U.S. Treasury Secretary Jack Lew prepares to testify before the Senate… (Jim Lo Scalzo/EPA )
A transcript of Treasury Secreatry Jack Lew’s testimony at a Senate Finance Committee hearing on the debt ceiling.
Mr. 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’s 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 -- 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 four-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.
In 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 of paramount concern for them. That’s why it’s 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 the serious prospect of default by the United States, are impossible to predict and awesome to contemplate. Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and on the value of the dollar in exchange markets,” closed quote.
If Congress fails to meet its responsibility, it could deeply damage financial markets, the ongoing economic recovery, and the jobs and savings of millions of Americans. I have a responsibility to be transparent with Congress and the American people about these risks. And I think it would be a grave mistake to discount or dismiss them. For these reasons, I 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 five months as new information has become available about when we would exhaust our extraordinary measures. In addition, Treasury has provided information about what our cash balances will be when we exhaust our extraordinary measures.
As our forecasts have changed, I’ve consistently provided updates in order to give Congress the best information about the urgency with which they should act. And last month, I met with the full membership of this committee to discuss these issues.
Treasury continues to project that the extraordinary measures will be exhausted no later than 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’re relying on investors from all over the world to continue to U.S. hold bonds. Every week we roll over approximately $100 billion in U.S. bills. If U.S. bond-holders 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.