if we are going to have an entitlement culture that now funds three quarters almost of the budget spending, and we will say congress has no say at all in funding those three quarters, we push the limit here. it is to favor the ease and convenience of governments. i think we are giving up something in the process. i think it is an inelegant way of doing it, but i think the right path is to have negotiations. the reason you have the debt ceiling and cliffs and any every president has negotiated with the congress and sometimes in a big way. reagan did it in 87, bush did it

at andrews air force base. in order to meet the debt ceiling. president clinton did at first but the democrats in 1993 and that it again with republicans in 1995. there were seven of these negotiations during bush 41. the reason the debt ceiling is therefore is for the power of the purse. that's it and you're supposed to have negotiations leading up to it. i think it's just slightly inappropriate to say i voted against it but now you guys have to vote for it without negotiating with me. there we go. >> i will bring it back to the distinction between appropriations and spending versus the debt limit. i want to start rudy on a separate issue.

as we look at the debt ceiling and have these panic moments in 2011, the most common thing people say is there must be a better way. you have thought a lot about this, is there a better way? >> certainly there are a number of better ways. basically i fundamentally disagree with larry. there is a paradox here. they always say to be effective in negotiations, you have to be willing to shoot the hostages. we have never been willing to do that in the 100 years of the debt limit. the real place to negotiate over spending and tax matters and including entitlements is when you are debating the budget resolution is when we set our targets for spending and revenue.

having a separate debt limit, i don't think it has served much of a purpose. it has not brought about fundamental reforms in and titled man's. one of the biggest things that happened around the debt limit was the big flaw and that was bipartisan. you hardly heard any mention of holding on the debt. in terms of what to do my first choice is to get rid of the debt limit law altogether. my second choice was alluded to by secretary lew. he noted what senator mcconnell did in the past, representative honda has a similar approach in the house. the basic idea would be that you would give the president discretion to set the debt limit one year in advance, the congress would be able to disapprove of what the president did, the president could veto

that law and then you would need a super majority to overturn the veto. my second choice would be to go back to thegephardt rule and that is to tie the debt to the budget resolution that was passed. there is a practical problem with that. if you do that rigorously, you've got to confront the problem that we don't forecast deficits very well. indeed, we often make huge mistakes. to make that rule work practically come i think you would need some flexibility and you would need a margin of error there. my fourth favorite thing to do would be to do with the australians do. >> that is why we have a mandate here. a few countries have a debt

ceiling and make less of a spectacle of it than we do. give us a little bit of perspective on how it came about and how it works in australia. >> the australian experience is relatively new. prior to 2008, we did not have a debt ceiling. attended to happen is the government would pass its borrowing authority each year alongside the appropriations bill. the decisions will be made around the budget and the financing decision would be made at the same time. in 2008, australia was in a unique situation having an ever declining government securities market that was running surpluses. did not have a standing authority to borrow in the absence of a deficit financing requirement to maintain liquid government debt markets. we introduced the debt ceiling at that time. of around $75 billion. so it could go through the active issuing securities to maintain an efficient and liquid government bond market.

it was not finding at the time. that quickly changed with the onset of the global financial crisis. it impacted budgets around the world including our own and the government did stimulus pending at the time. the way in which the global pricing played out, there is a need to increase the debt ceiling in australia which happen on a number of occasions around our budget. in december last year, we got to the point where we were running pretty closely up against the limits of our darling authority. there was concern at the time about what impact not increasing the debt ceiling or increasing it to an insufficient level might have on financial markets. the government proposed an increased the debt ceiling to $500 billion from $300 billion. this was not supported by the opposition in the australian parliament and one of our minor

parties they supported increasing the limit to around a lower level of $400 billion. it was not the amount the government had determined. they thought it was sufficient to cover is arlington authorities over the next couple of years. given the time limits on the concerns around at the time about the impact this could have on financial markets, a deal was eventually struck to remove the debt ceiling altogether from the statute. as i said, this lesson from 2008-2013. in its place, the australian treasurer is still required to issue a direction as to the maximum limit the government can borrow but that direction is tabled in parliament but can be as allowed by parliament. that is pretty much where we are now. >> we know there are costs

involved in defaulting on the debt. other costs involved in debating whether we would default on the debt? is there something we can measure their? other costs in your mind involved in not having a debt limit at all? >> before getting to that question my perspective is that when i look at this issue, it gets very complicated. the u.s. political system is very complicated. with the debt limit, you have the complexity multiplied by two. you have the budget process and appropriations process essentially a question of how big a deficit you will run and you have this separate discussion about how much debt will be authorized. if you look at it as a decision problem, it is a question of stocks and flows. you have a veritable which is running a budget deficit which

is a flow and that will lead to a stock of desperate you really only need to decide on one of those two things, not both. you cannot really decide independently of one another. looking at it from a market perspective and bringing the rest of the world into this equation, it makes a very complicated and rather opec and difficult to understand process. it's important because this is not just an issue of domestic u.s. fiscal policy. u.s. treasury securities stand as the linchpin of the global financial system. they have the penultimate faith/risk. faith that they don't revolt and risk if it has liquid assets which is embedded in the whole plumbing. the whole thing appears to many markets, especially the ones i

would have a dialogue with, as an unnecessary issue which then layers potential noise and potential risk into the system. >> you have seen the sperm from the perspective of the white house on the treasury department on strategy and messaging on this issue. we know reporters love drama and politicians love drama quite a bit and the debt ceiling provided drama around this issue of what is the public debt. do you think this drama is the only way the national debt gets widespread public attention? is there any other way? >> it is a high cost for drama. it risks the full faith and credit of the american government to have that conversation. in the past, the debt ceiling as a rhetorical opportunity

probably serve some function for some. of time. some of the negotiations took place in the past over the debt ceiling when they were over the budget. the debt ceiling became an opportunity for congress to use that and have a conversation about the size of the debt. they could use it as a reminder of out how big the debt has gotten. once it became dense once people started to take it seriously in the sense that there might be an opportunity to not grant the authority for administration to access the revenues and execute the programs that congress is mandating, once people started taking it seriously that was possible, and the cost became too high.

we have to remember that the debt ceiling was not created to place a strong constraint on government. we can go back to the english civil war and there were real concerns with kings trying to find other ways besides going to parliament and asking for tax revenues. they found other ways to get revenues to fund wars and other things. that's why parliament's and legislators sought the power of the purse. in this case, the debt ceiling here is a matter of convenience to save congress from the burden of having to specifically authorize the treasury to go into debt markets on a serious basis. every time the treasury had to go into debt markets, congress relieve the burden by throwing a debt ceiling out there that would prevent the administration

from going willy-nilly to incur debt on the government. it was really a matter of convenience. it was not a matter of trying to really restrain the executive in that way. we can talk about what the costs of that are and how that has changed over it time but lost in that process, and even in the case of then senator obama and others, there has been a real misunderstanding of what the debt ceiling really is and why it has become anachronistic. >> every time this issue comes up, there is usually a bill moving through the senate or the house about prioritization, the idea that maybe congress can pass a law to say that treasury secretary can pay the debt but not necessarily pay everything off and give us more leverage so we can push this issue even more. how would markets, if it were to

pass which it probably wouldn't, how would markets look at a default on general obligations while the u.s. continued to make the payments? >> i don't take you want to put the word default and u.s. fiscal policy in the same sentence. [laughter] when this issue came up last year market participants were furiously trying to delve into this issue. a lot of people tried to understand the plumbing of the financial system and how the fed works and how these esoteric issues worked. the conclusion that many people came to was that it's h just far too clever byalf. it's too complicated. what is really being done in the service of if this is all about

this rhetorical issue or a bargaining chip which is not going to be played. i don't think that is really the right solution to this issue. i don't think markets would breathe a huge sigh of relief is something that like that were to pass. >> you look at this issue and it's pretty clear that the speaker of the house, the senate majority leader, even the number two's, do not accept that the number -- that the u.s. would default. if everyone just views this as a spectacle, as something to use as a public debate when in the end something will pass to raise the debt, does this matter at all? shouldn't we just ignore this? >> first of all this is an inelegant way to do this. the question is -- do we want to have -- do we want to have the

capacity for unlimited spending by government without ever having to force a revisitation of that issue? it is an inelegant way unfortunately, because of the budget act of 1974. it is the only point at which this can happen. the problem is getting worse. i will try to turn the tables to the other side. does anyone even think that the -- you represent them maybe -- that the risk quarter payments to insurance payments -- companies should take place without congress voting on it? that is a non-discretionary item. come on, folks. we need to revisit the budget

process. my first choice is not one you mentioned. my first choice is let's go back and look at the budget act of 1974. talk about failures -- the budget act of 74 has failed. we have had exploding deficits and debt and everything else. there are elements of the budget act of 74 that are just designed that way. some things are defined as one year or 10 years and not doing a calculation on entitlements and that riggs a political case against entitlement reform. we need to revisit that issue. as part of that revisitation, if we simply put in that every congress mustre-approve whatever you call and entitlement so there is a vote there, then congress is actually forced to confront the choice. absence of that, we now have a completely runaway spending process. >> that's the beginning of the

first page of the bill right there -- remove entitlements from autopilot and remove the debt ceiling. would that work? >> well, some things larry and i can agree on. we should revisit the budget process. it is not working. nobody will claim that. on the other hand, i don't see the debt limit as being at all a substitute for the budget process. what have we accomplished in having it other than to create policy uncertainty and there is now a lot of academic evidence that policy uncertainty does affect decisions to invest and so on. i certainly think we have to revisit the budget process. i think we have to revisit it in the way that larry said. we have to start thinking about ways of imposing a budget on entitlement spending and

medicare and social security. stepping back, countries like the united kingdom and canada who have a nationalized medical system, they have a budget for their health costs and they live within that budget. it is really radical to think we can go that far but i think there are ways that we can limit the growth of these things, some of the ways of already been discussed in the congress with things like ring him support and things the bipartisan policy center have advocated for both medicare and medicaid. there is a way forward. the question is, how on earth do we do it in this political environment? >> when australia got rid of the debt limit, there were concessions to do that. transparency was one of them. do people actually noted what

happened and doesn't make any difference? >> at the time of the debate, there was a lot of attention around what might happen and how this would get resolved in parliament. it was the greatest part of the deal reached between the government and the australian green party that the government would include more issues on debt and payments and why our debt was changing in all of the budget updates. there was also -- this was legislated -- when there was a material change in the amount of debt between budget up dates which we have every six months or so, over $50 billion which is quite material in the australian budget landscape we would have an additional debt statement setting out the reasons why there was such a material change in the government's borrowing and there

were some non-legislative requirements around this as well. it set out why the government was borrowing and was this to meet revenue shortfalls or changes in spending and what was the spending for and was on infrastructure or recurrent for those type of things. those were agreed to as well as part of our long-term budget reporting statements we do. we are at the start of the phase of this new reporting, the first of that occurred toward the end of last year. we were not -- we will not know whether this additional transparency is how the public is reacting to that until it's fully rolled out as part of our audit and subsequent reporting. >> we know there are a couple of different stages of the debt limit her in one hits the end of this week when we reach the limit and the secretary of treasury pulls out his bag of tricks and starts using extraordinary measures which have gotten more and more creative over the last couple of

decades. whenever we see this, there are a number of lawmakers who ask what we are going through this. the phones ring off the hook here with people trying to understand what is the x date and when will the government run out of money? is there any value of figuring out a way to get rid of extraordinary measures and just set a date so we can deal with the date and get to the deadline on that date or do we really want the flexibility given all the risks in our political system to give flexibility for the treasury to deal with this? >> let's start with the fundamental principle. even in the australian context which has a unified legislature and executive, there was still compromise and concessions. those are the words you mentioned said to have the secretary stand up here echoing the president and say i will not negotiate, again, the extreme position here is no negotiations, no concessions to

get this through. that is what has to be modified. if you want wiggle room, i am for all you can get. we have a very complicated political process in spite of its problems, i think it's totally the dust mankind -- it's probably the best mankind has been able to devise but you need to have grease to avoid the cost of friction. until we get to some preferred solution which i have laid on the table which is reforming the budget act of 74, let's have all the grease we can have on the wheel so they don't freeze up. >> everyone tries to have it multiple ways. it's either brink or brink with a parachute. you can have it or not have it. you could have extraordinary measures were not have extraordinary measures. i think it's crazy that the u.s.

government has to go through these kinds of contortions to try to meet the obligations through these periods. it's incredibly inefficient and costly in the short run and at the end of the day, it's a radical position for treasury. i am so envious of the obama administration's view on this. both democrat and republican control of congress, we had to go to congress and they --and beg congress to do the things -- congress will pass the debt ceiling. there is no brink your. congress will raise the debt ceiling. the only thing i am certain of is that. the administration does not have to negotiate because it is not a negotiation.

there's nothing to negotiate. congress will pass the debt ceiling. it's true that the stakes were never as high as congress has taken him in recent years but every one of those negotiations that we had to do with congress, the vast majority were not on serious issues. maybe a member of congress wanted someone to be on a board or a commission. another member of congress wanted to get a promise that we would agree to send someone up for a hearing on cuba policy. these are completely unrelated things. it would be great if we could have real debate and discussion on long-term entitlement programs. everyone here would agree that that would be a useful event if we could have that negotiation on the big issues of the day, on tax and spending and long-term

obligations but that is not what this evolves into. what has become is an abuse on the part of the legislative branch on the executive. the executive has finally realized that it can just take a step back from the line and site know we are not going to allow ourselves to be extorted in this unnatural process. you devised the debt ceiling. it's a congressional creation and you understand that it's your obligation to get us out of it. that's where we are now. that puts both the executive and the legislative in a much better position going forward to have this kind of debate in other areas that are more natural. >> lawmakers use this issue to get attention. they want to raise money and there are a number of reasons you might do this in some of them do care about the issue. do you think when the public

take that pays attention to this that they are more informed as a result or less informed as a result of having the debate? >> well i would just 70% of the public is never heard of this. in any case, the debates we have had in recent years about the debt limit or about the budget unfortunately, have not been that informative. i do think that if there is a crisis, i am hopeful that the congress will deal with it in a rational way. the one reassuring thing is that if you look at other democracies that have had crises like sweden -- we can debate whether canada was a crisis or not -- they have ultimately solve the problem in a rational way. it is not true of a lot of the

countries of the former soviet union where they tried to resolve the problems simply by printing money. that is the most disastrous way of solving the problem because 10,000% or your inflation is not a good thing. somebody may contradict me but i don't know of any developed democracy since world war ii that has solved the problem that way. that gives me a little bit of reassurance that when the crisis comes that we will deal with it appropriately. >> one of the things we saw in our tovar when the issue was being debated is investors pulled out of the short term treasury debt, the shortest maturities they did not want to get stuck with active in the risk of something like that. you have seen some of that

already. what is the cost of the seeing that development? >> is difficult to put numbers on the cost. some estimates have been done. maybe theomd -- maybe they put some estimates on it going back to 2011. there certainly are some short- term costs. market participants were either reluctant to hold short-term treasury securities that were maturing around the kind of d- day. there were also frictions introduced into the repo market. it was essentially like oil greasing the wheels of the financial system. investors whether they like it or not, had to start doing extensive contingency planning. everybody was looking at the situation that surely the u.s. would not the fault on its debt.

of course it has not and it probably never will. and yet, everybody has a fiduciary duty to investors and other stakeholders so everybody had to do this extensive contingency planning. what if- how much collateral are we holding - what is our exposure? this is like a black swan tale event. no one believes it will happen in equilibrium. what if it did? what would the consequences be? that's when the costs are potentially high. it's not the costs that were actually incurred but it is a what if scenario. nobody really knows. if you contemplate it for a moment, you can certainly tell it's a pretty scary scenario. one of the lessons we learned back in 2008 in particular was that markets and market

participants did not know an awful lot about the plumbing. many people were blindsided by the fact that something that looked innocuous relatively at the time, a downturn in housing problems with subprime securities suddenly generated this toxic waste through the whole political financial system. there is a similar level of uncertainty about what if the linchpin of the global yield curve and the risk-free asset of which everything else is priced were to default? nobody really knows but we don't want to go there. >> i agree with everything you said. let me put a slightly different interpretation on it. i think it's a great thing that the markets are diligent. they should have done this before and that's important. let's give some credit to the american economy and the american markets. around the time of the september

30, the media machine was already cranking out how this would tank the economy and we were already seeing signs of economic slowdown. it turns out the best two quarters we have had in years were the third and fourth quarters of last year, the ones that were supposedly so devastated. i think we all need to take a deep rest here. -- a deep breath here. i am not an advocate of going over the cliff. come on, guys, let's grow up. we are trying to do this for our own convenience to avoid taking tough votes, to avoid negotiations. that's the president's position. when i was in government, i share your view that the founding fathers made one big mistake and that's called article one. i get that. that's not what we have. we are a country that moves forward based on negotiation and compromise.

let's realize we have a very robust system. >> the relationship between markets and policy is incredibly complicated. i would like to think there are bond vigilantes that would force us to discipline the system ultimately. but i think one of the more interesting things written on all this in recent years was an article called " the 300 years of sovereign debt crisis." the peculiar thing about most of those crises is that markets remained very calm while the country's budget went to hell in a handbasket. until one day, they didn't. something would set them off. niall ferguson said it was a bit of bad news on otherwise dull

news day. when it set them off, it really set them off -- interest rates go up 300 basis points in a matter of days. >> we will get questions from the audience in a second. there is a lot of work that is done as the debt limit approaches, talking with investors and the media and explaining what happens. in australia, how is this communicated to markets. two markets accept that there is a political process that needs to play out? does the public pay any attention to that? >> we had never got to a situation previous two december where we were faced with such limited time between when parliament needed to make the decision to increase the debt ceiling and when it was going to run up against the limits. it was a new situation for investors. there was some concern about closing the government if the density was not increased that

investors would begin to wonder what would happen when australia gets to this point. does it have what the u.s. has in terms of extraordinary measures? does the treasury have capacity to do these sorts of things? there was talk that the treasury would need to undertake certain things to explain to investors how this process would work. we've got a parliamentary system where the debate was really in an environment about what level we increase the debt ceiling. it was not a debate around not increasing it. it was the level it was increased to. behind the motivation of the government of wanting to increase the debt ceiling at the time to $500 billion was to cover what people could really see was going to be the australian government are owing requirements for a number of years with a bit of a buffer on top of that. it did not want to be in a situation where in a few months time or years time, it faced a recurring situation.

it was to provide some kind of certainty to markets. the australian treasury will have to borrow a certain amount and parliament has the authority to do that when it's required. >> did you ever prepare for the possibility that asked ordinary measures would run out? >> yes, i think everyone who has spent time in treasury has dealt with those kind of things. explaining what the extra gary measures are -- extraordinary measures are and how they work and a macro question -- some members of congress, it's not just that there are members of congress that don't understand the debt ceiling conceptually and what it means that's not the problem. the problem or people don't understand the debt ceiling and what it means. if you do apoll and ask people -- if you do a poll, they don't

say we need to raise the debt ceiling, they say we should not raise the debt ceiling at all. 60% of americans believe we should not raise the debt ceiling under any circumstances because of their belief is that will somehow limit our ability to go into debt. we do a really poor job in efforts to educate on what the debt ceiling actually is. maybe we should have boughtads during the super bowl. with our lock, they would have been in the fourth quarter. we need to help educate. it's incumbent on members of congress to go out and educate on what it is. there is a full range of fiscal issues we are dealing with. they are significant and important to have long-term

consequences for the country. >> a question back there -- the microphone is coming. tell us who you are. >> thank you, my name is susan irving and i direct the work at gao on debt management so i am a big fan of article one. as the co-author of the first outlook report calling attention to the long-term, i want my comments not to be heard is doubting that. i would like to suggest that the 1974 act did not create vector spending, it arrived before that. i would like to suggest that your goal of wanting congress to have to look at the debt consequences of spending and revenue actions is hurt by an act of the debt limit rather than help. now you can -- people can write

to their elected officials and their elected officials can vote for increases in mandatory spending custom revenues emergency supplemental without offset and later vote against paying for them. it becomes afree vote and if you are seeking to look at the long- term and change fiscal policy it seems the time to pay attention to the debt consequences of actions is not when you are deciding whether to raise the debt limit after the fact but whether you are deciding on spending. it would be important to separate out. i'm asking what you think of that. >> i think those are both good points. i would like to make the distinction here between a congress that votes for the goodies and the congress that is forced to vote on paying for the goodies. that is where the problem lies. the congress passed the goodies whenever and now the new

congress, which is then asked to either vote for the debt increase or vote for the taxes or what have you. that smacks of one negating the other. the problem is, it makes it hard for the country to change its mind. i will be the first to agree with you that the debt ceiling is a very and elegant an inappropriate way of forcing that. but it's the only thing we have left. i would much prefer to revisit the budget act of 1974 in a way that created a different kind of consequence so that at least the guys who got elected in the past by passing the goodies -- have it a little bit tougher in that their decision can be reversed more easily later on. that's what i think we need to

do. i think we need a constraint. what they should have done -- you are right -- everyone who ran up these big deficits should have been forced to take debt votes to pay for them. we go back to the case of the risk corridor now. we are now to the point where there is literally no check ever on spending. we can make the entire budget and entitlement and we would be on complete automatic pilot. i see that as the slope we are going on and i think we have to find a way of putting the brakes on that. >> [inaudible] >> are we debating whether we have an irresponsible government? of course we have an irresponsible government. no one would disagree with that. you think we have a responsible government? >> [inaudible] [laughter]

i believe we get the government we vote for. >> in a bipartisan way, we have done a lousy job. let's face it. we've got to figure out how we are going to go forward in changing that. i don't blame the people for being mad. the reason people don't want to increase the debt is because that's what they see. they don't see the place being run well. i am with you -- let's find a way other than what we have of solving this problem. but this is not the way to run the biggest economy in the world. >> questions? anyone in the back? we've got one appear. up here/ >> mark trumbull with the christian science monitor -- with this being an election year, there is a lot of talk about how this should all get resolved more easily then maybe it has been in the past.

do you all think this will get resolved easily and what is your outlook on how that will happen? what sort of timetable and in what way? >> predictions anyone? >> i think there's a fundamental question --? is the debt limit a real thing we have heard from numerous people on the planet -- on the panel and other people say they've -- that we will not to fall. how will it give you bargaining power if we never default? i have found speaker boehner plus recent comments rather puzzling. on the one hand he says we don't want to default on the debt and on the other hand, he says we want something from the debt limit. i think the prediction right now is that yes it will go smoothly and there will be maybe some symbolic thing, maybe they will increase the spending cap 42022

and expand the pending this the spending caps to 2022. probably something will happen and the thing will go smoothly but there is always the slim possibility in our irrational world that there will be an accident and we will actually do something very stupid. >> camera get a microphone right over here? -- can we get a microphone right over here? >> there seems to be unanimity that this is not a very good way to handle the budget and that. -- and debt. i would agree with that. i don't think it's a very effective bargaining tool in the sense that if you can't ultimately pull the trigger, the president can't say -- he can

take the position that he will not negotiate. the only alternative is default which nobody really wants to do. on the other hand, there should be -- i share larry's view of unrestrained entitlement spending in the budget process. isn't there a better way? i'm wondering what we should be doing with the debt limit. should we think about debt limit reform? my suggestion now would be, as we have to pass a new debt limit increase in people are wondering what to put on it as a condition or as an attachment -- why not attach a debt limit reform commission -- it sounds like a process -- that would look at all these issues and try to come up with a better way of tying the debt to the economy and the

fiscal decisions as they are being made. having some sort of restraint is a good idea. it's essential in this entitlement dominated budget and yet the current situation does not put fiscal policy choices on the line. it puts the nations credit worthiness on the line which is not a good thing. >> debt limit reform commission -- can there be agreement in congress? >> we are really talking about budget reform. probably what the founders got right is they did not get budget right. some of that is that i think the legislative roles differently. we have a screwed up budget process. it's not really a budget process. it's not a functioning process. no one is really forced -- i understand the motivation but no

one is forced to come to the table and have the necessary negotiation. we do budgeting now when we have the president of one party in both houses of congress controlled by the other party. that tends to work. it's because they are forced to negotiate with each other. otherwise, we do budgeting when either we run out of borrowing authority or we run out of actual money. that is what we are forced to negotiate. it is crazy to have to do it and those -- unnatural circumstances. they are damaging circumstances. i don't know what the right answer is. there should be a budget process that forces the two branches to come to the table and negotiate but not at the risk -- this cost

is too high. maybe you can argue that shutting down government is not too high a cost. it is costly for everybody and we saw that last year, possibly for the legislative branch and the executive but maybe there is a way to do it to impose costs that don't also threatened the full faith and credit of the u.s. government. everybody agrees that no one wants to do that. no one wants to see us damage our cost of borrowing. that is too costly so we need a budget process reform. >> having lived through this repeatedly, i think we can all agree that defaulting on the debt would be a disaster. i don't think anybody would disagree with that. on the other hand, not facing up

to our growing -- over the long term is a disaster of its own kind. after being in the middle of these discussions for a lot of years, it is really hard to get colleagues to pay attention to where this is all headed especially in the short-term term deficits are coming down dramatically. we can all acknowledge that is the case. it is also true that our long- term situation is unsustainable. it is incredibly hard to get colleagues who are facing an election at the most, two years away, to focus on the long-term. the only way we got bowls simpson was there was a group of us that said we would not vote for any long-term extension of the debt unless the commission was put in place to come back

with a plan. i find myself a little torn. the only way we got something like bowles-simpson, small group of us said is we would not vote on any long-term extension of the debt without the commission to come back with a plan. to me, budget reform -- we shouldtrue these things up. the decision to spend should be linked to the authority to borrow, separating them really makes no earthly sense. i hope that would force everyone to put the two together. what will we spend? what will be taxed? what will we borrow and put them together? that would be a fundamental reform that maybe people could agree on. >> before the civil war, we did that. the ways and means committee and

the appropriations reunified and that was the place you could coordinate spending and revenue and so on. all we have to do is persuade the congress to merge the appropriations committee with ways and means and we will have the problem solved. >> anyone else here? got one from joe here. >> in terms of the irrationality of our debt limit, does anyone recall that in the budget that was submitted in february of 2000, at the end of the clinton when we were running surpluses and it was projected that within a dozen years, the debt held by the public would be paid off well within those dozen years, the debt would hit its limit again? it was because of the fact that the debt limit includes debt that is not held by the public.

could it be more clear -- >> i remember it really well. in the early part of the administration and certainly treasury, we had this debate of wondering what this would mean. the critical importance of treasury debt markets, not just our ability to raise money, but globally -- we maintain rich deep, liquid markets and it's a benchmark for credit markets everywhere in the world -- what if that market diminished so much that it became less liquid less rich, unless accessible for other countries? where would their money go. ? these kind of problem's -- but we would look over the same time

horizon and realize that regardless of what we do on the discretionary spending side, we are going to come back to exactly these kind of issues and those markets would return. >> one here from the senator. >> like my former colleague senator conrad, there is no question the budget processes to functional. -- is dysfunctional. the question gets back to the fact that people don't implement it in congress can't ignore the deadlines and all the other prerequisites even in the current budget act. i have never seen the process so perverted as i have in the last few years. you can't even have that kind of debate. inside the beltway, every one views that the debt ceiling will

be a just and it will ultimately be approved. with respect to what degree do the markets factor into the equation? what are the they doing now to adjust to the uncertainty that is now upon us with the deadline this week and by the end of the month, if the secretariat runs out of his ability to implement its ordinary measures? >> things seem to be a little bit calmer this time around. markets know what the ending is. my sense of what the market sentiment is is that it is relatively the question was asked before about what the prospects were. i think the prevailing sentiment probably everywhere.

it really does not make sense as a bargaining tool for the side that seems to be using this. i think of it as a game of chicken. it only really works when both sides are driving towards one another and at the last minute, both have to blank. if one side can convince the other it will keep going, and the other side is really advertising upfront we are not going to drive into the headlights there really is not a credible bargaining process. markets kind of get that. they still have to do the kind of stress testing and contingency planning. at the moment, this -- there is generally a sense of calmness that they will surely cut a deal this time. the idea that was raised before about using some kind of circuit breaker where it is not just the

can kick down the road but rather something good comes out of this, that seems to be the prevailing consensus of the whole discussion this morning. everybody agrees it's a bad system and can be improved. maybe people need to take it off-line and get some advice from the bipartisan policy center and the gao another's can come back with something that looks like a more robust proposal. >> the funny thing about the last two on the way the market responded was the money that we were going to pay back at the end of the month, those securities fell in price. longer-term debt what the opposite way. -- went the opposite way. the actual risk is the opposite. you're going to get your money back at the end of september. there is no question about that. whether you will be repaid with confetti 30 years from now is what the real issue is.

gradually, the market will have to readjust to that approach. >> it's my unpleasant task to bring these proceedings to a close this morning. dare i say that we are indebted [laughter] to yousudeep and the panelists. thank you for all hanging in there. on behalf of jason and myself we thank you for sticking in with us, the audience here and the audience watching as over the air. the bipartisan policy center will continue to address these issues, particularly the budget process reform. we encourage you all to go to our website ,bpc.org and follow

us as we continue to work in this area. thank you and good day. [applause] [captioning performed by national captioning institute] [captioning performed by national captioning institute] >> a couple of live events to tell you about on c-span3. the senate judiciary committee will hold a hearing on preventing cyber attacks and crime. witnesses include the head of the federal trade commission and representatives from read taylor's neiman marcus and target. we'll have that live at 10:15 a.m. eastern. at 1:30 p.m., house oversight subcommittee looks at federal marijuana policy and states that have decriminalized or legalized marijuana possession. witnesses will include the white

house deputy director for national drug control policy. of the energy and commerce committee. at 8:30 eastern, a california republican will take your questions about security at the winter olympics in sochi russia. he chairs the subcommittee on emerging threats. and we will look at president obama's executive order to raise

minimum wage for federal contractors. our guest is the president and ceo of the professional services council. you can join the conversation on facebook and twitter. ♪ >> the president will meet with defense officials today after reports that president karzai is working secretly with the taliban to get up peace agreement. but tonight the president will be meeting with house democrats. hello, welcome to "the washington journal" for february 4, 2014. these are the columns entitled the end of american exceptionalism. the author health -- holds that the attributes held by conservatives are