Transcript: Senate hearing Q&A with Sen. Maria Cantwell & Treasury Secretary Jack Lew on the debt ceiling – Oct. 10, 2013

Partial transcript of Q&A between Sen. Maria Cantwell (D-Washington) and Treasury Secretary Jack Lew on the potential impacts of the failure to raise the debt ceiling. The Senate Finance Committee hearing was held on Oct. 10, 2013:

Sen. Maria Cantwell (D-Washington):
…This chart shows that Treasuries are held not only in the U.S. by businesses but in Europe and China and they’re significant. It’s a network. It’s as complicated and complex as just about anything that’s around when it comes to all the individuals that are involved. It’s not as one of our colleagues said picking up the phone and calling Wall Street and telling them to settle down.

…We have seen a spike – a dramatic spike – from 0.03% to 0.297%. That’s almost – more than a doubling in 48 hours. So my question is if the interest rate on Treasuries doubles in the next 48 hours again, aren’t we already to that tipping point?

Treasury Secretary Jack Lew:
Well, Senator, I have been trying to be very careful and just report what’s happened. I’m not going to predict what markets will do. I do think that if you look from last week to this week, a tripling of interest rates in short-term bills is not a good thing.

You know, we’ve seen stability in the long-term bond market but markets are delicate things and I don’t know how markets will translate one day’s news, one day’s actions into discomfort.

What I do know is every week we roll over $100 billion of Treasury bills and that relies on the market being open and willing to function. And I just think everyone has to remember that it’s not just the interest; it’s also the principal. The markets have to keep working.

Sen. Maria Cantwell (D-Washington):
…Well, I think the thing people are missing here in D.C. is that everybody is at risk in the U.S. economy. It’s not just what you explained but everybody at home. The last time we had this discussion about whether we were going to default or not, the stock market dropped 20%. So, we could have this same discussion and then by Friday or Monday, you could see, in fact, one of my constituents who’s an analyst said you could see as much as a 25% drop in the stock market just triggered off of Treasury.

So, we don’t have to go to default. Just the talk of default is causing the level of uncertainty that we’re all trying to avoid.

Treasury Secretary Jack Lew:
Well, Senator, that’s what we saw in 2011. In 2011, we had an 11th hour agreement and we avoided seeing what happens when you cross the line. But we had the damage. We had the drop in the market. We had the higher interest rate costs. We also saw for the first time a downgrade in the U.S. credit rating. So that’s what happened when we didn’t cross the line. I don’t think anyone should want to test what happens when we cross the line.

You know, we’re seeing with the government shutdown that every day new things are coming out that are really bad. People who thought it was okay to shut down the government are now rushing to open up one piece or another at a time. It would be reckless to see what happens when you cross the line and don’t pay America’s bills.

Sen. Maria Cantwell (D-Washington):
Well, I think right now what we’re doing is reckless so I hope our colleagues – I hope we’ll come together. Thank you.

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