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88–306—PDF 2013

S. HRG. 113–302 

THE DEBT LIMIT 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

OCTOBER 10, 2013 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

MAX BAUCUS, Montana, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

RON WYDEN, Oregon 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

SHERROD BROWN, Ohio 

MICHAEL F. BENNET, Colorado 

ROBERT P. CASEY, Jr., Pennsylvania 

ORRIN G. HATCH, Utah 

CHUCK GRASSLEY, Iowa 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

ROB PORTMAN, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

AMBER COTTLE, Staff Director 

CHRIS CAMPBELL, Republican Staff Director 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee 

on Finance ............................................................................................................ 1 

Hatch, Hon. Orrin G., a U.S. Senator from Utah ................................................. 3 

ADMINISTRATION WITNESS 

Lew, Hon. Jacob J., Secretary, Department of the Treasury, Washington, 

DC .......................................................................................................................... 7 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Baucus, Hon. Max: 

Opening statement ........................................................................................... 1 

Prepared statement .......................................................................................... 37 

Hatch, Hon. Orrin G.: 

Opening statement ........................................................................................... 3 

Prepared statement with attachments ........................................................... 39 

Lew, Hon. Jacob J.: 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 52 

Responses to questions from committee members ......................................... 59 

Rockefeller, Hon. John D., IV: 

Prepared statement .......................................................................................... 66 

Stabenow, Hon. Debbie: 

Letter from the National Association of Manufacturers to the President 

and congressional leadership, dated October 8, 2013 ................................ 69 

(III) 

(1) 

THE DEBT LIMIT 

THURSDAY, OCTOBER 10, 2013 

U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC. 

The hearing was convened, pursuant to notice, at 8:06 a.m., in 

room SH–216, Hart Senate Office Building, Hon. Max Baucus 

(chairman of the committee) presiding. 

Present: Senators Wyden, Schumer, Stabenow, Cantwell, Nelson, 

Menendez, Carper, Cardin, Brown, Bennet, Casey, Hatch, Grassley, 

Crapo, Roberts, Enzi, Isakson, Portman, and Toomey. 

Also present: Democratic Staff: Amber Cottle, Staff Director; Mac 

Campbell, General Counsel; Tom Klouda, Professional Staff Member, Social Security; and John Angell, Senior Advisor. Republican 

Staff: Chris Campbell, Staff Director; Mark Prater, Deputy Chief of 

Staff and Chief Tax Counsel; Jeff Wrase, Chief Economist; and 

Aaron Taylor, Professional Staff Member. 

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR 

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The committee will come to order. 

On January 27, 1838, a young State Legislator named Abraham 

Lincoln spoke before a gathering in Springfield, IL. At the time, 

America was a deeply divided Nation, and Lincoln warned that the 

greatest threats to the young democracy were internal. 

He said, ‘‘If danger ever reaches us, it must spring up amongst 

us; it cannot come from abroad. If destruction be our lot, we must 

ourselves be its author and finisher. As a Nation of freemen, we 

must live through all time, or die by suicide.’’ 

The actions of the past few weeks, the extremism of a small core 

of members in the House of Representatives, have crippled Congress and put our Nation on a very perilous path. 

For more than 200 years, the United States has been true to its 

word. It has honored its obligations. It has paid its debts. Yet 

today, a small group of hardliners is using our economy as a bargaining chip to repeal the Affordable Care Act. 

Let me be clear. We are not going to let that happen. The Affordable Care Act is the law of the land. It is not going to be dismantled in this budget fight. The issue is not up for debate. 

Our committee wrote the Affordable Care Act. I am always open 

to this committee working together to strengthen the law to better 

serve the American people. But as the President said, we cannot 

negotiate under the threat of default on the Nation’s bills. Before 

any debate, before any deliberation, we need to reopen the governVerDate Mar 15 2010 19:52 Jul 01, 2014 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 R:\DOCS\88306.000 TIMD
2 

ment and pay the Nation’s bills, no strings attached. Then we need 

to work together, return to regular order. We must address the Nation’s long-term budget challenges working together, including entitlement and tax reform. 

But right now, we need to prevent another self-inflicted wound 

to America’s economy. That is what defaulting on the debt is: a 

self-inflicted wound, with global consequences. 

The deadline is fast approaching. In 7 days, the United States 

Treasury will have exhausted all extraordinary measures to remain 

under the debt limit. In 7 days, the United States will be at the 

risk of defaulting on payments. The United States of America, the 

richest, most powerful Nation in the world, will be forced to look 

for loose change in the sofa in order to pay its bills. 

While the government shutdown has been disruptive, a default 

would be a financial heart attack. It would have widespread, longterm economic consequences. The national markets are already 

showing serious signs of stress. The Dow has dropped more than 

800 points in the last 3 weeks, and the 1-month Treasury bill rate 

has risen to its highest level since the 2008 fiscal crisis. 

If the debt ceiling is reached, the government would immediately 

have to slash Federal spending by 20 to 30 percent and drive the 

Nation back into recession. 

The pain will be felt across every sector of society. Social Security 

and Medicare would be cut, veterans’ benefits slashed, funding for 

highways would be hit. Every government program would be devastated by deep cuts. Families would feel it firsthand with dramatic drops in their retirement savings. Jobs would be lost. Home 

values would plunge. Interest rates on mortgages and student 

loans would soar. 

Now, some have said we can avoid default by prioritizing U.S. 

payments, paying bondholders and interest on the debt, but they 

fail to mention that this scheme would force Treasury to pick and 

choose which programs to pay, forcing vital programs like Social 

Security and Medicare to compete for funding. This idea is just irrational. 

A default would have a catastrophic impact on the global economy as well. Jim Yong Kim, president of the World Bank, warned 

that a default would have dire consequences for the world’s economy. Christine Lagarde, managing director of the National Monetary Fund, said it is, quote, ‘‘mission-critical that the debt limit be 

resolved as soon as possible.’’ 

This is serious. The whole world is watching. Our actions here 

in the next couple of days will have global implications. We are the 

most important economy in the world. The dollar is the world’s reserve currency. Our Treasury bonds are the backbone of the international financial system. A default would put the global economy 

in chaos. Of that there is no doubt. 

Last week, Treasury warned us that a default would cause a ‘‘recession that could echo the events of 2008 or worse.’’ Have people 

here forgotten what happened in 2008? The collapse of Lehman 

Brothers set off a financial earthquake. Markets plunged, unemployment surged, America’s confidence was shattered to the core. 

The 2008 crisis upended lives across the country, the aftermath of 

which can still be felt today. 

3 

We cannot let that happen. We have a responsibility to avoid another economic disaster. Our leadership and our resolve will be 

tested in the coming days. We, all of us here in this room, we have 

an opportunity to pull America back from the brink. 

Earlier this week, I introduced a bill with Leader Reid that 

would get us past this stalemate. The bill extends the Nation’s borrowing authority through the end of 2014, past the midterm elections. It is a clean increase, without any amendments. It simply allows the United States to pay its bills and avoid a catastrophic default. This is only a short-term solution, but it will help pull us 

back from the edge. It will allow us all here to pause, take a deep 

breath, and once again try to come together to move forward. 

I have been here in the Senate for close to 35 years, in Congress 

going on 39. I have seen my fair share of partisan fights. But 

never, in my mind, have I seen Washington so angry, so gridlocked, 

so broken, and it does not have to be that way. 

I know the public might find it hard to believe, but there are 

some very reasonable people here in Congress. There are many 

who want to do what is right. There are many who want to work 

together to conduct the business of our Nation. And I would say to 

them and to all my colleagues, now is the time. Now is the time 

for Congress to stop re-fighting old battles. Now is the time for 

Congress to come together and do what is right for our Nation. And 

now is the time for Congress to come together, reopen the government, and fulfill America’s financial obligations. 

I began my remarks with a quote from President Lincoln, and I 

thought it appropriate to conclude with another one. Lincoln once 

said, and I quote him, ‘‘I am a firm believer in the people. If given 

the truth, they can be depended upon to meet any national crisis.’’ 

And that is why we are here today. We need to give the American 

people the truth, the real facts, and only then, when everyone understands the real risks at hand, the facts and the truth, will we 

be able to meet this national crisis. 

[The prepared statement of Chairman Baucus appears in the appendix.] 

The CHAIRMAN. Senator Hatch? 

OPENING STATEMENT OF HON. ORRIN G. HATCH, 

A U.S. SENATOR FROM UTAH 

Senator HATCH. Well, thank you, Mr. Chairman. I want to thank 

you for holding today’s hearing on the debt limit. I also want to 

welcome you, Secretary Lew, to the committee. We appreciate your 

time and coming at this early time. 

During debate over the debt limit increase in 2006, then Senator 

Obama stated that, ‘‘The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure.’’ Leadership, 

he said, ‘‘means that the buck stops here. Instead, Washington is 

shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure 

of leadership. Americans deserve better.’’ 

Secretary Lew, on the day then-Senator Obama spoke about our debt problem, our gross debt was $8.3 trillion. It is now more than 

twice that, currently standing at $16.7 trillion. That represents 107 

percent of the size of our economy. And, as the Congressional 

4 

Budget Office has made clear, this poses large economic and fiscal 

risks. 

During that same 2006 debt limit debate, then-Senator Biden 

said, ‘‘My vote against the debt limit increase cannot change the 

fact that we have incurred this debt already and will, no doubt, 

incur more. It is a statement that I refuse to be associated with the 

policies that brought us to this point.’’ 

What a difference in attitude there has been since then. Now 

President Obama and Vice President Biden preside over an administration that tells us that raising the debt limit, in your words, 

Secretary Lew, ‘‘simply allows us to pay our bills.’’ 

Secretary Lew, you have also publicly stated that only Congress 

has the power to lift the debt limit. Now, while it is ostensibly true 

that Congress has the power to raise the debt limit, there will be 

no increase if the President does not agree. At the same time, despite your public statements to the contrary, it is not true that 

raising the debt limit has only to do with spending Congress has 

already approved. This line of argument is based on a premise that 

Congress makes spending decisions unilaterally and that the Executive Branch plays no role in the process. That premise is simply 

false. No amount of spending can be enacted without the President 

signing it into law. 

Furthermore, while President Obama’s budgets have not been 

well-received even by Democrats in Congress, the President has 

traditionally been deeply involved in Congress’s efforts to set 

spending priorities. The administration also issues statements of 

administration policy and veto threats on spending bills and other 

pieces of legislation. 

Presidents work with Congress all the time to enact their domestic agendas. We all remember how President Obama unveiled and 

pushed his trillion-dollar stimulus through a Democratic Congress, 

which he then signed into law. 

In addition, this President has made unilateral decisions, with no 

input from Congress, that have had an impact on Federal spending. For example, there was the decision to delay the employer 

mandate under Obamacare, which CBO tells us will add an additional $12 billion to our deficit. Congress never voted on the delay. 

It was a unilateral choice made through rulemaking at the Treasury Department. 

So, in short, the commonly repeated notion that questions surrounding spending and the debt limit are Congress’s and Congress’s alone to answer is, to put it mildly, a case of false advertising on the part of the Obama administration. 

There have been several other instances of false advertising from 

the administration concerning the debt limit. One is the President’s 

claim that non-budget items have never before been attached to the 

debt limit increase, a claim to which a fact-checker at the Washington Post assigned the maximum four Pinocchios, as we have on 

the chart over here. In fact, of the 53 debt limit increases passed 

since 1978, under both Republican and Democratic Presidents, only 

26 were, quote, ‘‘clean.’’ 

Another is that, in 2011, we entered some sort of a brave new 

world in which, for the first time in recent history, people were 

commenting on the inability of Treasury to make timely payment 

5 

on incoming due obligations. If you would just go back to President 

Clinton’s administration and read some press conferences held by 

then-Treasury Secretary Rubin, you will see that this claim is also 

false. 

Mr. Chairman, I ask permission to enter a reprint of the press 

conference in 1995 with then-Treasury Secretary Rubin and thenWhite House Chief of Staff Leon Panetta that supports this position, along with an associated article from the New York Times. The CHAIRMAN. Without objection. 

[The documents referred to appear in the appendix on p. 44.] 

Senator HATCH. Now, Secretary Lew, I hope that during today’s 

hearings we do not simply regress into comparative recollections of 

history. What is at stake is too big for that. The issue we face is 

yet another debt limit increase. There have been seven debt limit 

increases since the President came into office, collectively raising 

the limit from $11.3 trillion to the current $16.7 trillion, a cumulative increase of $5.4 trillion. 

When talking about the future increases in the debt limit, all the 

administration will say is that, one, they want a, quote, ‘‘clean’’ increase, and, two, they refuse to negotiate. Now, we do not know 

what that means—what they mean by a ‘‘clean’’ increase. We do 

not even know how much of an increase they want or for how long. 

Apparently, even making such desires known would constitute a 

negotiation. 

This posture is neither productive nor helpful toward resolving 

the current impasse over the debt limit. Essentially, what the administration appears to be saying is that it is entirely up to Congress to increase the debt limit and to decide how much and for 

how long. 

This, of course, raises more questions than it answers. For instance, does it mean that if Congress chooses to enact a 2-week 

clean debt limit increase, the President will sign it? According to 

the administration’s public statements, because Congress is solely 

responsible for increasing the debt limit, such a hypothetical stopgap would be fine if that is what Congress chose to do. Yet, somehow I do not think that is what the President is looking for when 

it comes to the debt limit. 

In just the past couple of days, the President has expressed willingness to entertain a short-term increase in the limit, which 

sounds like a willingness to negotiate terms. Sadly, the President’s 

statements are still short on details. 

Secretary Lew, the lack of real engagement on the part of the administration is just one of the elements of the current debt limit 

debate that I find disconcerting. It is also disconcerting to have administration officials, including you, publicly questioning sentiments of Americans and financial market participants and suggesting that people may be too calm, in an apparent effort to whip 

up uncertainty in the markets. 

It is disconcerting that you have suggested that payments of Social Security benefits to retirees and disabled American workers 

are at risk, especially since you are a trustee of the Social Security 

Trust Funds. It is disconcerting that administration officials are 

sounding alarms of emerging risks to financial stability arising 

from the debt limit and from the debt limit impasse, while, at the 

6 

same time, the Financial Stability Oversight Council, which you 

chair, has been silent and refuses to tell the American people how 

it would respond to these risks. 

Finally, it is disconcerting that the administration refuses, in the 

context of the debt limit, to even have a conversation with anyone 

concerning our unsustainable entitlement programs, which everyone agrees are the main drivers of our debt. The President has 

thus far refused to seriously discuss structural entitlement reforms 

without assurance that he first gets another tax hike. 

More often than not, what we hear from the administration on 

entitlements is a series of disclaimers as to what reform proposals 

they will no longer consider, and that list seems to get larger every 

day. The biggest question I have is, if the Obama administration 

will not negotiate on entitlements in the context of the debt limit, 

when will they negotiate on entitlements? 

Secretary Lew, I will remind you that I have put forth five modest bipartisan reform proposals for our health entitlement spending 

and personally gave them to the President earlier this year. You 

have copies of these proposals yourself. Yet, to this day, I have yet 

to hear a response. I cannot even get mere conversations from the 

administration about my proposals that I offered in good faith well 

before the debt limit was even an issue. 

Most recently, the Senate Majority Leader has introduced a, 

quote, ‘‘clean’’ debt limit bill, that Senator Baucus referred to, that 

would increase the debt limit until January 1, 2015, which will 

likely raise the limit by $1.3 trillion or more. That apparently is 

the position of the Senate Democratic leadership but is somewhat 

inconsistent with the President’s recent willingness to accept a 

short-term increase in the debt limit. 

As you can see, Secretary Lew, we have a lot to discuss today. 

My hope is that, during the course of this hearing, we can get a 

real sense of where the administration wants to go with regard to 

the debt limit. I also hope that we can get past the arguments that 

have thus far dominated the administration’s rhetoric regarding 

this issue. 

Our Nation’s debt is now larger, as a share of our economy, than 

at any time since the spike-up in World War II. Despite the rhetoric of the administration, our growing debt is not solely the result 

of decisions made by Congress. It is not all due to the financial crisis, and it is not all the result of tax relief enacted under the Bush 

administration. 

Instead, it is a problem that all of us, both Congress and the executive branch, need to deal with, and the only way to responsibly 

deal with it is to confront our unsustainable entitlement spending, 

which will require the administration to do something it is now refusing to do, which is negotiate. 

Secretary Lew, as President Obama said in 2006 regarding the 

debt limit, Americans deserve better. 

I want to thank you, Mr. Chairman, and I appreciate you holding 

this hearing. 

[The prepared statement of Senator Hatch appears in the appendix.] 

The CHAIRMAN. Thank you, Senator, very much. 

7 

Before the Secretary of Treasury begins, I would like to remind 

members—and I thank you very much for the full attendance—that 

we have to be very efficient with our questions and our answers. 

The Secretary has an engagement at 9:30. So I urge us all to respect others as we question so that we all have a chance and the 

Secretary has a chance to answer our questions. 

Mr. Secretary? 

STATEMENT OF HON. JACOB J. LEW, SECRETARY, 

DEPARTMENT OF THE TREASURY, WASHINGTON, DC 

Secretary LEW. Thank you, Mr. Chairman. Chairman Baucus, 

Ranking Member 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 a 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 years of American history has allowed our 

country to default, and it is my sincere hope that this Congress will 

not be the first. 

Among the risks that we control, the biggest threat to sustained 

growth in our economy is a 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’ economy and 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. At our auction of 4-week Treasury bills on Tuesday, the 

interest rate nearly tripled relative to the prior week’s auction, and 

it reached the highest level 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 is why it is important for Congress to reopen the government, to raise the debt ceiling, and then to work with the President to address our fiscal challenges in a balanced fashion. 

Republican 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 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 a 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 would have substantial effects on the domestic financial 

markets and on the value of the dollar at exchange markets.’’ 

If Congress fails to meet its responsibility, it could deeply damage financial markets, the ongoing economic recovery, and the jobs 

8 

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 have 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 5 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 have 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 October 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 are 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. bondholders decided 

that they wanted to be repaid 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 bills, the repercussions 

would 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 the 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 is 

possible to protect our economy by simply paying only the interest 

on our debts, while stopping or delaying payments on a number of 

our other 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 

9 

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 economy 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 brinkmanship 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. 

[The prepared statement of Secretary Lew appears in the appendix.] 

The CHAIRMAN. Thank you, Mr. Secretary. 

I would like to focus a little bit on a concept that some suggest 

as a way out of this problem and which some suggest is feasible, 

and I disagree with. It is called prioritization. You touched on it. 

Could you just briefly tell us what decisions you would have to 

make as Treasury Secretary, assuming interest was paid on the 

debt and you then had to choose which other obligations had to be 

paid? 

I know you cannot tell us which ones, nor should you tell us— 

Social Security, Medicare, military, the farm program, whatnot— 

but could you just go through the process and describe what the 

actual legal and administrative problems and consequences would 

be, and include how much toll that would be? 

My understanding is it is about 70 percent to 80 percent of those 

programs could be paid. And also, what effect would it have on the 

gross domestic product, that kind of a cut? 

Just walk us through the prioritization difficulties, please. 

Secretary LEW. Mr. Chairman, let me start by saying what I 

think should be obvious, that if we do not have enough cash to pay 

all our bills, we will be failing to meet our obligations and, under 

any scenario, we will be defaulting on obligations. There is no plan, 

other than raising the debt limit, that permits us to meet all of our 

obligations. 

When questions are raised about prioritization, the first question 

is about paying interest and principal on the debt and then, as you 

said, Mr. Chairman, what else? The legal issues even regarding interest and principal on the debt are complicated. 

Let me remind everyone, principal on the debt is not something 

we pay out of our cash flow of revenues. Principal on the debt is 

something that is a function of the markets rolling over. So there 

is a question of what we can do as a government and how the marVerDate Mar 15 2010 19:52 Jul 01, 2014 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 R:\DOCS\88306.000 TIMD
10 

kets function when the government is failing to pay all of its bills. 

We have never been there, and I think anyone who suggests they 

know exactly what that means would be projecting, after 224 years 

of the history of paying all of our bills, what happens if we stop 

paying all of our bills. 

Mr. Chairman, I do not know how you could possibly choose between Social Security and veterans’ benefits, between Medicare and 

food assistance. These are obligations we have made. 

We would not have the money to necessarily pay our troops in 

full. We would not have the money to pay our veterans their benefits in full. Our systems were not designed to not pay our bills. Our 

systems were all designed to pay our bills. 

The legal issues are many. I do not know how you could make 

the decisions. I do not think the legal authorities are clear at all, 

and I do not think the administrative process would permit the system to work. 

We write, roughly, 80 million checks a month. The systems are 

automated to pay, because, for 224 years, the policy of Congress 

and every President has been, we pay our bills. You cannot go into 

those systems and easily make them pay some things and not other 

things. They were not designed that way, because it was never the 

policy of this government to be in the position that we would have 

to be in if we could not pay all our bills. 

The CHAIRMAN. Now, if we were to prioritize, it is my understanding, as well, that you know, to some degree, what your outpay obligations are—for example, there is a big Social Security payment due October 23rd, interest on the debt the 1st, and at the end 

of the month, this month, a major Medicare payment, and other 

bills due. 

But on the other hand, we know that the revenue is a little bit 

sketchy, it is lumpy. It comes in in unanticipated amounts. 

Could you go over that a little bit, please? 

Secretary LEW. Well, that is very much the case, Mr. Chairman. 

We have estimates. If these estimates are wrong, then there is the 

real risk of miscalculation. And I would just note, even in the period of time that I have been keeping Congress informed, we have 

seen swings in the normal course of things of $20 billion in terms 

of our estimate of what the cash on hand would be. And that is not 

because anyone did anything wrong; it is because quarterly tax receipts were not exactly where they were estimated to be. 

I would also remind everyone that we are now in an unusual position with the government shut down. That is having economic 

consequences that we are just beginning to understand. 

All of the revenue projections that we have based our analysis 

on were based on a world where the government was functioning 

and where all of the services that relate to government activity 

were happening. So they did not take into account any layoffs that 

might occur. It did not account for any reduction in payroll or payroll taxes. 

So I have to assume that the estimates from before shutdown are 

likely not to be an accurate predictor of exactly where we are. 

The CHAIRMAN. How do you reprogram computers? 

11 

Secretary LEW. Well, Mr. Chairman, I have to tell you, I do not 

believe there is a way to pick and choose on a broad basis. The system was not designed to be turned off selectively. 

So anyone who thinks that it can be done just does not know the 

architecture of our multiple payment systems, which are very complex. They were designed properly to pay our bills. They were not 

designed to not pay our bills. 

The CHAIRMAN. In short, prioritization just does not work. 

Secretary LEW. I think prioritization is just default by another 

name. It is just saying that we will default on some subset of our 

obligations. But we are still—by definition, if we do not have 

enough money to pay all of our bills, we will be in default on our 

obligations. 

The CHAIRMAN. Thank you. 

Senator Hatch? 

Senator HATCH. Thank you, Mr. Chairman. 

Secretary Lew, I want to be clear about the administration’s position on the debt limit. As I understand it, the position is that the 

President will only accept a so-called ‘‘clean’’ debt limit hike with 

no other accompanying policy or fiscal considerations attached to it. 

I have asked you repeatedly how much of a debt limit increase 

you would like and for how long, and you have responded that it 

is up to Congress. 

Now, I believe that the administration’s position is unfortunate, 

because it is clear that we have a debt problem and that the fundamental driver of our debt is unsustainable spending in our entitlement programs. 

I believe we can and should use this as an opportunity to address 

these problems, and I have personally, as I mentioned, offered five 

modest bipartisan proposals on entitlement reform to the President 

earlier this year. You have received copies. Unfortunately, I have 

heard no responses to those, and I sincerely did that. Nevertheless, 

the administration is entitled to its opinions and positions. 

So I just want to be clear concerning the debt limit. As long as 

there is nothing attached to a debt limit increase, the administration will say nothing more about it, including its preferred outcomes in terms of how much of an increase and for how long. 

Is my understanding correct, or do you wish to give me your preferences about how big of a debt limit increase you would like to 

have and for how long you would like it, so that at least we can 

begin discussions and negotiations on this particular issue? 

Secretary LEW. Senator, you and I have discussed this a number 

of times, and we have corresponded a number of times. I wrote to 

you just last week, a few days ago, stating what our view is. Our 

view is that this economy would benefit from more certainty and 

less brinkmanship. So the longer the period of time is, the better 

for the economy. It is really Congress’s decision how often it wants 

to vote on the debt limit. 

I believe that more certainty is better. I think the Senate leader 

and the chairman have put forward a proposal—— 

Senator HATCH. Mr. Secretary, all I am asking is, how much do 

you want and for how long? I mean, those are two simple questions. How much do you want us to raise it and for how long? 

12 

Secretary LEW. Senator, the question of how long is one I think 

I am answering as clearly as I can. The longest that Congress is 

prepared to extend it for is the best. The President tried to be clear 

in his statements in recent days that if Congress passes something 

shorter, he was open to—he is not looking for there to be a crisis 

here, but Congress went right back dealing with it. So the better 

solution is to go longer. 

So we tried to be very clear, and everyone knows the numbers 

that are associated with different periods of time. 

Senator HATCH. Well, it is not clear to me. 

Now, Secretary Lew, the recent long-term outlook from the nonpartisan Congressional Budget Office makes a number of things 

abundantly clear. 

First, between 2009 and 2012, the Federal Government recorded 

the largest deficit since 1946, causing Federal debt to soar, as a 

share of our economy, to an amount higher than at any point in 

U.S. history, except a brief period during World War II. Gross debt 

now stands at 107 percent of our GDP. 

Second, our debt path is unsustainable, threatening to bring us 

to this fiscal crisis. 

Third, the root of our spending problem is the government’s 

major health care programs. That includes not just Obamacare, but 

Medicaid and Medicare as well, and others. 

Fourth, trust funds in Social Security and health entitlement 

programs face exhaustion. Yet, when it comes to negotiating solutions to our entitlement spending problems, all I hear from the administration is that negotiations can only proceed if, first, the 

President is guaranteed yet another tax hike, or if the only spending restraint we have enacted thus far is turned off. 

Now, when it comes to so much as even discussing solutions to 

our entitlement spending problem, all I hear is that negotiations 

can only proceed if, first, we pass a clean continuing resolution and 

a clean debt limit increase. 

Now, what does it take beyond a guarantee to the President and 

congressional Democrats that they first get yet another tax hike or 

that the sequester be undone to get the administration to the table 

to talk about entitlement reforms such as the ones I have proposed 

and which to date have been met with total silence from the administration? 

Furthermore, is it reasonable to say that there can be no negotiations unless there is another tax hike, when we know, to this very 

day, that disabled American workers face a benefit cut of 20 percent or more under current law when the Disability Trust Fund is 

exhausted in 2016 or earlier? 

Secretary LEW. Senator, I think the record is clear that the 

President has negotiated, has wanted to negotiate, and remains 

anxious to negotiate, on a bipartisan basis to have a fair and balanced approach to dealing with our fiscal problems. 

Senator HATCH. It is not clear to me. 

Secretary LEW. He has been on the verge of agreements twice, 

until, frankly, it was not acceptable to Republicans in Congress. He 

was prepared to do very hard things. He was ready to have an 

agreement twice, in 2011 and at the end of last year. 

13 

He put in his budget very tough policies, policies that many of 

the Democrats on this committee find very challenging, because he 

wanted to make clear he was looking for a balanced approach to 

entitlement reform and tax reform to settle our fiscal matters in a 

sensible way for the medium and long term. 

So I think the President’s record on being willing to negotiate is 

clear. 

I would just make one comment—— 

The CHAIRMAN. Briefly. 

Secretary LEW [continuing]. Very briefly—on the trajectory of our 

deficit. I would just note that, when the President took office in 

January 2009, we were in the middle of the worst recession since 

the Great Depression, we were in the middle of two wars, and we 

had a deficit that was 9 percent of our economy. We have cut that 

in half. We are making progress. 

We have more to do, but I do not think it is fair to say that we 

are in the same place we were. We have made tremendous progress. 

The CHAIRMAN. Senator Wyden? 

Senator WYDEN. Thank you, Mr. Chairman. 

Mr. Lew, it seems to me, in the event of a default or a neardefault, the dominos are going to fall fast and hard, and those hit 

early on will 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 are 

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 neardefault would mean for those seniors who depend on their private 

savings. 

Secretary LEW. Senator 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. 

I remember my late mother lived on her Social Security check. 

Many of us have relatives who live on their Social Security check. 

If the check did not come, if they did not have the ability to call 

someone who could help them out, they were in trouble. 

So anyone who thinks that anything short of default would be 

fine, has never experienced what it means to live on Social Security. 

In terms of Medicare—— 

Senator WYDEN. With private savings especially, Mr. Secretary— 

I share your view about those others, but I think the public has 

heard and you have given some comments with respect to mortgages, but I am concerned about those retirees and their private 

savings as well. 

Secretary LEW. Retirees saw their private—well, let us talk not 

just about retirees, because workers have their savings at stake as 

well. The effect is the same, it is just more immediate for retirees. 

Retirees have no time to catch up. 

We saw during the financial crisis that people’s retirement assets 

fell quite dramatically in value. It reduced what retirees had to live 

14 

on. It caused anxiety among working people about how they were 

going to make up for the ground that they lost. 

We are now in place where, because of the resilience of the 

American people, the recovery in 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 

that the economy is moving in the right direction. 

Now, if you create a crisis that causes assets to shrink in value, 

for retirees, they do not have a lot of time to catch up. So, even 

if it all rights itself over a period of time, for those retirees, they 

are in a pretty bad spot. So I think it is very unfair to have manufactured crises that have a real life impact on working Americans 

and retirees who ought to have to worry only about market risks, 

not government policy risks. 

Senator WYDEN. 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 near-default, is it fair to say that 

some of those budget savings would be eaten up to pay higher interest costs, a substantial amount of which would go to foreign governments and to other foreign creditors? 

Secretary LEW. Well, Senator, we have seen just this week that, 

for the bills that mature at the end of October, the rates have almost tripled over the last week. We still have access to the credit 

markets, but it is 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 will not have any problems. 

Senator WYDEN. What is troubling to me is, after the American 

taxpayer has gone through something of a painful process and you 

see these savings, the results of a default would produce higher interest payments and, in effect, transfer American wealth from our 

taxpayers, and some of that would go to foreign creditors. 

Secretary 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. 

Senator WYDEN. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Grassley? 

Senator GRASSLEY. Secretary Lew, Majority Leader Reid’s clean 

debt limit increase into the beginning of 2015 would likely be an 

increase of around $1.3 trillion. But my understanding of the administration’s position is that it is leaving the debt limit increase 

entirely up to Congress, that you will not negotiate, you require a 

clean debt limit increase, and you will say nothing about your negotiating preferences regarding how long or how much of a debt 

limit increase is desired. 

With that being the case, if Majority Leader Reid’s clean debt 

limit bill were amended to raise the limit for 1 month and the 

amended bill were passed through Congress, then the President 

would sign it, I assume. Is that correct? 

15 

Secretary LEW. Well, Senator, I would have to, obviously, see a 

bill, and the President would have to look at it to say what he 

would not sign. But the President made clear that he thinks dealing with this for a longer period of time would be good for the economy, but he did not rule out doing something shorter, if that is 

what Congress does. 

I think we have been very clear about what we think the right 

thing to do is. 

Senator GRASSLEY. Both you and President Obama have repeated the talking point that negotiating deficit reduction policies 

on the debt ceiling increase is unprecedented. The debt limit has 

been used in the past as a means to enact deficit reduction policies. 

I quote the Congressional Research Service: ‘‘Since 1978, Congress has voted to raise the debt ceiling 53 times. In 27 of those, 

or 51 percent, the debt limit increase was tied to other reforms.’’ 

I assume you are aware that more often than not, the debt ceiling is raised with other policy or reforms. If you are so aware of 

that history, why do you and President Obama continue to use the 

talking point that negotiating on a debt limit bill is unprecedented 

when the facts demonstrate otherwise? 

Secretary LEW. Well, Senator, I do not think that is an accurate 

version of history and certainly not what I recall, having lived 

through many of the budget debates over the last 35 years. 

If you look at the last nine budget agreements, only three of 

them have involved the debt limit. So it is not the case that most 

budget agreements involve the debt limit. If you look at the budget 

agreements that did not involve the debt limit, in several of them, 

the debt limit was just added onto a bill. It was not driving the debate. 

What I think changed in 2011 was that the affirmative case was 

made in 2011 that if a certain faction—and I am not saying it is 

the people in this room—but if a certain faction in the House did 

not get their way, they would prefer default over a compromise 

that they found unsatisfactory. That is different. It is just different. 

We cannot have the debt limit be something that is a threat to 

the economy unless policy concessions are made. That is not how 

our democratic system works. A minority cannot do that. 

Senator GRASSLEY. Secretary Lew, before I go on to my next 

question, at least you cannot say that it is unprecedented to have 

negotiations and reforms tied to a debt increase. 

Secretary LEW. I have never said it is unprecedented for debt increases to be tied to actions. But debt increase has always been a 

hard vote. Since 1917, this country has been working to try to turn 

it into a more ministerial vote. Congress used to have to vote on 

every bond issue. The debt limit was put in place to reduce the 

number of times Congress had to vote on debt. 

In the 1970s, when I was working for the House Speaker, we 

tried to turn it into an automatic vote so there would not have to 

be a vote on the debt limit. Just 2 years ago, Senator McConnell 

put in a mechanism to try to make it easier to vote on the debt 

limit. It has always been a hard vote. 

The question is, is it going to be used as a threat to the economy, 

and that cannot be. 

16 

Senator GRASSLEY. Secretary Lew, the President has made clear 

that if we pass a clean continuing resolution and a clean debt limit 

extension, he is ready to negotiate. Where we need to negotiate is 

obvious. If you look at long-term projections, spending on our 

health care entitlements demands our attention. 

In the next 25 years, spending on Medicare and Medicaid as a 

percentage of GDP is projected to double, nearly. Now, if I ask you 

if the President is willing to negotiate on health care entitlements—I think you have already mentioned what the President 

put in his budget—you are probably going to cite the President’s 

budget. You have already done that. 

I do not consider that negotiation. I consider it a restatement of 

your position. Negotiation means you are willing to give serious 

consideration to the other side’s ideas. 

Senator Hatch has made numerous, serious proposals on health 

care entitlements. I am told that the message of the 2012 election 

was that Democrats no longer have to negotiate on health issues. 

Can you convince me that that is wrong? 

The CHAIRMAN. Senator Schumer? 

I am sorry, Senator. 

Senator GRASSLEY. Can he answer this question? 

The CHAIRMAN. In about 10 seconds. 

Secretary LEW. Senator, I think the President’s budget does reflect his openness to serious entitlement reform. He has been willing to work on a bipartisan basis to do things that are unpopular 

on the Democratic side, and he is just looking for a partner to work 

with who is willing to have some give-and-take, not just one way. 

The CHAIRMAN. Senator Schumer? 

Senator SCHUMER. Thank you, Mr. Chairman. 

And thank you for coming, Secretary Lew. This hearing is much 

needed. I think if it has a purpose, it is to deal with the debt ceiling deniers. The debt ceiling deniers try to claim that default will 

not be a big deal. Middle-class families will not be hurt. We can 

just pick and choose which bills to pay. Prioritization, they call it. 

Well, the debt ceiling deniers need a dose of debt ceiling reality, 

and you have given them that today. Basically, you have said, I 

think in just about these words, you said prioritization is default 

by another name. And prioritization is extremely difficult, as you 

have said. 

Do we pay foreign debts or veterans’ benefits? Do we make sure 

Social Security benefits go out or pay Medicare? Do we pay for education? Do we pay for our troops? 

The American people do not want that. They would certainly 

want us to just pass a clean debt ceiling bill and avoid those awful 

choices. 

By the way, one of these debt ceiling deniers, I read in the New 

York Times, a Congressman named Brown, has also said that much 

of what he learned in medical school was lies. They came from, in 

his words, ‘‘the pits of hell.’’ If we are letting people like this lead 

us, God save America. 

Now, I would like to deal with the second issue, which is the timing. In my view, we are like a blindfolded man walking toward a 

cliff, and, if we keep walking in that direction, very soon we will 

fall off. We may fall off on October 16th, we may fall off on October 

17 

17th, we may fall off on October 25th or November 1st, but we will 

fall off. 

And the most interesting part—the most important point about 

this—is, we do not know which day we will fall off. The markets 

are somewhat mystical. They could, even a day or two before October 17th, come to the view the U.S. is going to default, anticipate 

that, Treasuries go down in value, interest rates go up, much of our 

financial system freezes, and we are back where we were in 2008 

when AIG failed. 

So I just want to ask you this question to be clear. Is there not 

a risk almost every single day, starting around October 17th, even 

perhaps a day or two earlier and getting worse, that we cannot tell 

exactly when each day after that we will not have enough money 

to pay our bills and default could occur, even if you laid out the 

most meticulous plan in the world? 

Secretary LEW. Senator Schumer, I have been trying to be as 

transparent as possible for several months, because I very much 

fear that a miscalculation is something that could lead to an unintended, but very severe, consequence. 

Since August, I have been very clear, we are already in overtime. 

We hit the debt limit in May. We have been using extraordinary 

measures. We call them extraordinary measures, but everyone now 

assumes that they are infinite. They are not infinite. 

I warned in August that we are going to run out of extraordinary 

measures sometime in the middle of October, and I even went the 

step further, which mostly has never been done, and said we are 

going to have roughly $50 billion in cash. 

A month later, based on the year-end tax receipts and expenditures, I updated it, and I said no later than October 17th we would 

run out of borrowing capacity, and, instead of $50 billion, we would 

have roughly $30 billion. 

Now, I think that should indicate that what I said in each of 

these correspondences is true. It is impossible to predict with accuracy. We are talking about enormous variations in day-to-day expenses and in economic activity which generates tax revenues. So 

it is impossible to predict with accuracy. 

It is typical to keep roughly $50 billion in reserve at all times 

just as a cushion against the unknown. So, when you talk about 

having less than $50 billion and drawing it down, it is a dangerous 

place to be. That is why Congress needs to act to raise the debt 

limit sooner rather than later. 

Senator SCHUMER. One way to avoid a potential cataclysm is to 

pass a clean debt ceiling increase now, not delay and say, well, we 

can wait until the eve of the 17th or the 19th or October 31st. Is 

that right? 

Secretary LEW. Well, I must say there is a parlor sport in Washington of, when is the last minute? You cannot do that with the 

debt limit. With the debt limit, if you look for the last minute and 

you make a mistake, you have done serious damage to the U.S. 

economy, to the world economy. It is just not responsible. It is reckless. 

Senator SCHUMER. So would you agree that my analogy—blindfolded man walking toward a cliff, and we do not know exactly 

18 

what date he will fall off, but if he keeps walking, he will—is pretty accurate? 

Secretary LEW. I have tried to describe it in my own words. 

Senator SCHUMER. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Crapo? 

Senator CRAPO. Thank you. 

Secretary Lew, you indicated in your beginning remarks that we 

face a terrible threat to the economy from a manufactured crisis. 

And I understand the fact that the issue of whether the Federal 

Government’s borrowing limit should be raised is problematic and 

creates serious concerns with regard to our economy. 

But the fact is that we do face a debt crisis, not a—well, I guess 

it is manufactured over decades now, but we face a real debt crisis. 

And, as we hear in the discussion about whether the United States 

is going to lose its good faith and credit ultimately or go into default, I think the real crisis is that default, the one that we are 

screaming toward because of our refusal to engage, as a country— 

Congress and the President—with regard to reforming our failed 

entitlement system, reforming our failed tax policy in this country, 

and dealing with the real debt crisis that we face. 

I think Senator Schumer’s comment about the blind man walking 

toward the cliff is even more appropriate with regard to the debt 

crisis that we face with a $16-trillion, almost now $17-trillion debt. 

So my question to you is, do you not believe that the long-term 

trajectory of our debt gives our economy a greater threat and gives 

investors even more concern in terms of their confidence about the 

ability of the United States to avoid default? 

Secretary LEW. Senator, we clearly have long-term challenges, 

but I think the financial markets—when you talk to financial lead 

policymakers around the world, they actually see that we have 

made a lot of progress in the last few years. We have more to do 

in terms of entitlement reform and tax reform, but we have taken 

a deficit that was 9 percent of GDP, and we have cut it in half to 

4 percent of GDP. 

If anything, we are getting criticized around the world for having 

done too much deficit reduction too fast, because they want more 

growth. 

Senator CRAPO. But, Mr. Secretary, you mentioned—— 

Secretary LEW. I very much agree that we should be dealing on 

a bipartisan basis with—and you and I have talked about this— 

sensible, balanced approaches for medium- and long-term reforms, 

and I would love to be engaged in that conversation—— 

Senator CRAPO. But the very progress—— 

Secretary LEW [continuing]. But it is not the crisis that we are 

talking about. 

Senator CRAPO. The very progress you are talking about occurred 

as a result of significant tax increases and a debt ceiling compromise that was reached with the Budget Control Act. 

The fact is that we have not dealt—and in that compromise, we 

dealt with discretionary spending almost entirely. We have not 

dealt with entitlements, which the administration seems to say are 

off the table, and now we have yet even more demands for greater 

19 

tax hikes. And that is what the negotiations that we want to engage in are all about. 

Secretary LEW. Senator, the President has engaged on multiple 

occasions, and I have been part of those negotiations. We very 

much believe that a balanced approach, where you do entitlement 

reform and tax reform, would be good for the country. 

We tried in 2011, we tried in 2012. We are ready to try again. 

The President said, when we take away the threat of economic disaster, he is ready to engage. If I heard him correctly in his press 

conference the other day, he said he would pay for dinner. 

So he is willing to talk and wants to talk, but it cannot be that 

it is with the U.S. economy being threatened if one small part of 

Congress does not get its way. 

Senator CRAPO. So, we need another $1 trillion or more of debt 

authorized before we can even discuss whether to start reforming 

entitlements, whether to start reforming the tax code? 

Secretary LEW. Senator, what we believe is, the government 

needs to open. Congress needs to open the government, and Congress needs to make it possible to pay our bills, and we need to engage. And we are ready to do that. 

Senator CRAPO. Well, just to conclude my questioning, then. Back 

to the issue of our long-term debt and the threat that it poses to 

our economy, are you telling me that those fears have now been allayed? 

Secretary LEW. No, Senator. What I tried to say is, and I hope 

I was not confusing, there is a challenge to deal with in the medium and the long term. It is not the same as a crisis, which is 

what happens if you fail to act on the debt limit in the next short 

period of time. 

I would very much like to do it sooner rather than later. I think 

it is better for the country. It would have been better for the country if we had been able to complete the negotiation where the 

President and the Speaker were very close, until House Republicans said they would not vote for it. 

We would love to be in a place where we were talking about a 

sensible alternative to these mindless across-the-board cuts. We 

have been very clear about that. But it cannot be with the threat 

that the government is shut down and we are going to default on 

our bills. That is not the way to engage in the kind of bipartisan 

negotiations that need to happen. 

The CHAIRMAN. Senator Cantwell? 

Senator CANTWELL. Thank you. 

Secretary Lew, thank you for your testimony about how you 

think that the serious prospects and uncertainty to the market are 

happening right now. That is my question to you, because everybody is talking about default as if that is the triggering point, and 

I think your testimony lays out that this moment could happen at 

any time. 

The reason I brought this chart is that everyone thinks Treasury 

notes—if you are not involved in the financial markets or have not 

been in the business community—are some mysterious thing. But 

this chart shows that Treasuries are held not only in the U.S. by 

businesses, but in Europe and China, and they are significant. It 

is a network. It is as complicated and complex as just about anyVerDate Mar 15 2010 19:52 Jul 01, 2014 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 R:\DOCS\88306.000 TIMD
20 

thing around when it comes to all the individuals who are involved. 

It is not, as one of our colleagues said, picking up the phone and 

calling Wall Street and telling them to settle down. 

I just went on the web and said, ‘‘what about Treasuries.’’ If you 

just Google ‘‘Treasuries,’’ what comes up is ‘the most important 

market indicator,’ way more important than the Dow and the S&P. 

It is an important number in the economy because of the interest 

rates being pegged off of its interest rate. 

So here we are now, basically almost, talking the interest rate 

up with the talk in DC. And in the last 48 hours—I wish I could 

print out this chart, because we have seen a spike, a dramatic 

spike from .03 percent to .297 percent. That is more than a doubling in 48 hours. 

So my question is, if the interest rate on Treasuries doubles in 

the next 48 hours again, are we not already to that tipping point? 

Secretary LEW. Senator, I have been trying to be very careful 

and just report what has happened. I am 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 on short-term bills is not a good 

thing. 

We have seen stability in the long-term bond markets, but markets are delicate things, and I do not know how markets will translate one day’s news, one day’s action, into discomfort. 

What I do know is that 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 

is not just the interest, it is also the principal. The markets have 

to keep working. 

Senator CANTWELL. I think the thing that people are missing 

here in DC is that everybody is at risk in the U.S. economy. It is 

not just what you just explained, but everybody at home. 

Last time we had this discussion about whether we were going 

to default or not, the stock market dropped 20 percent. So we could 

have this same discussion, and then by Friday or Monday, you 

could see—in fact, one of my constituents who is an analyst said 

you could see as much as a 25-percent drop in the stock market, 

just triggered off of Treasuries. So we do not have to go to default—just the talk of default is causing the level of uncertainty 

that we are all trying to avoid. 

Secretary LEW. Well, Senator, that is 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 is what happened when we did not cross the line. I do 

not think anyone should want to test what happens when we cross 

the line. We are 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 do not pay America’s bills. 

21 

Senator CANTWELL. I think what we are doing right now is reckless. So I hope our colleagues—I hope we will come together. Thank 

you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Roberts? 

Senator ROBERTS. Thank you, Mr. Chairman. 

I do not think we have a blindfold on and are walking toward 

a cliff. I think we are walking toward a cliff with our eyes wide 

open, and that is the problem. 

All this talk about self-inflicted wounds—it was not a selfinflicted wound when we raised the debt limit and we also achieved 

the Gramm-Rudman-Hollings Act, the Social Security amendments, 

the Balanced Budget Act, the Budget Control Act, and I could go 

on and on with the fact sheet here that has been referred to by 

other Senators. 

I think it is down to a willingness to really negotiate. The President has said over and over and over again that he will not negotiate, but I do not think that is true. There is a meeting as we 

speak with the Republican leadership. Yesterday he met with 

Democrats. 

My question to you is, you have been briefed on the agenda of 

this meeting with regard to the time that the President would prefer with regard to an extension of the debt limit and the agenda, 

and, more especially, I am talking about sequester flexibility with 

Appropriations Committee oversight, the repeal of the medical device tax, the restoration of a 40-hour work week to the ACA as opposed to the 30-hour work week that is causing all the problems, 

and perhaps even a decision or at least a time frame on a decision 

on the Keystone Pipeline. 

There is a long list that all of us have that we have been talking 

about, more especially, Senator Crapo was asking specific questions 

on entitlement reform, and that is the real cliff with our eyes wide 

open that I think that we are walking toward. 

I would only opine to you, sir, that the reason why this is so 

tough is, the American people get this—maybe not on the shutdown, although there has been a lot of debate back and forth, but 

they sure get this on the debt limit; 52 percent do not want any 

increase in the debt limit. They get it. 

They look at this as their own family budget, and they understand this. Seventy to 80 percent say ‘‘no increase without any 

spending reform,’’ and yet, all we heard was, ‘‘I will not negotiate.’’ 

This reminds me about the debate in the Paris Peace Talks back 

in the Vietnam era, the size of the table and the height of the 

chairs. 

Maybe this morning, when the President meets with the Republican leadership and, also, the Democratic leadership previously, 

we could get the size of the table. You all can have the high chairs. 

We will take the low chairs. This is silly. 

Senator Schumer said that basically we are walking toward a 

cliff with a blindfold on. I think we have the blindfold off—no action on entitlement reform, no action on tax policy. 

I have been to the dinner, with the help of Senator Isakson, at 

the White House. It was a privilege. But when we talked about 

22 

how we achieve the grand bargain on tax reform, the President 

said he needed $800 billion. Now, that price has been raised by the 

distinguished Majority Leader to $1 trillion. I do not think you are 

going to find much support on this side of the aisle for that. 

Then, when we talked about reform, he said, ‘‘Why can’t we take 

mortgage interest, charitable giving, retirement, just means-test 

those?’’ and then he gave some specific examples. I tried to put in 

regulatory reform, and I would put that in on the agenda, if you 

would agree to it or if the President would agree to it. 

We are not going to do that. We are not going to means-test everything in the tax code, and we are not going to raise taxes $800 

billion or $1 trillion. That is a nonstarter. So I hope that we could 

do that. 

Have you been briefed, or what is the up-to-date news that you 

can give us about the agenda of this meeting as to the time amount 

and as to what could be on the table? 

Secretary LEW. Senator, the President has been very clear. Congress needs to open the government. Congress needs to make it 

possible for us to pay our bills, and then he is open to talking about 

anything. And it not a question of the shape of the table or the size 

of the table. It is a question of whether there is give and take. 

Senator ROBERTS. So you indicate that the President is willing 

to negotiate, but he is not willing to tell us what agenda or what 

specific parts of the agenda he might be interested in or not or the 

time frame? 

Secretary LEW. Senator, he has made clear Congress has to open 

the government, Congress has to make it possible for us to pay our 

bills, and he is happy to talk about anything. He has made it clear 

what he would like to get done. We have made it clear in our budget. We have made it clear in numerous communications. 

Give-and-take means everyone coming in and doing hard things. 

He demonstrated his willingness to do hard things. If others are 

willing to do hard things, maybe we can do something important. 

Senator ROBERTS. All right. I am over 13 seconds. I apologize, 

Mr. Chairman. 

I think what you are saying is that, if the government shutdown 

can be discontinued—everybody wants that, nobody wants a government shutdown, and I do not want to get into that debate 

again—he is willing to negotiate, but only if we end the shutdown 

and agree to an extension on the debt limit. Then he may negotiate 

with an agenda that is just sort of amorphous. 

Secretary LEW. He has always been willing to negotiate, just not 

with the threat of destroying our economy. 

The CHAIRMAN. Senator Menendez? 

Senator MENENDEZ. Thank you, Mr. Chairman. 

Thank you, Mr. Secretary. 

My colleagues have already expressed a series of dimensions in 

which both the shutdown and the threat of default, I think, affect 

our country domestically economically. 

I want to look at a different dimension that both has domestic 

and global issues. In the other role I play as chairman of the Senate Foreign Relations Committee, I worry about the incredibly, extremely negative effects that the government shutdown and the 

23 

threat of default have on our foreign policy and our national security, both now and in years to come. 

The shutdown and the potential default affected some of America’s near-term foreign policy priorities, such as the President not 

being able to go to the Asian Economic Summit. And his absence, 

although certainly appropriate due to the crisis, feeds into existing 

fears, having traveled to the region, that our rebalance to Asia is 

more rhetoric than reality. And who showed up and was more than 

willing to fill the void? China. And in doing so, America’s loss is 

China’s gain. 

This is an opportunity for opening markets for U.S. businesses 

to sell products and services. This is an opportunity to promote economic and security questions. And I think our allies are going to 

wonder, is the United States capable of meeting its promises, 

whether about economic initiatives or security initiatives? 

Perhaps the most damaging, I think, and difficult thing to reverse is the impact this has on America’s reputation in the world 

and the economic consequences that flow from that. The entire 

global financial system depends, in large measure, on the faith that 

the U.S. Government can and always will pay its debt. And America enjoys the unique privilege of having its currency act as the 

world’s reserve currency. 

So it seems to me that, by playing political games, we give credence to other emerging powers, like China and Brazil, who want 

the world to become less reliant on the dollar, and there are consequences to becoming less reliant on the dollar. Not only does it 

undermine our standing in the global economic system, it puts our 

dependability in question with allies. 

I know in your role as Treasury Secretary, you fill various international roles within that context. Could you give the committee a 

sense of the consequences? We have talked about those consequences at home, but there are consequences abroad that affect 

us here at home. 

Secretary LEW. Senator, I think it would be impossible to overstate the importance of the U.S. playing the role in the world that 

we do in terms of the stability we provide. There is a reason why 

the dollar is the world’s reserve currency. 

The world actually counts on us being responsible and making 

the kinds of decisions that allow them to continue to look to Washington for that kind of stability. We have finance ministers from 

around the world gathering in Washington this week, and yesterday I met with finance ministers from Africa and finance ministers 

from Latin America. And it is challenging when they look at you 

and they ask, ‘‘What is going on in Washington?’’ It makes them 

nervous about their economies, and we need them to have growing 

demand, because that is good for our economy. 

And this question of world reserve currency—it is no secret that 

there are discussions around the world where others would like 

there to be a basket of currency that might be used as an alternative to the dollar. 

So I have to ask the question. When our role in the world is so 

important to the United States’ well-being, both in terms of security and economic well-being, and to the stability in the world, why 

24 

would this kind of a manufactured crisis be seen as something that 

is necessary to pursue, when it undermines that? 

So I think the questions you are asking are quite significant. 

Senator MENENDEZ. Let me ask you. There are those who suggest, oh, that is not a real issue, because the rest of the world has 

no place to go. 

Secretary LEW. I am not going to speculate on whether someone 

else will emerge as an alternative, but we are in a place right now 

where it is important for the United States and the world for us 

to maintain our position, and we have the capacity to do that. We 

have the economic ability to do that. It is only a matter of political 

will. 

Senator MENENDEZ. And there is no reason to risk that possibility of finding out whether or not there is some other universe of 

currencies which people could look to. And there is no reason to 

risk having the potential economic impacts we can have globally 

rather than providing domestic opportunities for growth in jobs and 

opportunities. 

Secretary LEW. I certainly think there is no reason. I would go 

a little further and say that it is against our interest to invite that 

kind of discussion. 

Senator MENENDEZ. Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Enzi? 

Senator ENZI. Thank you, Mr. Chairman. 

Mr. Secretary, I think this is the 11th time I have been through 

this discussion about ‘‘the sky is falling.’’ 

Wyoming families are not buying these arguments. They are saying you cannot spend more than you take in, and you definitely 

cannot keep doing it forever. 

I know a person who interned for me several years ago who now 

is the owner of a major company in Wyoming that operates in four 

States. And he pays his people well, but every once in a while 

somebody comes in and says, ‘‘I need a pay raise.’’ And he hands 

them a copy of Dave Ramsey’s book and says, ‘‘You don’t have a 

problem with income. You’ve got a problem with spending.’’ 

That is what the Wyoming people think. We have a problem with 

spending, not revenue. They are not interested in having their 

taxes raised so that we can put more people in the wagon. 

I used an example on the Senate floor the other day about how 

the people working in the private sector get a little upset because 

government keeps growing, and when it grows, that means there 

are more people in the wagon and less people pulling the wagon, 

and they are getting tired of it. 

In fact, it is getting pretty hard to pull, and we are not doing 

anything about it. That is their impression. Why should the 

goverment be able to increase its revenue? How do we solve this 

spending problem? 

We keep asking for this debt limit increase, and it is always 

asked for as though, sometime down the road, we are going to negotiate and figure out a way to solve the problem. You mentioned 

that you would rather we did not have these manufactured crises. 

America would prefer we do not have these manufactured crises. 

I think this is a manufactured crisis, again, because we did not 

work on it yesterday. The government shutdown—it shows we have 

25 

not done the budget the way we are supposed to. We are supposed 

to begin work on the spending bills on April 15th, do one a week, 

and not get to this continuing resolution situation on October 1st, 

so everybody will know exactly how much they can spend. 

I was invited to Blair House when we were doing Obamacare, 

and I spent a day of the President chopping down every suggestion 

that Republicans made. It was a waste of a day. So, when we hear 

this thing about a willingness to negotiate and, if you have any 

ideas, get them to me, it is wearing just about as thin as ‘‘the sky 

is falling.’’ 

So why do you and the President feel we should not be discussing 

right now this dire financial situation and coming up with a solution that will put a little bit of room in there for something to be 

done right now? 

If people are running up their credit card debt and they need to 

raise their limit, they are expected to say what they will do in 

order to be able to take care of their debt, although the credit agencies are not really interested, because the interest rate goes up, 

which is the same thing we are facing here. You have already said 

that it has tripled in the last week. So we are running into that 

same problem. 

Why should we not present some kind of a solution? It could be 

a long-term solution. It does not have to be just a 1-week solution. 

But we are not even providing a long-term solution. I put out a 

penny plan that would take care of the deficit in 2 years and result 

in a balanced budget. Some variation on that might be helpful. 

But why do you think the President should not discuss this right 

now and come up with solutions right now in conjunction with the 

extension of the debt limit? 

Secretary LEW. Senator, those Wyoming families know that, after 

they have run up their credit card, they do not get to ignore it. 

They have to pay the bill. The debt limit is just paying our bills. 

You and I have talked. You know that I would very much like to 

be in a conversation about long-term, sensible entitlement and tax 

reform to give the kind of stability going forward that this country 

needs. 

That cannot be done by saying, we will not pay our bills next 

week. That is what is wrong with engaging right now. The President wants to negotiate. 

Senator ENZI. We keep saying that this terrible thing is going to 

happen, and that this is just paying our bills. How many times can 

we say it is just paying our bills? The American public does not get 

that same option. 

Secretary LEW. The time to reduce what we need to borrow is 

when we make the decisions on what we are spending, not after. 

If Congress appropriates money, if Congress puts laws in place 

where people are entitled to benefits, if Congress commits military 

resources, once those commitments are made, you cannot tell a contractor who is doing work, ‘‘I am not going to pay you because we 

changed our mind.’’ 

Senator ENZI. Which takes me back to my comment that we 

should have been doing the spending bills one at a time—— 

Secretary LEW. I am not disagreeing with you on that. 

Senator ENZI [continuing]. In a piecemeal fashion. 

26 

The CHAIRMAN. Senator Enzi’s time has expired. 

Mr. Secretary, it is getting close to 9:35. There are many Senators here who have questions to ask. Senators have been very 

good about sticking within the limits. 

I am hoping you can stay a little bit longer so we can enable Senators to ask their questions. They will probably shorten their questions so that you can stay. 

Secretary LEW. It is going to be very difficult to go more than 5 

minutes over. 

The CHAIRMAN. Well, let us see what we can do. 

Senator Carper? 

Senator CARPER. Thanks, Mr. Chairman. 

Mr. Secretary, thanks for joining us. 

I want to say to my colleagues, I just stepped out of the room 

for a few minutes. I was watching the hearing on television in an 

adjoining room, and, I must say, people watching this on TV must 

be frustrated and disappointed with us. 

Some of the finest people who serve in the Senate serve on this 

committee. That is why I wanted to be on this committee. Thoughtful Democrats, Republicans, people willing to be pragmatic, find 

the middle, find reasonable, principled compromises. 

The problem here is pretty simple. Democrats need to support 

entitlement reform that saves money, saves these programs for the 

long haul, and is consistent with our obligation to look out for the 

least of these. That is what we need to do. Republicans need to embrace tax reform that provides some certainty and predictability for 

businesses and for investors in this country, but at the same time, 

generates some revenues. 

We go back to those 4 years at the end of the Clinton administration when we had four balanced budgets in a row. Revenues as a 

percentage of gross domestic product were right around 20 percent 

all 4 years. Those 4 years, spending as a percentage of gross domestic product was right around 20 percent. 

Our deficit is down from—it peaked out about 4 years ago at $1.4 

trillion. Last year, the year that just ended about 10 days ago, the 

deficit was about $700 billion. We cut it in half. 

Is that enough? No, it is not enough. We need to do more. But 

we cannot do more unless we do entitlement reform. Over half our 

spending is entitlement spending. And we cannot do more unless 

we generate some revenues. 

The problem here is—what was the old line in the Paul Newman 

movie? ‘‘What we have here is a failure to communicate.’’ That is 

part of our problem. We are really talking past each other. 

I talk to people all the time, people who have a lot of money, and 

I tell them they are going to have to pay some more taxes, and they 

say, ‘‘I don’t mind paying more taxes. I don’t want you to waste my 

money.’’ That is what they say. ‘‘I don’t want you to waste my 

money.’’ 

I do not want to waste their money either. I do not think any 

of us does. Tom Coburn, who used to serve on this committee, and 

I have introduced legislation that is called the PRIME Act, P-R-IM-E, and we go at entitlement programs, not to savage old people 

or poor people, not to hurt the least of these, but to actually save 

money and preserve these programs for the long haul. 

27 

Every one of you on this committee has gotten a letter from Tom 

Coburn and me asking you to join us as a cosponsor. I hope you 

will read the letter. I hope you will join us. 

Tom Coburn and I held, along with Carl Levin, a hearing on 

Monday of this week on Social Security Disability. Nobody wants 

to harm people who are disabled and unable to work. But in Huntington, WV, my native State, by the way, Huntington, WV, one 

judge approved 99.7 percent of the people who applied for Social 

Security Disability—99.7 percent. And that kind of thing is the exception. That is the outlier. But there are people who apply and get 

approved who, frankly, can work and do not deserve to be on disability. 

The idea that we cannot somehow meet our moral imperative 

and also meet a fiscal imperative, that is a fiction. We can do both. 

And I would say we would really not just boost our approval rating, 

but we would really instill a lot of confidence in the American people if we would just stop talking past each other and actually work 

together. 

Mr. Secretary, we are going to meet with the President today— 

Democrats. I presume the Republicans are also going to meet with 

him today. 

Somehow the President has to make it crystal clear that he is 

willing to negotiate, and I think he has said it—I have heard him 

say it—on the entitlement stuff. And the Republicans, they have to 

indicate a willingness to negotiate on tax reform that generates 

some revenues. 

Then there is a matter of trust here. I do not know how to break 

through it. I really do not know how to break through it. 

Any ideas? 

Secretary LEW. I think that the kinds of conversations that he 

is having are meant to try to rebuild some of the trust, to make 

it clear that, once we get beyond where we are right now, once 

Congress reopens the government and takes away the threat of default, he has been and remains open to honorable compromise, 

which means give-and-take. But it has to be a 2-way street, and 

that has always been the case with any negotiation. 

Senator CARPER. All right. Thanks, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Brown? 

Senator BROWN. Thank you, Mr. Chairman. I will be brief with 

my questions. 

Mr. Secretary, thank you for joining us. 

We have heard a lot from the debt limit deniers about how October 17th is not really the day we default. We hear from the debt 

limit deniers that they are sure that, even if we get there, nothing 

will happen, since we can pay China and Wall Street first. But the 

fact of the matter is that that day, October 17th, as you know well, 

the day we run out of borrowing capacity, is a Thursday, which 

happens to be the day that Treasury holds its weekly auction to 

roll over $100 billion in debt. 

Comment for us, if you would, what could happen at that auction 

if we did not raise the debt limit, what could happen if our borrowing costs—would they substantially increase? What would hapVerDate Mar 15 2010 19:52 Jul 01, 2014 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 R:\DOCS\88306.000 TIMD
28 

pen if they did increase on Thursday? What would happen if we 

were unable to roll over the $100 billion in debt? 

Secretary LEW. Senator, I am not going to comment on what 

markets might do. I think the history is clear that anxiety leading 

up to 2011 caused a bad market reaction. 

We have seen in the last few days unease, certainly, with maturities in the period between October 17th and the period immediately after that. I cannot say what the likelihood is of there being 

a problem. I can say the consequences of any inability for us to roll 

over would be quite serious. 

In terms of the household budget, it is like, instead of having to 

pay your monthly payment on a mortgage, having to pay the full 

mortgage, and that would be a problem. 

Senator BROWN. Second question. And I will be brief, Mr. Chairman. 

Over the last couple of weeks, I have spent a lot of time just calling people in Ohio—community bankers, business executives, entrepreneurs, people running research institutions, hospital executives, small manufacturers—in regard to their party, and I assume, 

though I do not know their party in most cases, I assume most of 

them are Republicans because they are in lines of work that might 

suggest that. But over and over, they say the same thing. Why is 

this happening? We cannot risk a default. 

They do not understand why the government is shut down. They 

increasingly understand that it is one faction of one party in one 

house in one branch of government that has brought much of this 

to a halt. 

The National Association of Manufacturers, a large manufacturing association in the country, wrote on Monday, ‘‘The failure of 

policymakers to address the debt limit is injecting uncertainty into 

the U.S. economy, hampering the ability of manufacturers and the 

broader business community to compete and invest and create new 

jobs.’’ 

For the last several years, since the Health Care Act, since DoddFrank, the criticism I hear more than anything from business in 

my State is uncertainty, uncertainty. When are the Dodd-Frank 

rules going to be finished? What is going to happen with the implementation of Obamacare? All of these, the uncertainty, that pall 

that they claim hangs over our country, our economy—I hear it especially from politicians who are critical of many of these programs. 

So my question is, if we agree to a short-term clean debt limit 

increase, does that provide the certainty that we would need to 

compete? 

Secretary LEW. Senator, I have tried to be clear that I think 

longer certainty would be very good for the economy, and the shorter the period, the less stability it provides. 

When you talk about shifting debates to different time periods, 

retailers are very worried about what happens in November and 

December if we are going through what we are going through now. 

So I think longer is better, but avoiding a crisis is better than 

having a crisis. And in no case is the President going to end up in 

a position where the threat of destroying the American economy is 

the basis for compromising. He wants that negotiation to be on the 

29 

basis of the kind of give-and-take that honorable compromises come 

from. 

Senator BROWN. Thank you, Mr. Chairman. 

This is the worst uncertainty and the most precarious uncertainty I have ever seen in our economy in my time in public office, 

and what is tragic about it is how self-inflicted it is. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Portman? 

Senator PORTMAN. Thank you, Mr. Chairman. 

Secretary Lew, you have said again today the President will not 

negotiate on a debt limit, and the President, as was noted earlier, 

has asserted that there have not been additional items added to 

debt limits in the past. And, as you and I have talked about and 

as you know, when you look back at the last 30 years of the history 

of debt limits, it is the only thing that has worked. 

In fact, every significant deficit reduction package that has 

passed this Congress in the last 30 years has come in the context 

of a debt limit. I found one that did not. It was in 2005 for about 

$40 billion, a relatively small deal. 

That is the way it has worked, and it is Gramm-Rudman, it is 

the 1990 Balanced Budget agreement or the Andrews Air Force 

Base agreement, it is the 1997 Balanced Budget, it is PAYGO rules 

that many in this committee on the other side of the aisle talk 

about favorably, and, of course, it is the most recent Budget Control Act just a couple of years ago, all in the context of the debt 

limit. 

So my view is, it is kind of strange the President would, one, not 

want to negotiate, but, two, say we have not had this stuff. It is 

all that has worked to deal with this. And you indicated this earlier—it only makes common sense, because it is a tough vote, as 

you say. Why? Because our constituents do not get it. 

Why would you extend the credit card again, go to the limit 

again without dealing with the underlying problem? And that is 

why the polling shows that by over 2–1, the American people say, 

yes, we should extend the debt limit, but only—only if we deal with 

the underlying problem. And that is all we are asking for. 

I am speaking for myself. I will say we need to avoid a debt limit 

crisis, but we also need to avoid a debt crisis. So, avoiding a debt 

limit crisis today and avoiding a debt crisis tomorrow should be our 

objective. 

The President himself said, back in 2006, when the debt was half 

as big as it is today, $8 trillion, and this was a floor speech: ‘‘America has a debt problem and a failure of leadership.’’ He said, ‘‘I am, 

therefore, going to oppose the increase in the debt limit.’’ He opposed it when it was half as big as it is today. He said we needed 

to deal with the underlying problem. 

In response to Senator Hatch’s question earlier about why the 

President refuses to deal with the underlying problem—which we 

all know is the two-thirds of the spending and the biggest part of 

the spending and the fastest growing part of the spending that is 

on autopilot, that we do not appropriate every year, which is the 

mandatory side—in response to that question, you said, and I 

quote: ‘‘He put in his budget significant entitlement spending reVerDate Mar 15 2010 19:52 Jul 01, 2014 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 R:\DOCS\88306.000 TIMD
30 

forms. He wants to do this.’’ And, in fact, you are right. The President’s proposal includes a pretty long list of entitlement savings, 

mandatory savings. It adds up to about $730 billion over 10 years, 

a step in the right direction. 

During that time, by the way, we are likely to add another $8 

trillion to the debt, according to CBO, the Congressional Budget 

Office. But he has $730 billion over 10 years. 

Now, not all of those choices reflect my top priorities or others’ 

on this committee, probably, but in a negotiation, you do not get 

everything you want. 

So my question to you today is really very simple. By adding 

some of those proposals, maybe not all $730 billion, maybe it is 

$500 billion, maybe it is $400 billion. But by adding some of the 

President’s own proposals to an extension of the debt limit, consistent with what has been done historically and consistent with 

what the American people are asking for, could we not move forward, and is that not what we ought to be doing, dealing, yes, with 

the debt limit but also with the underlying problem, and taking the 

President’s own proposals to do it? 

Secretary LEW. Senator, on the history of the debt limit, you and 

I have been back and forth many times. I think it makes a big difference if you tack a debt limit increase onto something that has 

already been agreed to. 

In 1997, the Balanced Budget agreement was all signed and 

sealed, and then a debt limit increase was put into it. It did not 

drive it. Nobody threatened default. So I think we are in a different 

situation since 2011, and that has changed the world. 

Senator PORTMAN. Well, nobody has been in default because you 

have not had a President saying he would not negotiate. 

Secretary LEW. And the President has said, and he just repeated 

this week, he wants to and is prepared to negotiate. I think it is 

important not to just go through a President’s budget and cherrypick the things that are hard for him to do, you have to look at 

the things that are hard for others to do, because the negotiation 

is give-and-take. 

If everything is on the table, if we are looking at entitlement reform and tax reform in a way that we join together to solve the 

problem, there could be a serious conversation. 

But I would caution to not take just one side of the ledger. 

Senator PORTMAN. Let me focus on that, because the President 

also said in that budget that he believes we ought to have tax reform. And specifically with regard to corporate tax reform, for the 

first time in your budget, you indicate it should be revenueneutral, and I applaud you for that, as you know. 

I think that is important. I think it is an urgency right now. If 

we do not deal with it, we are going to continue to lose more jobs 

in this country. 

My question to you would be, on the President’s own proposals 

on entitlements, I agree there should be a give-and-take, but I am 

going to say, let us look at the President’s own proposals, put those 

into this debt limit increase, plus directions to the Congress on tax 

reform, as you all have suggested. Would you all be willing to move 

that forward? 

31 

Secretary LEW. Well, just to be clear, the President’s view on the 

debt limit, he has stated this as clearly as he can: he is not negotiating over the debt limit. The debt limit—Congress has to make it 

possible to pay our bills. He looks forward to negotiating. 

The CHAIRMAN. Senator Bennet, you are next. Senator Bennet? 

Secretary LEW. Senator, I hate to call attention to the time, but 

I am going to be late for another commitment if I—— 

The CHAIRMAN. Could we have just one more? How about two 

more? 

Secretary LEW. I think if we do two more—— 

Senator HATCH. This is important. 

Secretary LEW. This is very important, Senator. 

Senator HATCH. There is nothing more important than this, and 

I want to make sure everybody on our side at least has a chance. 

Senator BENNET. Thank you, Mr. Chairman. 

Thank you, Mr. Secretary, for your indulgence. I will just take 

a few minutes. 

In your view, would failing to raise the debt ceiling make our 

debt limit situation better or worse? 

Secretary LEW. Well, it does not do anything good. If the cost of 

borrowing goes up, it raises our expenditures. It does not reduce 

them. 

Senator BENNET. And if the cost of borrowing went up, just 1 

percent or 2 percent—we are at historically low interest rates— 

what would that cost us? 

Secretary LEW. I would have to go back and do the numbers exactly to give you an answer, but these are—we are talking billions 

of dollars. We are not talking about small numbers. 

Senator BENNET. No. I think it is very clear, and Ronald Reagan 

shared this view—you quoted him earlier—that this would just 

make matters worse. 

Secretary LEW. Unless we were to do something unthinkable and 

say, we will never pay those bills, you have to pay the bills and 

you are going to be borrowing money at a higher interest rate. So 

it only costs—— 

Senator BENNET. Which means that our interest costs are just 

going to continue to go up, and our ability to do things like respond 

to the floods in Colorado or be able to educate our kids will be diminished. 

I am going to let you go, because I know you have to go, but I 

have heard a lot of people on both sides of the aisle today talk 

about their willingness and their desire to try to meet in the middle, and I think that is important. And I think we need to do that, 

because I can tell you this: people in Colorado, they are sick and 

tired of a lot of things about Washington, but what they are mostly 

sick and tired of is our managing by crisis and, therefore, our inability to manage the affairs of this country in a way, in this case, 

that does not threaten the full faith and credit of the United States 

and our ability to have the reserve currency for the world be the 

American dollar. 

Thank you, Mr. Secretary. 

The CHAIRMAN. Thank you, Senator. 

Senator Toomey? 

Senator TOOMEY. Thank you, Mr. Chairman. 

32 

Secretary Lew, you have said a couple of times, in reference to 

previous discussions over the debt limit, that it is different now. 

It is true, it is different now. I would argue now it is much more 

urgent that we deal with the underlying fiscal problem. Now, unlike in past years, we are spending $3.6 trillion. We have run up 

a string of unprecedented deficits. The modest improvement you alluded to, you know that is temporary, and it is scheduled, if there 

are no structural changes, for those deficits to get much worse, not 

terribly far from today. 

We now have a total debt that is over 100 percent of our total 

economic output, I believe, already limiting economic growth and 

prosperity. We have trillions of dollars of guarantees that we did 

not 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 is different, it seems to me, is that 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 is 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 October 17th. 

Now, I hope that we do pass a debt ceiling increase with appropriate reforms, because there is no question, in my mind, at some 

point, if we do not raise the debt ceiling, it will become disruptive. 

As you know, ongoing tax revenue is only about 85 percent of all 

the money this government intends to spend in the coming fiscal 

year. So, if we only get 85 percent of everything we intend to spend 

in tax revenue, the 15 percent shortfall would have to be covered 

by borrowing, or else we would not 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. Senator Cantwell made a 

very compelling argument about the unique role that U.S. Treasury 

securities play in the world and for the United States. 

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? 

Secretary LEW. Senator, the only way to make sure we could pay 

all of our obligations is for Congress to act and raise the debt limit. 

No President has ever had to decide whether to pay some bills and 

not others. 

Senator TOOMEY. I understand. That is a different question, 

though. 

Secretary LEW. The law is complicated, and I am not the one who 

makes that decision, as you know. I think that if you look—— 

33 

Senator TOOMEY. You would make the decision. 

Secretary LEW. No, no. It is actually not my decision. It is something that the President would have to decide. And I am telling you 

that it would put us into default if we went to a place where we 

could pay one bill and not others. 

What would you say to people on Social Security who are not getting paid? 

Senator TOOMEY. Mr. Secretary, I have acknowledged 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. So it would seem to me 

the only appropriate thing to do is plan for a contingency. 

So are you telling me that the President would decide to ensure 

that we would not miss a payment on Treasury securities? 

Secretary LEW. Senator, what I am telling you is there is no good 

solution if Congress fails to raise the debt limit, and that is why 

the President has called on Congress to raise the debt limit. 

You used the number 80–85 percent coverage in terms of revenue. That is an annual average. 

Senator TOOMEY. I understand. It is unequal. 

Secretary LEW. Some months it is 50 percent. 

Senator TOOMEY. That is right. It varies. 

Secretary LEW. So the amount that we fall—— 

Senator TOOMEY. Sometimes it is over 100. I know it. 

Secretary LEW [continuing]. Behind in payments is unthinkable. 

Congress has to do its job and act. 

Senator TOOMEY. And I certainly hope that the President will 

work with us so that we can avoid this, but, frankly, I am shocked 

that the Secretary of the Treasury will not assure the financial 

markets, American investors and savers, and the millions of people 

who hold Treasuries, that they do not have to worry about the security of their Treasuries. I am extremely disappointed. 

Secretary LEW. I would refer you back to statements by President Reagan and Secretary Jim Baker, who made the same warnings that I am making, because only Congress can act to raise the 

debt limit. No President has ever been put in the position of having 

to figure out what bad option they choose if Congress does not act. 

Senator TOOMEY. I understand. I am almost out of time. On 

Tuesday, the President said, and I quote, ‘‘We plan for every contingency. So, obviously, you know, worst case scenario, there are 

things we will try to do,’’ end quote. 

Could you tell us about these contingencies? 

Secretary LEW. Senator, the options are all bad. 

Senator TOOMEY. I agree. 

Secretary LEW. 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 are going to be in a place which is uncharted territory, and 

anyone who thinks it works smoothly—it would not work smoothly. 

Senator TOOMEY. Nobody said this would be smooth. 

Secretary LEW. It would not work smoothly. It would be chaos. 

Senator TOOMEY. The question is whether the Treasury is prepared to try to minimize the disruption. 

34 

Secretary LEW. Obviously, we have looked at many options. 

There have been reports indicating things that have been looked at 

over the years. Nobody has ever had to put any of these into effect. 

They are not tested. We have never stopped—— 

The CHAIRMAN. The Senator’s time has expired. 

I might say the Secretary has been very patient. I also note there 

are four Senators left who want to ask questions. 

If I might ask, Mr. Secretary, if they can state their questions 

in 10 seconds each, and you do not have to respond to them—— 

Secretary LEW. I am happy to do that. 

The CHAIRMAN. Ten seconds each and next—just for questioning, 

because we do not have time—would be Senator Casey. 

Senator CASEY. Mr. Secretary, thank you very much for your testimony. 

My question relates to Social Security and Medicare and veterans’ benefits. I am just going to read two lines from a letter that 

I got from a constituent talking about her parents. 

She said, ‘‘At 85 and 83, they should not have this uncertainty,’’ 

the uncertainty about the impasse. ‘‘These should be their golden 

years. It breaks my heart to see my mother saying she cannot sleep 

and has a stomach ache from the worry about where our country 

is headed.’’ 

Tell us about the impact of a default when it comes to Social Security, Medicare, and veterans’ benefits. 

The CHAIRMAN. Senator, I told the Secretary he did not have to 

answer questions, because so many Senators have to ask. So I appreciate it. 

Secretary LEW. I am happy to follow-up. 

The CHAIRMAN. Next, Senator Stabenow. 

Senator STABENOW. Thank you, Mr. Chairman and Mr. Secretary. 

I would just like to ask that we put in the record the complete 

letter from the National Association of Manufacturers, and I would 

read one sentence. ‘‘A default would put upward pressure on interest rates, raising both short- and long-term cost of capital and discouraging business investment and job creation’’ in America. 

[The letter appears in the appendix on p. 69.] 

The CHAIRMAN. Thank you, Senator. 

Senator Nelson? 

Senator NELSON. Ten seconds. 

The CHAIRMAN. Or thereabouts. 

Senator NELSON. Mr. Secretary, I am concerned that you have 

indicated that we might agree to a short-term extension on the 

debt ceiling, and I think that would be counterproductive. We 

would be back in this soup right at the end of that short-term extension. 

I commend the President for standing firm. We cannot negotiate 

over the debt ceiling. National security is another consideration. I 

will put that in the record. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Cardin? 

Senator CARDIN. Mr. Chairman, thank you. 

35 

Secretary Lew, thank you for being here, and thank you for giving us—it is our responsibility to pass the extension of the debt 

limit. It is Congress’s responsibility to do this. 

Uncertainty is really hurting this country, and we cannot govern 

from crisis to crisis. So I strongly support your view that the longer 

term is what we need here. 

My question would be, what legal authority do you have to pick 

and choose? It seems to me that any analogy we use to a company 

or a business that cannot pay its bills—there is a limit as to the 

discretion you have to make those judgments. 

I would be interested as to the legal authority you have on 

prioritization. 

The CHAIRMAN. Thank you, Senator. 

Other Senators are not here. Obviously, they will want to submit 

questions to the Secretary. 

Secretary LEW. I would be happy to respond. 

The CHAIRMAN. Mr. Secretary, you have been very generous with 

your time. We deeply appreciate it. Thank you very much. 

Secretary LEW. Thank you, Mr. Chairman. 

The CHAIRMAN. The hearing is adjourned. 

[Whereupon, at 9:49 a.m., the hearing was concluded.] 

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