Transcript: Testimony of Treasury Secretary Jack Lew on the debt ceiling – Oct. 10, 2013

Transcript of testimony of 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:

Thank, Mr. Chairman. Chairman [Max] Baucus, Ranking Member [Orrin] Hatch, and members of the committee, I appreciate the opportunity to appear here today and I appreciate the invitation to discuss the potential impacts of the failure by Congress to increase the debt limit.

Congress has an important choice to make for the American people, and Congress alone has the power to act to make sure that the full faith and credit of the United States is never called into question.

No Congress in 224 year of American history has allowed the country to default, and it’s my sincere hope that this Congress will not be the first.

Among the risk that we control – the biggest threat to sustained growth in our economy is the recurrence of manufactured crises in Washington and self-inflicted wounds.

Unfortunately, today, we face a manufactured political crisis that is beginning to deliver an unnecessary blow to our economy right at a time when the United States’s economy, the American people have painstakingly fought back from the worst recession since the Great Depression.

In addition to the economic costs of the shutdown, the uncertainty around raising the debt limit is beginning to stress financial markets.

In our auction of four-week Treasury bills on Tuesday, the interest rate nearly tripled relative to the prior week’s auction and have reached the highest levels since October 2008, and 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 that this is a paramount concern for them. That’s why it’s important for Congress to re-open the government, to raise the debt ceiling, and then to work with the President to address our fiscal challenges in a balanced fashion.

Republicans and Democratic Presidents and Treasury Secretaries alike have universally understood the importance of protecting one of our most precious assets – the full faith and credit of the United States.

President [Ronald] Reagan wrote to Congress in 1983 and I quote, “This country now possesses the strongest credit in the world. The full consequences of a default or even the serious prospect of default by the United States are impossible to predict and awesome to contemplate. Denigration of the full faith and credit of the United States will have substantial effects on the domestic financial markets and on the value of the dollar in exchange markets.”

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, and I think it would be a grave mistake to discount or dismiss them.

For these reasons, I’ve repeatedly urged Congress to take action immediately so we can honor all of our country’s past commitments.

The Treasury Department has regularly updated Congress over the course of the last five months as new information has become available about when we would exhaust our extraordinary measures.

In addition, Treasury has provided information about what our cash balances will be when we exhaust our extraordinary measures.

As our forecasts have changed, I’ve consistently provided updates in order to give Congress the best information about the urgency with which they should act.

And last month, I met with the full membership of this committee to discuss these issues.

Treasury continues to project that the extraordinary measures will be exhausted no later than Oct. 17, 2013 at which point the federal government will have run out of borrowing authority. At that point, we will be left to meet our country’s commitments with only the cash on hand and any incoming revenues, placing our economy in a dangerous position.

If we have insufficient cash on hand, it would be impossible for the United States of America to meet all of its obligations, including Social Security and Medicare benefits, payments to our military and veterans, and contracts with private suppliers for the first time in our history.

At the same time, we’re relying on investors from all over the world to continue to hold U.S. bonds. Every week, we roll over approximately $100 billion in U.S. bills. If U.S. bond holders decided that they want to be re-paid rather than continuing to roll over their investments, we could unexpectedly dissipate our entire cash balance.

Let me be clear: Trying to time a debt limit increase to the last minute could be very dangerous. If Congress does not act and the United States suddenly cannot pay its bill, the repercussions could be serious.

Raising the debt limit is Congress’s responsibility because Congress – and Congress alone – is empowered to set the maximum amount the government can borrow to meet its financial obligations.

Some in Congress have suggested that raising the debt limit should be paired with accompanying spending cuts and reforms. I have repeatedly 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 already been incurred. Failing to raise the debt limit would not make these bills disappear.

The President remains willing to negotiate over the future direction of fiscal policy. But he will not negotiate over whether the United States should pay its bills.

Certain members of the House and Senate also believe that it’s possible to protect our economy by simply paying only the interests on our debts while stopping or delaying payments on a number of our legal commitments.

How can the United States choose whether to send Social Security checks to seniors or pay benefits to veterans? How can the United States choose whether to provide children with food assistance or meet our obligations to Medicare providers?

The United States should not be put in a position of making such perilous choices for our economy and our citizens. 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 economies stronger, not to create manufactured crises that inflict damage.

In 1987, President Reagan addressing a debt limit impasse delivered a message that is applicable to us today: “This brinksmanship threatens the holders of government bonds and those who rely on Social Security and veterans benefits. Interest rates would skyrocket, instability would occur in financial markets, and the federal deficit would soar. The United States has a special responsibility to itself and the world to meet its obligations.”

The very last thing the U.S. economy needs now is a fight over whether we raise the debt ceiling, not when we face serious challenges both domestically and internationally that require our full attention and not when we know the kind of damage a financial and economic crisis can cause.

Thank you and I look forward to answering your questions.

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One Comment on “Transcript: Testimony of Treasury Secretary Jack Lew on the debt ceiling – Oct. 10, 2013

  1. Pingback: Debt Ceiling: Treasury Secretary Jack Lew says government default will hurt seniors the most | What The Folly?!

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