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

Partial transcript of Q&A between Sen. Pat Toomey (R-Pennsylvania) 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. Pat Toomey (R-Penn.):
…It’s true it’s 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 of unprecedented deficits. The modest improvements 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 today. We now have a total debt that’s over 100% of our economic output, I believe, already limiting economic growth, and prosperity. We have trillions of dollars of guarantees that we didn’t use 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 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 Oct. 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 revenues only about 85% of all the monies this government intends to spend in the coming fiscal year. So if we only get 85% of everything we intend to spend in tax revenue, the 15% shortfall would have to be covered by borrowings or else we wouldn’t be able to pay everything in full and on time. And that would be disruptive.

But the greatest disruption by far would occur if you were to choose to not pay interest on our debt…So my question for you, Mr. Secretary, as the Secretary of 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?

Treasury Secretary Jack Lew:
Senator, the only way to make sure we can pay all our obligations is for Congress to act and raise the debt limit. No President has ever had to decide whether to pay some bills or not others.

Sen. Pat Toomey (R-Penn.):
I understand. That’s a different –

Treasury Secretary Jack Lew:
The law is complicated and I am not the one who makes that decision, as you know. 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 we went to a place where we could pay one bill and not another. What would you say to people on Social Security –

Sen. Pat Toomey (R-Penn.):
I acknowledge that it 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 to plan for contingencies. So are you telling me that the President would decide to ensure that we would not ensure a payment on Treasury securities?

Treasury Secretary Jack Lew:
Senator, what I’m telling you is there is no good solution if Congress fails to raise the debt limit and that’s why the President is calling to raise the debt limit.

You use the number 80% to 85% coverage in terms of revenue. That’s an annual average.

Sen. Pat Toomey (R-Penn.):
I understand.

Treasury Secretary Jack Lew:
Some months it’s 50%. So the amount that we fall behind in payments is just unthinkable. Congress has to do its job and act.

Sen. Pat Toomey (R-Penn.):
…Frankly, I’m shocked that the Secretary of the Treasury will not assure the financial markets, American investors and savers, the millions of people who hold Treasuries that they don’t have to worry about the security of their Treasuries. I’m extremely disappointed.

Treasury Secretary Jack Lew:
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 he’ll have to choose if Congress doesn’t act.

Sen. Pat Toomey (R-Penn.):
…On Tuesday, the President said and I quote, “We planned for every contingency. So obviously, worst case scenario, there are things we will try to do.” Could you tell us about these contingencies?

Treasury Secretary Jack Lew:
Senator, the options are all bad. I tried to earlier describe how complicated the federal payment system is. There is no way to make our federal payment system work well to pick and choose what we pay. So we’re going to be in a place which is uncharted territory. Anyone who thinks it works smoothly – it would not work smoothly. It would be chaos.

Sen. Pat Toomey (R-Penn.):
The question is whether the Treasury is prepared to try to minimize the disruptions?

Treasury Secretary Jack Lew:
Obviously, we have looked at many options. There has been reports indicating things that have been looked at over the years. Nobody has ever had to put any of this into effect. They’re not tested.

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