WASHINGTON - In a speech on the Senate floor, U.S. Senator Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, outlined the fundamental flaws of the Senate Democrats’ debt proposal and called on the U.S. Treasury Department to provide information to the American people about the monetary resources available to avoid default.
Below are excerpts of Hatch’s speech:
On Senate Democrats’ Debt Proposal:
“Later tonight we will vote on the Majority Leader’s bill to reduce the deficit and increase the nation’s statutory debt limit. Earlier today the House of Representatives decisively rejected the Majority Leader’s proposal. It will be defeated here in the Senate later this evening. As a substantive matter, I deeply oppose the efforts of the Majority Leader. His plan does not tackle the task at hand. The President would get a $2.7 trillion debt limit increase, but less than $1 trillion in cuts."
On the Treasury Department’s Silence:
“Given the treacherous fiscal waters we are in, Congress and the American people need to know where the U.S. Treasury stands. It is unacceptable that they are being asked to make decisions based on a proclaimed August 2 deadline with no facts to back it up. I urge all Americans, all Utahns, and all Social Security recipients to get in touch with Treasury, right now, and ask them to show us the money. Call Treasury; send them an email; send out a Tweet. Show us the money.
“You have a right to know. Cash in the Treasury comes from the taxes that hard-working Americans pay. Government is charged with stewardship over use of that cash. Withholding information is a shirking of that responsibility."
On the Threat of the Debt Bubble:
“I have spoken previously about the debt bubble the nation finds itself in, but I want to reemphasize that point in light of the warnings from ratings agencies that our credit faces a downgrade absent real deficit reduction. Currently, federal debt held by the public equals a modern record of about 69 percent of GDP. The Congressional Budget Office reports that current tax and spending law takes that figure to 76 percent of GDP over the next 10 years. To put that number in perspective, at the end of fiscal year 2008, the debt held by the public reached about 41 percent. That’s less than two and a half years ago. As bad as the 76 percent figure is, President Obama’s budget would raise debt held by the public to 87 percent of GDP."
On Facing a Credit Downgrade:
“It is bad enough that President Obama has taken on so much debt that it may result in a downgrade of our credit. But it is even worse that faced with that downgrade, he and his Democratic allies refuse to deleverage. Should we get downgraded for failure to enact a serious deficit reduction package, our debt will only grow larger because increased interest rates will increase the costs of our borrowing. Americans should be less concerned about the August 2 deadline than the fact that over the long-term our debt bubble runs the risk of becoming a debt spiral that turns into a death spiral for our economy."
On An Effective Deficit Reduction Package:
“It is much more critical that we get a deficit reduction package right than that we adhere to this arbitrary August 2 deadline. There is one bill that gets that right from my perspective -Cut, Cap, Balance. So far the only bipartisan votes taken by Congress in this debt ceiling debate are the vote for Cut, Cap, Balance in the House and the House vote to defeat the Majority Leader’s bill."
Below is the text of Hatch’s full speech delivered on the Senate floor this evening:
Mr. President, later tonight we will vote on the Majority Leader’s bill to reduce the deficit and increase the nation’s statutory debt limit. Earlier today the House of Representatives decisively rejected the Majority Leader’s proposal.
It will be defeated here in the Senate later this evening. As a substantive matter, I deeply oppose the efforts of the Majority Leader. His plan does not tackle the task at hand.
The President would get a $2.7 trillion debt limit increase, but less than $1 trillion in cuts.
And most of those cuts are gimmicks. They assume savings from war spending that the President has not requested and that is unlikely to materialize. It does not include a Balanced Budget Amendment.
And most importantly from my perspective, it assumes a massive tax increase in 2013 by allowing the 2001 and 2003 tax relief to expire, allowing the AMT to hit middle-class taxpayers, and allowing for increases in estate taxes that are a small business and job killer.
But we are scheduled to vote on this bill late this evening, actually early on Sunday morning. Americans might ask why we are doing this? Republicans were ready to take this vote yesterday evening. This delay in voting does not match up with the asserted urgency of raising the debt ceiling. Yesterday, the Senate Majority leader stated here on the floor that “The country defaults on its debt at 12 midnight on Tuesday." Tuesday is August 2.
But is this true? What are these claims based on? Amazingly, we do not know for a fact whether the United States does run short of cash to pay all of its obligations on August 2.
We were told by the Treasury Secretary way back in May that August 2 might be a date when Treasury runs out of money to pay our bills. We have seen estimates of Treasury’s cash position here on the floor that came either from a local think tank or from Wall Street financial firms. But Treasury won’t give us updated information.
The last time Treasury informed Congress of its estimates of its cash position was in May, when it backed off of a prior guess and extended their estimate of running dry of cash by three weeks.
Since that last update, I made a simple request of members of the Financial Stability Oversight Council-commonly called F-SOCK-which is chaired by the Treasury Secretary. I asked for an update on Treasury’s cash and liquid assets to be delivered by close of business on Thursday. I also asked for contingency plans of Treasury and our financial regulators outlining what they will do if the debt limit is not raised or if we face a ratings downgrade on U.S. debt.
Treasury has not responded to this request.
We are told that the Nation will fall off of a financial cliff on August 2 at midnight. That is a lot of precision. Down to the hour. But is it true? I don’t know. The American people don’t know. Social Security recipients in Utah don’t know. And Treasury won’t tell us.
We are being asked to give the President the largest increase in the debt limit in our nation’s history. We are asked to consider policies that involve trillions of dollars, with effects that will occur over decades, with no current information about how much money the government has and expects to have over the next few days and weeks.
Mr. President, Treasury told me yesterday that they are working on getting me some information. Yet, I still don’t know how much money Treasury now has to pay its bills, how much it expects to have over the next few days and weeks, or whether Treasury still believes that midnight August 2 has any particular significance.
But the politicians all insist that August 2 is the date. I am beginning to have my doubts. If that was the case, wouldn’t it make sense for the Majority Leader to schedule votes commensurate with this urgency? Why waste more than 24 hours, which is what the Majority Leader did by refusing our offer to vote last night?
It is not unreasonable to conclude that maybe that August 2 date is not all that it is cracked up to be. We can’t say for sure because the administration, despite my request more than 48 hours ago, has refused to provide Congress with information regarding its cash position.
But others seem to think so. Yesterday, Moody’s Investors Service stated clearly, “[i]t remains our expectation that the government will continue with timely debt service.... If the debt limit is not raised before Aug. 2, we believe that the Treasury would give priority to debt service payments and could thus postpone a potential debt default for a number of days."
This analysis is consistent with everything that my colleague and friend from Pennsylvania, Senator Toomey, has been saying for months. He understood early on that regardless of the rhetoric, there would be no default on August 2. The administration is fully capable of prioritizing payments.
There is a much more pressing issue than imminent default - a credit downgrade due to the failure of Congress to use this opportunity to take significant deficit reduction measures.
That is the real takeaway from Moody’s report. “Reductions of the magnitude now being proposed, if adopted, would likely lead Moody's to adopt a negative outlook on the AAA rating.... The chances of a significant improvement in the long-term credit profile of the government coming from deficit reductions of the magnitude proposed in either plan are not high."
Our debt has become so unmanageable that we face a credit downgrade, with consequent higher interest rates, if we do not enact a big-time deficit reduction package. This year is our third straight trillion dollar deficit. Our national debt is $14.3 trillion. And the President’s budget would add $13 trillion in additional debt.
I have spoken previously about the debt bubble the nation finds itself in, but I want to reemphasize that point in light of the warnings from ratings agencies that our credit faces a downgrade absent real deficit reduction.
Currently, federal debt held by the public equals a modern record of about 69 percent of GDP.
The Congressional Budget Office reports that current tax and spending law takes that figure to 76 percent of GDP over the next 10 years.
To put that number in perspective, at the end of fiscal year 2008, the debt held by the public reached about 41 percent.
That’s less than two and a half years ago.
As bad as the 76 percent figure is, President Obama’s budget would raise debt held by the public to 87 percent of GDP.
And according to the Congressional Budget Office, if we continue current tax policy, don’t raise rates, fix the AMT, provide estate tax relief, and provide for a fix to the physician payment system - policies supported by clear majorities of Americans - by 2021, debt held by the public will reach 97 percent of GDP.
Now here’s the sticky wicket.
CBO projects that the cost of simply paying the interest on all of this debt will rise to $792 billion - or 3.3 percent of GDP - in 2021. But what happens if interest rates go up? Currently, interest rates are very low. Ten year Treasury rates are currently around 3.5 percent. During the past two years this administration has spent recklessly, raising the total debt from $10.6 trillion to $14.3 trillion. Because debt was cheap, the President was able to take on a lot of it. The true cost of this debt was hidden by low interest rates.
But what will happen when interest rates rise? What happens if interest rates rise to levels seen during the 1980s or the 1990s. During the 80s, rates on 3 month Treasury bills and 10-year notes rose to over 8 percent and 10 percent respectively. During the 90s, rates on 3 month and 10-year notes rose to 5 percent and 6.6 percent respectively.
That cost as laid out by CBO could be astronomical. Under President Obama’s 2012 current budget, the CBO projects deficits for each of the next 10 years, resulting in an estimated $10 trillion being added to the public debt, a 100 percent increase. Under the scenario where interest rates rise to the historical average of the 1990s, the public debt is projected to grow an additional $8 trillion, or a 77 percent increase. Under the scenario where interest rates rise to the historical average of the 1980s the public debt would grow $14.5 trillion, doubling in size.
This is the real impact of Moody’s warning. It is bad enough that President Obama has taken on so much debt that it may result in a downgrade of our credit. But it is even worse that faced with that downgrade, he and his Democratic allies refuse to deleverage. Should we get downgraded for failure to enact a serious deficit reduction package, our debt will only grow larger because increased interest rates will increase the costs of our borrowing.
Americans should be less concerned about the August 2 deadline than the fact that over the long-term our debt bubble runs the risk of becoming a debt spiral that turns into a death spiral for our economy.
Mr. President, let me close by making two points. First, given the treacherous fiscal waters we are in, Congress and the American people need to know where the U.S. Treasury stands. It is unacceptable that they are being asked to make decisions based on a proclaimed August 2 deadline with no facts to back it up.
I urge all Americans, all Utahns, and all Social Security recipients to get in touch with Treasury, right now, and ask them to show us the money. Call Treasury; send them an email; send out a Tweet. Show us the money. You have a right to know. Cash in the Treasury comes from the taxes that hard-working Americans pay. Government is charged with stewardship over use of that cash. Withholding information is a shirking of that responsibility.
We should not run Treasury and manage taxpayer resources the way Bernie Madoff ran his hedge fund, by taking in the cash and, when asked for information, refusing to give it and just saying trust me. I have a simple question: Does Treasury expect to run out of cash on Tuesday, August 2? The President and his Treasury Department must answer this question.
Which brings me to my second point. It is much more critical that we get a deficit reduction package right than that we adhere to this arbitrary August 2 deadline. There is one bill that gets that right from my perspective -Cut, Cap, Balance. So far the only bipartisan votes taken by Congress in this debt ceiling debate are the vote for Cut, Cap, Balance in the House and the House vote to defeat the Majority Leader’s bill.
This debate is not over yet. I expect Senator Reid’s bill to fail tonight. And then it is back to the drawing board. My hope is that the President will then do what he has so far refused to do - take a leadership role in this debate, stand up to his base, and encourage his party to take real steps to reduce the deficit.
