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

Partial transcript of Q&A between Sen. Ron Wyden (D-Oregon) 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. Ron Wyden (D-Oregon):
…Mr. Lew, it seems to me that in the event of a default or a near default the dominoes are going to fall fast and hard, and those hit early on would be older people who depend on their own retirement savings to get by. These are the older people who saw much of their life savings evaporate during the recession and they’re struggling just to get those private savings in effect back to the water line – back to where they are.

Be as specific as you can with respect to what default or near default would mean for those seniors who depend on their private savings?

Treasury Secretary Jack Lew:
Sen. Wyden, I can only begin to imagine what it would mean to a retired American who relies on Social Security as their major or sole source of income if we had to tell them their check was going to be late.

You know, I remember my late mother lived on her Social Security check. Many of us have relatives who lived on their Social Security check. If the check didn’t come, if they didn’t have the ability to call someone who could help them out, they were in trouble. So anyone who thinks that’s anything short of default has never experienced what it means to live on Social Security…

Sen. Ron Wyden (D-Oregon):
Private savings, especially – I share your views about the others. I think the public has heard and you’ve given some comment with respect to mortgages but I’m concerned about those retirees and their private savings as well.

Treasury Secretary Jack Lew:
Retirees saw their private – well, let’s talk not just about retirees because workers have their savings at stake. The effect is the same. It’s just more immediate for retirees. Retirees have no time to catch up.

We saw during the financial crisis people’s retirement assets fell quite dramatically in value. It reduced what retirees had to live on. It caused anxiety amongst working people – how are they going to catch up for the ground that they lost?

We’re now in a place where because of the resilience of the American people, the recovery and the American economy, the good policy decisions made by Congress and the Federal Reserve Board, we are in a better place. We have a lot of work to do but I think you can see from the economy that people are beginning to feel the economy’s moving in the right direction.

Now, if you create a crisis that causes assets to shrink in value, for retirees, they don’t have a lot of time to catch up. You know, so even if it all rights itself over a period of time, for those retirees, you know, they’re in a pretty bad spot. So I think it’s very unfair to have manufactured crises that have a real-life impact on working Americans and retirees who ought to be able to worry about market risks not government policy risks.

Sen. Ron Wyden (D-Oregon):
Let me ask you about the effect of default on the deficit. Now, we know that budget sequestration has not exactly been an ideal instrument. Not exactly perfectly targeted for driving down the budget deficit. But it has produced budget savings that actually accrue to the benefit of the American taxpayer.

In the event of a default or a near default, is it fair to say that some of those budget savings would be eaten up to pay higher interests costs, a substantial amount of which would go to foreign governments and to other foreign creditors?

Treasury Secretary Jack Lew:
Well, Senator, we’ve seen just this week that for the bills that matured at the end of October the rates have almost tripled over the last week.

You know, we still have access to the credit markets but it’s more expensive and for no reason. It could be resolved by just settling this issue and making it clear that the debt limit will not be breached and we won’t have any problems.

Sen. Ron Wyden (D-Oregon):
What’s troubling to me is after the American taxpayer has gone through something of a painful process and you see these savings in effect the results of a default would produce interest payments and in effect transfer American wealth from our taxpayers – some of that would go to foreign creditors.

Treasury Secretary Jack Lew:
And Senator, I would just add that higher interest rates also flow through the economy in terms of higher mortgage rates and higher student loan interest rates. So the costs have multiple levels of impact on real people.


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