moderates were allowed to run for president of iran. they were all thrown off the ballot by the supreme leader, a man who remained in the person who calls the shots. it is not even clear that if he has theted things power to do so. i think we have to be very careful and concerned about that. again, i think we will see. we will see very quickly if they are playing us for time. there have to be some real tangible changes. >> that i could shift to another country and this happy part of the world, do you trust that

bashar al-assad can be trusted to carry out the destruction of this chemical weapons stockpile? >> i do not trust our thoughts. i do not trust them in. -- putin. how are we making a deal with both of them? an international monetary number. se weaponshat gets the ga intoss destruction and national hands or they will be destroyed is a very positive development. -- where they will be destroyed as a positive development. i have long been a critic of .ssad i rode the syria accountability act. -- i wrote the syria accountability act. in 1979, the state department

promulgated a list of countries that supported terrorism. syria was on it. 70 years later we are the only one. i got this legislation passed. they were supporting terrorism for doing all kinds of things. we have to watch very carefully. i was a supporter of aiding the rebels. a supporter. what has happened in syria is that it has gotten murky, jihadist rushing in from all over the middle east. destiny -- wendestinely or not use it, need to make sure they do not get into the wrong hands. that makes it a problem. >> a quick follow up. you have heard from some of the syrian rebel leaders, this

feeling they have been hung out to dry. is that right? have they been betrayed on some level? on what you want to see. the president was going to have limited strikes on syria which the rebels wanted to see. u.k.arliament in the turned it down participation. the president decided to go before congress to give the authority. i was in the middle of that. a very rough going. it was very questionable whether the president would have been to voteget the majority for strike on syria. they would try. they were working very .iligently what we got instead was in

agreement to get rid of the weapons of mass distraction. i do not think it was a sellout at all. i think we got something very tangible. i would also say it was the credible threat of american force that helped broker that deal. assad and the russians knew we were prepared to strike. i think that helped do that. that is also true in iran. iranians have to know that when president obama says that all options are on the detail that he means it. i hope you never come to a military option but it has to be there. syrians are not going to bargain in good faith. now, it seemss assad has started working with is helpingat dismantle some of these chemical weapons in syria. it at some point he stopped

doing that and there are signs he is trying to game the system, do you think the president could come back to congress or is that completely moot? moved atot think it is all. i think circumstances change and the president would come back to the congress and say we chided the other way and it did not work. that time thatat he would need some authorization, i think people would give him a fair hearing. part of what the president ran into was the american people are tired of conflict. time in iraq long and afghanistan. this country is war weary and rightfully so. no one wants to see the united states dragged into another thing where we cannot control it. i think the president was right when he pointed out very clearly that this is not going to be put on the ground. this is not going to be, you

know, with a rock there was a question about whether saddam hussein had weapons of mass destruction. there is no question that syria does. it is a very different situation. i think we have to be careful. the united states is still a world leader in the world power and everybody wants us to be on their side. i think we have a responsibility not only to the world but to our families. we have interests. we had to sure the interests are there. the president was right when he said that using gas to kill your own people is one of the worst things anybody could do. up.et me follow over 100 thousand people killed inside syria. at least 1.5 million and probably higher refugees in jordan and turkey and libya. some have said that this is another rwanda. is it? >> yes, i think so.

bill clinton has said that his major regret was not doing more --save slaughtering or wanda slaughtering or he wanted. i remember going on shows like and save the world has to intervene. -- and the world has to intervene in places like rwanda. it was a terrible massacre. there are times with the .nternational community needs to come together. frankly, in many cases we are nes with the power to do it. >> was it a mistake not to get

involved sooner in syria? beenfelt we should have sending arms to the free syria we finally before did it. alwaysw, hindsight is 2020. it is always like you cannot prove it. i believe that if we had done it perhaps it would be less thedist fighting and opposition would be more of the andcratic freedom fighters the free syrian army. >> do you think realistically it is too late for there to be missile strikes, anything that would be a direct military involvement that might prevent further genocide or slaughter? i think as long as the syrians and russians are terms of then

gass, i do not think it is a necessity to strike. i believe ultimately the civil war in syria is going to be decided politically. i do nothing either side is going to win it militarily. another ominous thing is that hezbollah has entered into the war in syria, fighting on the side of assad. iran.hows you the hand of iran's proxy. they are a terrorist organization obviously. d has virtually become iran's proxy in his own country. not want to get involved militarily. as long as they destroy these poison gases, i do not think we have to. >> i wanted to switch to another subject. the fact that the latest gridlock in washington kept the president from going to asia

last week. i was curious what you are hearing from foreign leaders with concern about what is happening in washington, how it is hurting our image abroad. if we cannot lead within our own country, what that means for our leadership overseas. at is happening in washington is disgraceful. it is putting americans out of work. the stock market is going crazy. i am just appalled at how cavalier some of my republican colleagues are with this thing that the debt ceiling does not really matter and playing with fire. are blaming people the republicans. rightfully so. if they are the ones i shut down the government and are now playing with the debt ceiling. when they played with it a few that our, we saw ratings were downgraded by

standard & poor's. this is not something that should happen. it almost makes us a laughing stock. it is very dangerous. it ought to be stopped. we should have a clean resolution to both raising the debt ceiling and also to open the government. i think the president was absolutely right to stay in washington. some criticized him. they would've criticized him if he left washington for a foreign summit. they would have said he belongs in washington. the secretary of state was there. how tory kerry know handle things. i think he handles it well. i think people understand that the president had business in washington. it was not of his doing. he does not like it. he would rather not have this crisis. i think he did what he needed to do. when we get there all these issues, does congress have an

appetite to get into this issue or will it be pushed off in 2015 after the midterm election? >> i hope not. i think immigration reform is something whose time has come. it is something most people understand needs to be done. i hope that will not be a casualty. i know on the democratic side we feel strong about it. the senate passed their version. some of them signed onto nancy pelosi's version. i think it is important. i think there are some people in the republican party, it is a small faction, who understand even they are better off politically to get this issue behind them. the most important thing is for the american people. we need to tackle immigration reform. it is the right thing to do. we should do it as quickly as possible. >> one final question. seems toea where there be agreement is outrage about

military families who lost someone and are not receiving death benefit. they're asking chuck hagel to resign. do you feel like someone -- some people in the pentagon should be fired? >> i do not think so. i do not think chuck hagel should be resign -- should resign. we have this crisis now. it is a self-inflicted wound. congress passed the bill. the president signed it. we're going from crisis to crisis unless the debt ceiling is raised and people are put back to work. we have all of the self- inflicted wounds which are the because one small party faction is controlling the republican party. i do not think it is anybody's fault except the tea party republicans are holding the entire washington establishment hostage. , thank you very

much for being with us. >> thank you. we continue the conversation with our reporters representing foreign policy and cq roll call. let me get my asking about syria. a story that was so front and homage to the back of newspapers. >> it is really quite striking. it shows you the short attention span of the political elite and possibly the rest of america has on syria. how little theoo american people really wanted to get involved in syria in the first place. is something ultimately republicans and democrats have backed off of. it reinforces a lot of that apathy that there was out in the country. >> what did you learn with engel?sman

>> even he did not have much enthusiasm. he was not interested in increasing the amount of weaponry. this is a man who had called for them in the past. he is not so worried about islamist groups being at the forefront in that a man who wanted to fund money to a weaponry to searing rep were -- syrian rebels, you could hear it. what is the relationship like between the u.s. and israel and specifically between the president and prime minister? >> he was putting the nicest possible gloss on that. it is an open secret that they do not get along well on a personal level. there's not a lot of trust and israel right now because of the syria deal. they have begun this privately and publicly. syria was a red line that was so

quickly erased. iran?appens with this is a country that is exhausted and does not want to be in another war. you look at this administration say you said it was a red line. it was not. egypt.egan talking about did he make news? >> what he reflected is something a lot of politicians want to say. comfortableare more with the military government even though it may not be terribly democratic than they were with the muslim brotherhood. >> he was pretty candid about it. >> more candid than almost any what i have heard. that is going to continue to play out. any further aid that the obama administration wants to restart a reprogram, they have to get congressional approval. there will be an interesting debate on how we continue to

sort of a recalibrate the administration -- if the administration keeps saving the administration. quickly will conclude on that note. thank you for joining us. >> we will conclude on that note. thank you for joining us. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2013] >> the senate returns at 1:00 eastern time. negotiations continued among republicans and democrats on capitol hill and president obama. funding for all government options expired september 30. this has been shut down since october 1. you can watch live coverage on our companion network c-span2. part two of our conversation with josh bolten. out by giving us what you saw with the press, the media, and that world. how did you view them?

usually, with some hostility. natural state of affairs between the white house and the press corps. that is just the nature of what the press needs to do. they need to try to catch the white house out on whatever is going on. >> more with josh bolten tonight at 8:00 on c-span. >> next, jack lew testifying before the senate finance committee on raising the debt limit. the government shutdown on october 1. it has made more difficult to predict how much revenue the government has to pay its obligation. according to the treasury department, the deadline is october 17. this hearing is one hour 45 minutes. and they are carrying out

>> is meeting will come to order. a young legislator spoke before a gathering and spring for illinois. at the time america was deeply divided. he warned that the greatest threats to the young democracy were internal. he said in danger ever reaches us it must spring from amongst us. it cannot come from abroad. we must be its author and finisher. as a nation we must live through all time or die by suicide. the actions of the past few

weeks, the extremism of small core members have crippled congress and put our nation on a very perilous path. for more than 200 years the united states has been true to , paid its debts. today, a small group of hardliners is using our economy as a bargaining chip to repeal the affordable care act. we are not going to let that happen. the affordable care act is not going to be dismantled in this budget fight. the issue is not up for debate. our committee wrote the affordable care act. i am always open to this committee working together to strengthen the law to better serve the american people. as the president said, we cannot negotiate under the threat of default on the nation's bills. before any debate, any deliberation, we need to reopen the government and pay the nation bills, no strings

attached. then, we need to work together, return to regular order, address the nation's long-term budget challenges, including entitlement and tax reform. right now, we need to prevent another self-inflicted wound to the economy. that is what he faulting on the debt is, a self-inflicted wound with global consequences. the deadline is fast approaching. in seven days, the u.s. treasury will have exhausted all extraordinary measures to stay under the debt limit. the u.s. will be at the risk of defaulting on payments. the united states, the richest, most powerful nation in the world, will be forced to look for loose change in the sofa to pay bills. while the shutdown has been disruptive, a default would be a financial heart attack. it would have widespread, long- term economic consequent is.

the national markets are already showing stress. the dow has dropped 800 points in last three weeks. one month treasury bill rate has risen to its highest level since the 2008 fiscal crisis. if the debt ceiling is reached, the government would have to slash federal spending by 20% to 30%, driving the nation back into recession. the paint would be felt across every sector of society. social security, medicare, funding for highways, every government program would be devastated by cuts. families would feel it firsthand, with dramatic problems to retirement savings, jobs would be lost, home values would plunge, interest rates on mortgages and student loans would soar. some have said we can avoid default by prioritizing payments.

this would force treasury to pick and choose which programs to pay, forcing vital programs like social security, medicare, to compete for funding. this idea is irrational. a default would have a catastrophic impact on the global economy, as well. president of the world bank warned that the default would have consequence is for the world economy. christine lagarde, imaging director of the imf, said it is "mission critical" to resolve the debt limit 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 are the most important economy in the world. the dollar is the worlds reserve currency.

our treasury bonds are the backbone of international financial system. a default look at the global economy in chaos. of that, there is no doubt. last week, the treasury warned us that a default would cause a "recession that could echo the events of 2008 or worse." have people forgotten what happened in 2008? the collapse of lehman brothers set off a financial earthquake. markets plunged, unemployment surged, market confidence was shattered. it upended lives across the country, the aftermath can still be felt today. we cannot let that happen. we have a responsibility to avoid another economic disaster. our leadership, our resolve, will be tested in the next couple days. all of us in this room, we have

an opportunity to pull america back from the brink. earlier this week, i introduced a bill with leader reid that would get us past the stalemate. it extends the nations borrowing authority to the end of 2014, past midterm elections. it is a clean increase without amendments, allowing the u.s. to pay its bills and avoiding the default. this short term solution will pull us back from the edge and allow us to pause and take a deep breath. i have been in the senate for close to 35 years, and congress, going on 39. i have seen partisan fights. but never in my mind have i seen

washington so angry, so gridlock, so broken. it does not have to be that way. i know the public might find it hard to believe, but there are some reasonable people 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 say to them, all my colleagues, now is the time. now is the time for congress to stop refighting old battles. now is the time to come together and do what is right for our nation.

now is the time to come together and reopen the government and fulfill america's financial obligations. lincoln once said "i am a firm believer in the people. if given the truth, they can be depended upon to meet any national crisis." that is why we are here today. we need to give the american people the truth. the real facts, only then, when everyone understands the real crisis at hand, the facts and the truth, we will be able to meet the crisis. >> thank you, mr. chairman. i want to thank you for holding today's hearing on the debt limit. i went to welcome you, secretary lew, we appreciate your time. during debate over the debt ceiling increase in 2006, then senator obama stated that the fact that we are here today is a sign of leadership failure. leadership, he said "means that the buck stops here. instead, washington is shifting the burden onto the backs of our children. america has a debt problem and a failure of leadership. americans deserve better." secretary lew, on that day, our gross debt was $8.3 trillion. it is now more than twice that, $16.7 trillion.

that represents 107% of the size of our economy. as the congressional budget office has made clear, this poses a large economic and fiscal risk. during that same 2006 debate, then senator biden said "why vote against the debt limit increase, you cannot change the fact that we have incurred this debt already and will no doubt incur more. it is a statement that i refuse to be associated with, the policies have brought us to this point." what a difference in attitude there has been. now, president obama and vice president biden preside over an administration that tells us that raising the debt limit, in your words, secretary little, "allows us to pay our bills." secretary lew you have stated that only congress has the

ability to there will be no increase if the president does not agree. despite your public statements to the contrary, it is not true that raising the debt limit has only to do with spending congress has already approved. this argument is based on a premise that congress makes spending decisions unilaterally and that the executive branch plays no role in the process. that is sadly false. no amount of spending can be enacted without the president signing it into law. while obama's budgets have not been well received, even by democrats, he has traditionally been deeply involved in congress' efforts to set

spending priorities. the administration also issued statements of administration policies and veto threats on spending bills and other pieces of legislation. presidents work with congress all the time to enact agendas. we remember how president obama unveiled and pushed his trillion dollar stimulus through a democratic congress. in addition, this president has made unilateral decisions with no input from congress that have had an impact on federal spending. for example, the decision to delay the employer mandate under obamacare, which cbo tells us will cost an additional $12 billion to our deficit. congress never voted on the delay. it was a unilateral choice made at the treasury department. in short, the notion that questions surrounding spending our congress' to answer, that is

a case of false advertising on the part of the obama administration. there have been other instances of false advertising concerning the debt limit. one is the president's claim that non-budget items have never before been attached to the debt limit. a claim to which a fact checker at the washington post assigned for pinocchio's. in fact, of the 53 debt limit increase is passed since 1978, under both republican and democratic presidents, only 26 were "clean." in 2011, for the first time in recent history, people were commenting on the inability of treasury to make timely payments. if you go back to president clinton's administration and read some press conference is held by then treasury secretary rubin, this is also false. i ask permission to enter a reprint of the press conference

that supports this position, along with an associated article from "the new york times." i hope that during today's hearings we did not regress into comparative recollections of history. the issue that we face is marred debt limit increase. another debt limit increase. there have been seven since the president came into office. raising the limit to the current amount. they can increase of $5.4 trillion. when talking about future increases, all the administration will say is that they want a "clean" increase and that they refuse to negotiate. we do not know what they mean by a "clean" increase. we don't even know how much of an increase they want. even making such desires known would be a negotiation. it is neither productive or helpful to resolving the impasse. what the administration appears to be saying is that it is up to congress to increase the debt

limit and to decide how much and for how long. this raises more questions than

answers. does that mean that if congress chooses to enact a two week clean debt limit increase, the president will sign it? according to public statements, because congress is solely responsible, such a hypothetical stopgap would be fine if that is what congress chooses to do. i do not think that is what the president is looking for. in the past couple of days, the president has expressed willingness to entertain a short-term increase in the limit, which sounds like a willingness to negotiate terms. the president's statements are still short on details. it is also disconcerting to have administration officials, including you, publicly questioning sentiments of americans and financial record participants and suggested that people may be too calm. it is disconcerting that you have suggested that payments of social security benefits to retirees and disabled workers are at risk, especially because you are a trustee of the social security trust funds. administration officials are

the administration refuses to 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 structural entitlement reforms without assurance that he first gets another tax hike. more often than not, what we hear on entitlements is a series of disclaimers as to what reform proposals they will no longer consider. that list seems to get larger everyday. the biggest question i have is, it is the obama administration will not negotiate on the entitlements in the context of the debt limit, when will they negotiate on entitlements? i have put forth five, modest, bipartisan reform proposals and personally gave them to the

president earlier this year. you have copies of these proposals yourself. to this day, i have yet to hear a response. i cannot even get conversations from the administration about my proposals that i offered in good faith, well before the debt limit was an issue. most recently, the senate majority leader has introduced a "clean" debt limit bill that would increase the debt limit until january 1, 2015, raising the limit by 1.3 trillion dollars or more. that apparently is the position of the senate democratic leadership but it is inconsistent with the president's willingness to accept a short term increase. my hope is that during the course of this hearing, 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 arguments that have dominated the administration's rhetoric regarding this issue. our nations debt is now larger, as a share of our economy, than any time since the spike up in world war ii. despite the rhetoric of the administration, our growing debt is not the result of decisions made by congress. it is not all due to the financial crisis. and it is not all the result of tax relief enacted under the bush administration. it is a problem that all of us, both congress and the executive branch, need to deal with. the only way to deal with it is to confront our unsustainable entitlement spending, which will require the administration to do something it is refusing to do, negotiate. secretary lew, as president obama said in 2006, americans deserve better. i appreciate you holding this hearing. >> thank you.

before the secretary of the treasury begins, i would like to remind members that we have to be very efficient with our questions and our answers. the secretary has an engagement a couple minutes after 9:30. i urge us to respect others so that we all have a chance. >> thank you, mr. chairman. i appreciate the opportunity to appear here and i appreciate the invitation to discuss the potential impacts of a failure of congress to increase the debt limit. congress has an important choice to make. congress alone has the power to act to make sure that the full faith and credit of the u.s. is never called into credit. no congress in 224 years has allowed our country to default. it is my 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. today we face a manufactured local crisis that is beginning to deliver an unnecessary blow to our economy. right at the time when our economy and the american people have 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. at our auction of four week treasury bills, the interest rate tripled, reaching the highest level since 2008. measures of expected volatility in the stock market have risen to the highest levels of the year.

the only way to avoid inflicting further damage to our economy 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, 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 to work with the president to address fiscal challenges in a balanced fashion. republican and democratic presidents have understood the importance of protecting our most important assets, the full faith and credit of the u.s. president reagan writ to congress in 1983 "this country now possesses the strongest credit in the world. the full consequences of a default or even a serious prospect of default by the u.s. are impossible to predict and often to contemplate. denigration of the full faith and credit of the u.s. would

have substantial effects on the financial markets and on the value of the dollar." if congress fails to meet its responsibility, it could deeply damage financial markets, the ongoing economic recovery, and the jobs and savings of millions of americans. i have a responsibility to be transparent with congress and the american people about these risks. i think it would be a grave mistake to discount them. for these reasons, i have urged congress to take action immediately so we can honor all of our countries past commitments. the treasury department has regularly updated congress for the last five months as new information has become available about when we wet exhaust our extraordinary measures. in addition, the treasury has provided information about our cash balances. i have consistently provided updates and given congress the best information about the urgency to act.

i met with the full membership of this committee last month to discuss this. the treasury continues to predict that the extraordinary measures will be exhausted no later than october 17. at which point, the federal government will have run out of borrowing authority. at that point, we've will be left to meet our country past commitments with only cash on hand and incoming revenues, placing us in a dangerous position. if we have insufficient cash on hand, it would be impossible to meet all obligations, including social security and medicare benefits, payment to military and veterans, and contracts with suppliers. at the same time, we are relying on investors from all over the world to hold u.s. bonds. every week, we rolled over 100 billion dollars in u.s. bills.

if u.s. bondholders decided that they wanted to be repaid rather than continuing to roll over their investments, we could unexpectedly dissipate our cash balance. let me be clear, trying to time a debt limit increase to the last minute to be dangerous. if congress does not act in the u.s. suddenly cannot pay bills, the repercussions would be serious. raising the debt limit as congress' responsibility because congress has the power to set the maximum amount of government can borrow to meet its financial obligations. some in congress have suggested that raising the debt limit should be paired with spending cuts and reforms. i have noted that the debt limit has nothing to do with new spending. it has to do with spending that congress has already approved and bills that have been incurred. failing to raise the debt limit would not make these bills disappear. the president remains willing to negotiate over the future directions of fiscal policy, but he will not negotiate over

whether the u.s. should pay bills. certain members of the house and senate also believe it is possible to protect our economy by paying only the interest on our debts. while stopping or delaying payments on other commitments. how can the u.s. choose whether to send social security checks or pay benefits to veterans? choosing whether to provide food assistance or meeting obligations to medicare providers. the u.s. should not be put in this position. there is no way of knowing the irrevocable damage such an approach would have on our economy and financial markets. leaders have a responsibility to make our economy stronger, not to create manufactured crises and inflict damage. president reagan in 1987 delivered a message applicable to us today. "this brinksmanship threatens the holders of government bonds and those who rely on benefits. interest rates would skyrocket, and stability would occur, and the federal deficit would soar. the u.s. has a special responsibility to itself in the

world to meet its obligations. the very last thing the economy needs is a fight over whether we raise the debt ceiling. not while we face challenges that require our full attention. and not when we know the damage a crisis can cause. i look forward to answering questions. >> i would like to focus on a concept that some suggest is the way out of this problem. and which some suggest is feasible. which i disagree with, prioritization. can you tell us what decisions you would have to make as treasury secretary, assuming interest was paid on the debt.

if you then had to choose which other obligations had to be paid. i know you cannot tell us which ones, nor should you, social security, medicare, military, what not. if you could go through the actual legal and administrative problems and consequences would be. include how much total that would be. my understanding it is about 70% to 80% of those programs could be paid. also, what effect it would have on the gdp. walk us through prioritization. >> mr. chairman, let me start by saying what i think should be obvious. if we do not have enough cash to pay our bills, we will be failing to meet obligations. 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 obligations. when questions are raised about prioritization, the first question is interest and principal on the debt.

what else? the legal issues even regarding interest and printable on the debt, r, given. principal on the debt is not something we pay out of cash flow. it is a function of the markets rolling over. there is a question of what we can do as a government how the markets function when the government is failing to pay its bills. we have never been there, anyone who suggests that they know what that means would be projecting. after 244 years of paying all of our bills, what happens when we stop? i do not know how you could choose between social security and veterans benefits, between medicare and food assistance. there is our obligations we have made. we would not have the money to pay our troops in full, our benefits in full.