Skip to main content

tv   Tonight From Washington  CSPAN  February 1, 2011 8:00pm-11:00pm EST

8:00 pm
take more calls. >> guest: the constitution was clear that it was enumerating powers for the federal government and what's happened over these 222 years 1 the federal government -- is the federal government's view of its role in the economy keeps getting bigger and bigger and bigger. the constitution didn't envision them doing mortgages, and yet the whole mortgage industry, almost all is absorbed into the federal government. the constitution didn't envision the e newspaper rapted powers where -- enumerated powers where the federal government made billions of billions of dollars of loans on small businesses giving lots of jobs in washington, but costs the country dearly. my reading of limited powers a core principle in the institution of the founding fathers is we've gone way beyond that. we need to find a way back.
8:01 pm
>> caller: i have one question for you. i have been here for years and years and years, two parties controlling everything. republicans will reach. their symbol is elephant, and they are big head the. democrats are working for poor, but they are donkeys, but they are dumb. nobody cares about middle class. it's time what is happening in egypt, i hope that it doesn't happen from the middle class in the america. it is time for both parties to come to the center because of both of you these people in the middle are suffering so much.
8:02 pm
.. thank you. final thought. guest: one of the themes from your callers is that people are tired of the fighting. how do we grapple with this out- of-control federal government problem we have been having to feed it has not been done very well by the previous administrations. we really need an upheaval a fresh new culture in washington. i will testify and say let's start today, making it $1 billion in cuts. couldn't they all agree tomorrow on $1 billion
8:03 pm
on the repeal of the health care law leader this week. last week the house voted to repeal law and on monday federal judge ruled the law we unconstitutional. today senators debated the repeal of the health care law. we will hear from republicans john cornyn and john connally and the democrats chuck schumer and jay rockefeller. cal this is just under an hour. justpeak >> to >> be fully on the amendment that's beenly on introduced by the mccnell republican leader senatorl mcconnell that would in effectassed repeal the health care bill that was passed on christmas eve at 7 a.m. in the morning about a year ago, a year ago this last since e time christmas eve. bill
8:04 pm
since the time that the bill was passed, strictly along partyur lines, 60 votes, all of our colleagues on the democratic side ved side voted for, all the folks on our side voted against it. this we predicted that this bill would lead to increase in premiums for those who have health insurance. eryone it would raise taxes on everyone in order to fund this huge se expansion of the federal government some $2.7 trillion worth of extra w spending, andrs f would roalso take a half a whi trillion dollars from medicare, -- which as you know madam president, is one of our in troubled entitlement programs that is in need of reform, and it takes a half a trillionyet a dollars from medicare to fund yet in new entitlement program, this health care bill. we also know that on at least two occasions now if federal
8:05 pm
judge has found that this bill violates the constitution of thes united states because it says that congress -- both of the judges said congress overreached its authority under thatthis constitution. the arguments were made thathin c this wason within the commerce a law power, but actually i agree with a law professor, jonathan turley whose comments i saw of the today wh uo said if the supreme u court of the united states of holds this health care bill asower being within the congress power theris no federalism is dead there is nofederal gov limit to the federal government you or m authority of the federal government can compel you or me g ov or anyone else to buy athe 10t a government approved product. there are no limitations. says the tenth amendment of the th united states conestitution says all powers not delegated to the federal government are reserved to the states and the people. it might as well be written out think of the constitution. so that's why i think thesee one
8:06 pm
decisions are very important. the one in florida and the early one in virginia because they reveal a defect in this bille over and above the others that i have already mentioned, raising new taxes, taking from medicare to create a new entitlementnd program, and of course inem with thi opposing this onerous mandate. mad but the real problem with this anced bill, madam president, is more re nuanced than my remarks would suggest. what it does is by imposing a mandate on employers to provide vernment government approved health insurance or pay a penalty whatost many employers are going to findo out is a will cost them less to pay the penalty than it will to provide health insurance for their employees and thus many whi americans who have coffin again
8:07 pm
coverage they like which t able t president promised time and timeo again they would be able to keep th that's if they like they would find n case that that's not the case because employers will make a rational this decision and cost less to pay the penalty than it does to provide the government mandated health care of the health insurance they will simply choose to drop the employees and thus they will have to go into the exchanges which are supposed uer to be created by 2014 under thishat? bill. what's wrongwell with that? th-- that t we know this bill was gained in all sorts of ways to try tooffice sre w provide a congressional budget office score which reflects ats fraction of its true cost implemented over ten years.'ve the most accurate estimate by sea and is this bill will cost some $2.7 trillion over ten opposed years as opposed to the roughly that 1 trillion-dollar price tag of
8:08 pm
offi thece congressional budget office in part because it was over scored over a ten year period of time but only six years of as implementation and through s various other ways as i say that scored a true cost of this bill one o f was gained. bi but one of the things the bills provides is individuals who goo to to the state based exchanges to theihealth i buy their health insurance because they don't have been available from their employer it will be subsidized by the federal tax payers of to i believe it is $88000 for ay family of four.r. what happens if a whole lot more pe people drop their coverage or drop the their employers drop their coverage and they are forced toed exces go to the state based exchanges in order to buy their health care which is subsidized to this degree? it's going to explodecost the cost congr this health care bill in ways that the congressional budget office score does not adequatelyuibbli reflect. i amwith not quibbling with the aumptio congressional budget office.
8:09 pm
they take the assumptions they are asked to take and they do the best they can to predict the cost will be but again it's possible, possible in the indeed this is an an example today and themple congressional budget office scoring process to make it which are cheaper than it will bee actually be once it is finally implemented. and so at a time when we are deimit going to be asked to raise theard i debt limit, our credit card is maxed out at $14 trillion plus a the time when the deficits are $1.5 trillion, that's just for year this current last fiscal year. the answer to that is absolutely not. because we can do so much better by making sure the government
8:10 pm
doesn't get between patients and their doctors and by leading to and the flexibility and the choices co in nsthe hands of consumers to make decisions that are in their best interest. we could if we really try coming and i hope we will, to come upe, with a better way of delivering health care. because of unfortunately, this bill squandered an opportunity to try to help them and the cost thevidence curve down and indeed all of the cos evidence is it bense the cost mak curve up and makes it more -- it makes it more expensive. madam president, let me conclude pre's on this.iscal at a time when the president's fiscal commission says ourire and fiscal situation is dire and is unsustainable at a time when the h president iis hoped during the state of the union message would appoint say this fiscal commission that i appointed has come up with a w
8:11 pm
report we need to take thiss to try seriously and twork in a bipartisan basis to try to fix what is broken about our totalhe government finances the president didn't do that. he talked aboutich we investment which governmen we know when the federal government invests money it's been really code for more spending and we have been on a spending binge the last two years with 42 cents on every dollar borrowed gen from the next regeneration ande can't k be on the and we know we can't keep up so beyond theywo fundamental problems that it isral unconstitutional by federal judges, that it will continue toensive rat make health care more expensive peop rather than more affordable and deny people the opportunity to keep what they have because of the incentives it puts on the the employers to dump three employees into thes exchange's e and that they will get the voted on subsidies the congress voted on which will make this bill even
8:12 pm
more expensive than it was originally thought to be. but this bill is one that should i be repealed. we can working together in ais do bipartisan basis to better. side or this is what happens when one side or the other overreaches.wo they think the victory is worth it when in fact what we find out there's a tremendous backlash by the american people reflected inore the the november 2nd election. the more they learn about this bill they don't like it more.ess. they like it less she cut ands now that the two federal judges have held that this bill ishis unconstitutional it's time fore we us to take the matter up again better once we repeal the bill and do a better job that we should have done in the first place.the priding madam president i yield themr. kyl: you. floor.league fm >> from arizona. >> i want to commend myr supreme cot j colleague from texas a former supreme court justice of texas in analyzing the legal issues as he has just done get another indication of why it is time for
8:13 pm
us to start over. repeal and i would join him in urging i'd l the repeal and replacement ofriefly this health care bill. i would like to speak briefly about yet another reason whyis needs t this needs to be done and it is a very specific example. it concerns my home state of arizona and there are other can states in the-- same position but spec i can speak to the specificsnd with respect to my own stateany and it has to do with just one of the many burdens of mandates.duals in this bill as we know there iurance are mandates on individuals toue purchase insurance for example as my colleague was just saying, wl. mandates on families and companies and on states as well and i want to talk about the mandate on states, which with provisns of respect to the medicaid ca provisions of the bill are called maintenance of effort orort moe. let me describe that. the maintenance of effort requirement forces and on funded full medicaid by denying them the their
8:14 pm
full ability to manage their medicaid programs to fit their and own budgets and their own unique medicaid populations.ecause this is a huge problem because arizona along with most other states is experiencing a dog year budget crisis. our state has lost over 300,000 jobs in the last few years and revenue collections are down by 34% since the start of the recession. in the 2010 fiscal year arizonain gross collected about $3 million less in gross revenue than it tha did0 just three years prior in 2007. pd, during the same period and will live in the arizona medicaid program has increased by 44%. mohan think about that. arizona more than 1.3 million arizona are now covered by medicaid. that's more than 20% of the entire population of the state.ould be ordinarily the state would be that able to donald backstedt coverage in order to fit withot its budget. but believe it or not the
8:15 pm
obamacare law that was passed prevents a stage for managingexcusee, its own medicare or excuse me determ medicaid program by determining t who is going to be covered by the program. cons why now the arizona pulled of consumes almost 30% of the state's general fund spending and that is an increase of 70% over four years ago. so arizonan could as i saidor one donald this back except for one thing and that is obamacare. as our governor noted in an a let recent letter to the speaker and "the i g am quoting, the growth in the air is on medicaid spending is a state cause of the state budget crisis we and it is c unsustainable.with we cannot afford this increase without every other statec safet priority. such as education and public safety, and of quote. so the arizona legislature has thi taken steps to address this. they have now cut $2.2 billiondget
8:16 pm
b in spending from the budget but the that doesn't go far enough to address the rest of the budget problems. all is despite these clots the budget shortfall is projected to bet $1.2 billion in the next fiscal ar. year. m let me dees describe how the maintenance of effort requirement or mandate affects the air as on the budget. pose d in 2000 by the federal state government imposed a mandate oneir medic states by which states could not eligibity change their medicaid eligibility standards orures in pce on methodologies and procedures in this s place on july 1st, 2008. et this sounds identical to the maintenance of effort th requirement of obamacare but there is one crucial difference. the federal government maintenance of effort stimulushe requiment requirement that i am talking about the was in the stimulusd bill was funded by the federal government. so, the state was not adversely budge affected from a budget stimulu t standpoint. re under the stimulus trustees of receive an enhanced federal share of their m medicaid, the but under obamacare thetill
8:17 pm
maintenance of effort requirement is still there except that the states have to pick it up. they are stuck with an unfunded mandate. states so even those dislike arizonair can't afford the current medicaid obligations obamacarecare h has forced an extension of the effort requirement until 2014ding any but without providing any assistance to pay the exorbitant in costs. j in june of 2011 when thehare stimulus 16 lawyer, arizonasdicaid share of the program will of increase by an astoundingannual c t $700 million.s almos the annual cost of the mandate is almost a billion dollars which is simply of affordable.and thi p into this problem is especially acute for arizona and a handful of other states because we medi actually expanded medicaid eligi eligibility forbi the childless sorizo adults.o so arizona and am effort to cover more people by law included additional people in
8:18 pm
the medicaid coverage. than adults without children. sta rather than the states likeut b the arizona to cut back to the level of other states for example for now with the health care law freezes in the existing disparity is so there is a bigbetween orng difference between or among the how states depending upon how liberal the coverage is short. we have tried to do our best to find ways to ameliorate the pr problems and devoted resources towards medicaid fraud prevention. there have been very difficult decisions made as for example exam including the reimbursing health care providers with less money.t as you can imagine that hasn't gone over well.magine even more controversial and very sad arizona stopped medicaid funding for several kinds of 1. transplant surgeries'. by this is a rationing required by a obamacare.
8:19 pm
the state cannot afford tot provide the most expensivetheref has t procedures therefore has to cut them baback all because they areng back prevented by law from pilingadul ts back the coverage of the adults place without children. so the one place that they can on cut is on the transplants. s ai a very sad day as i said. nobody i s there's nothing good to say. nobody is pleased with the outcome but there is no other option but even that option obviouy doesn obviously doesn't save enoughtall money to forestall the budget crisis. many of those who have beenose whon with resp critics of the decision with traplants respect to the transplants have s failed to tell the whole story to which is the the governor had to make the difficult decision a because the health care reform bill eliminated the option she otherwise would have had to dial other back the coverage to all levels of the state's. before the en actment of thet and health care bill the federal government and states for parker's and health care are delivery. nowerel y satates are really a the financing mechanism for the federal government demand.
8:20 pm
with the state's need is permanent reduce medicaid demand by way of authority to reduce f eligibility standards for the medicaid s programs. as i've suggesting all arizonan wants the authority to do is dial back to where other o statese are. governor brewer recently made a from formal request from the hhs secretary sebelius for a waiverfrom mai from the maintenancentenan of effort gr provision. waive since the administration granted over 700 weavers to companies and lab unior onunions ones, can only hope the same fairness will be provided provided to the states who are much more crucial part first to govern the federal government in the delery delivery of health care. under the terms of the requestld arizona would preserve medicaidzonans coverage for 1 million arizonans who represent the core of th medicaid's mission. pregna the disabled a blond, pregnant i women and children.nor' i support the governor's request and i would urge the administration to grant the waiver. but ultimately madameaw president, only repeal of this law would provide permanent relief to all of the state's oth
8:21 pm
like arizona and all of the so other states similarly situated.uppo so irt am strongly in support of provide the amendment that provides for wit h a repeal and replacement with something that will work andamilies, will not punish our families, residents and states. >> senator from new york. i ha j >> thank you. can i come to address the two us. bills, the two amendments beforealute my us. colleae, sen first, i want to submit myand all of colleague, senator rockefeller and all of those, senator hatch said in a ball of those on both sides of the aisle who have brought this bill before us.thing t it's something that is needed inha this will overdue. it's sad - that america we don't have a gps system where justcountry doe s, about every western country does even mongolia.nd and to modernize our airports it's it's important for jobs. important for the travelers say
8:22 pm
convenience but i would say most of what's important for america's productivity. a when people sit and wait on a runway where the planes were or delayed or flights are canceled, outt that the amount of output that our and we're country loses in these enormous and we are losing much more than england france or eaglen door germany because they have these older systems and it's about time we a put them in and ind just made oneut other point about it there are some who say let's go back to ba to the 2006 level of spending. in 2006 the budget didn't have am. we gps system. while certainly we have to cuteav where there is waste so just across-the-board doesn't make but cents. tenology adv technology of audiences the world's audiences and we cannot just march backwards.h there are certain thing is we need to keep the country strongong and the president talked about somee presi of those in his address. investments in the transportation is always been one since the days of the erie canal caused new york city to become the largest city in the country and still is.
8:23 pm
but i came here to talk about the two amendments before us a bit is a sort of do and don't in my opinion. the health care bill we had a long debate. we know how long it was. the american people decided the majority do not want to repealen thoseho the bill will affect 80% don't,e m ajor those who want to change it the majority says don't repeal its the just change it and that's the point here.offering senator stabenow is offering an e b il amendment to change somethingo very and bu mild it that needs changed. the change in the reporting put requirements the 1099 put and onerous obligation on small business. my dad was a small businessman h ow and i know how small business f people struggle. to ask them to final paperworkn of every time they bought something new at low cost it's been over the top.that. i'm glad we are reviewing that. theealth no one on this side of the all
8:24 pm
analysts say the bill can not bet with improved. but to just read your lips without putting anything inf place there are a number of which problems. we'll one problem we will see tomorrow when the actual vote is calledci would increase the deficit by $260 billion in the first decade sec andon a trillion dollars in thecond. second because the health carel bill does cut some costs and we there know there is a tremendous amount of duplication,it is th b efficiency, waste in our healthorld. care system. it's the best in the world and probably the least efficient and that our goal we did our job is to keep that quality care for the people but at the same time reduce the inefficiencies thatst cost the government and businesses. so it does reduce the deficit when our colleagues offered offer revealing when the senator when mcconnell the republican leader he is offers to repeal he's going todefici increase the deficitt. so we have all this talk we have to reduce then the the deficit and then the first move the other side makes
8:25 pm
whether you like the health care bill are not has increased thehey deficit. prose why wouldn't they propose to to at hundred $60 billion another kutz? to at least keep the deficitecond neutral.oint i but the second point i would'd make is this: repeal says get rid of everything. it it's simple. it's it's easy. it's quick. it's wrong. in ts bill and there are many good things in this bill supported not only by the majority of americans the vast majority, many of which maj are supported by the majority of the republicans who are polled the be supported by the members a of the oversight of the aisle in the new freshman class that is even coming in from the house are for militant. or they say and not fighting to and repeal that. why and so why can't our colleagues t on the otherhe side of the aislee very good at least at which there are good things people liked.
8:26 pm
when they say repeal.sion do they want to repeal the easie provision that makes it easier for senior citizens to pay for prescription drugs? the so-called doolittle which bil says it this comes from theush medicaid bill george bush put forth lot from this health care but bill but the didn't have enough money to pay for a so they saido pay prescri after $2,500 seniors would havept to payco the prescription drug costs on. their own. r my just taken will for my back. my back went out yesterday.are aenior you get up to $2,500 when you're a senior citizen and to the eight medications for blood your pressure, one for diabetes call you nam 14 cholesterol, youe it needed. and you get there and no time. eve cedars sinai study by sure yours, madame president and in
8:27 pm
the wood of the other states are having real trouble paying for onc prescription drugs once they reach the build a whole. the level laughter which medicare no wonder pecos. with in the health care bill we pay for that. c we reduce the cost 50% of the first year. that saves the average senior citizen and this is not to concede, $550 to buy it is the implemented we save them $2400 u want t a year. you want to repeal that? would you vote to repeal you're voting to repeal let. how about this one telex of?ob degette of college and get a job let's hope it's hard to getse a job these days and by the way should we should be focusing on job does t creation of repealing and they have a dilemma. these new jobs are not payingpaying t the top dollar most of them and they don't come with healtho these
8:28 pm
care. peopl what do thesee young people do? care they can't afford the health care themselves, it hundred,ey're 9,000, they are not making that much money tepito for godget into a forgive did they get into a car get accident or get a serious disease how could they be without health care?een a it's a dilemma that has plagued american families from coast to coast from north to south, east to west the health care dhaka mexican this is very simply in the young person 21 to 26 can stay all their family's health very care plan. it's a great idea country my popular. i want to ask my colleagues on the are you taking away the the ben benefits of young people 21 to to stay 26 to stay on the family's health care plan their if they wish? wis i doubt it. how about this one. we know that preventive medicine saves billions. soav let the health care delivery
8:29 pm
senior citizen get there will this checkup free once a year and we encourage them to go in. a because we want tough to give ov way the statistics show without a doubt conclusively with senior citizens get a checkup laudably are they all figure but it saves the medicare system billions and billions of dollars. you catch, god forbid if someone ha has sought milano before it gets one to the lymph nodes it is a simple operation rather than thousands of dollars and it in agony and illness.y of you give people a colonoscopy or these other preventive exams t and mammography it saves millions and the recipient is
8:30 pm
dot get healthier. wess you want to tell every senior citizen they will get that check up that would save billions? i can't believe you want to do that to my colleagues on the other side of aisle. the aisle.small hope this will? busisses are not small business. small business is not requireder to have health care now and are under our belt won't be required but some of them provide healtho it care to their employees.etain some because it is a good way to retain a young employees or older and please. some do it because the employersuy or are just the good guy or gal. mak if you have a business that takes less than $1.2 billion fewer than 25 workers we will give you a 35% tax credit for that health care.ousands of the businesses in my state of new york will benefit and 1 started january 1st.n?
8:31 pm
what is it be?more p it means more people geteo health on care businesses have more moneyreation, s to spend on job creation, smalltheir alth car businesses because somee of the health care costs are beinginess tt defrayed and it may mean a small provi healt business that wasn't going to provide health care for its workers can now. c you want to do that?s, i don't think you do. how about this one we all have heard of insurance companies,sura nc you call your insurance companyter, and say my wife husband sob a daughter has this old is that requires an operation there requires a lot of money than you the get a callback from the k insurance company and they say this your policy doesn't quite cover were this. in when you signed it you're b supposed to check thisox little
8:32 pm
box and y dou didn't, you are out. if you don't dhaka everybody and cross every try the usually let you get away with it they are t, collecting your money but notyou ge when someonet a has a serious bu whe illness that might cost themmit thousands did thousands of c and th dollars. the insurance company calls you up and basically tough rocks tough jack. under our bill that can't happen when t anymore. >> there's an insurance in the stadium authorities to conceive got to show us you ne reded to raise the rates as much as you do. want to get rid of that with insurance companies just rule the roost. i don't think so. bill so there's so much in this bill that is a good supported by theing overwhelming majority of democrats, independents andmocrats, ind republicans. there is so much in this billmuch in that moves us forward.
8:33 pm
th if you think there are things bill, come that shouldn't be in the bill come talk to us. effort. 1099 days bipartisan effort. l as senator stabenow, i know last week senator klobuchar, kendal and nelson sent a letter tor s speaker they ever saying pleaseaker get us in 1099 build. senator joe bonds has done a good job, bipartisan.aying e we are not saying everything is we'r perfect in this bill we are not saying it can't be improved. saying we are saying let's work together in a bipartisan manner to make it better. with the other side is saying is r just repealed. thing repeal the good things, the things they don't like, create aur huge hole in our deficit and aith sleeveless with nothing. the slogan was going to be we've repealed and replaced. we have only heard the first part of the slogan. i will tell you why there is no replace.d t o it's hard. it's hard to take this huge and
8:34 pm
wielding an efficient healthpe it care system and shape it up.t tk that's why it took us so long and it created a great deal of. i' controversy. i will speak first to admit it. but i will see a substitute. if you want to be fair and you straighwith are being straight with the american people about actuallyproving improving people's health care floor, you have a replacement on the floor and then we can compare the repeal of what you want to what you propose. maybe we should have a clock the first day without replace, the second day without replace.ave i have a feeling we are not a going to see a replacement.that wou and you know what i would say?e t i hate to say it. it wou it would say this is just political. som throw some red meate to those on to the right to want to repeal, but it don't dare shelley replacement because guess what?
8:35 pm
to replace it all you don't have room for a replacement. we so i would urge we vote strongly mcconne against the resolution, i wouldn urge my colleagues on the other side of the aisle to rethink itng and i look forward to hearing not the remarks of not only the chairman of the commercehis committee who's the head of this but bill, but also the number two person, the ranking democrat onerve the finance committee on which is made served who has made so the coribution invaluable contributions to the bill both of the cost-cutting side in terms of the 80 and 85% rule and the other things wee. have done. tha i so with that i would be happy might to yield the floor so i might hear my distinguished colleague, the senior senator from west rginia virginia speak for a few
8:36 pm
minutes.the presing of >> madame president -- virgini >> the senator from westhat virginia. >> after that last sentence i had to drink a little water sort of to balance myself out. to be appraised at such length by senator schumer one cannot take it lightly.s on i want to make a few comments on the health care bill which ine're and of itself interest me because we are here doing theorrect faa, and if i remember correctly, i stood here atech abou excessive length and gave aimportan of speech about the importance of the faa bill tauscher and kay bailey hutchison did the same and then all of a sudden here we are on health. here we have sort of opened and me the results entirely transparent. anybody can offer
8:37 pm
amendments. open. so it's open and what happens is evybody po immediately everybody pops in with their favorite amendment, say and i don't resent that.e the sena i'm just sayingto it is an interesting phenomenon should itself on the very first day andhowing whether that is when to last or not, i don't know. k but in the event, i'd think they think are still working senator hat baucus, hatch, others are on working on some faa stuff and talk abo the 1099 matter. so i want to talk about a couple care. of things about health care. i feel it's really important m that i mentioned this in myn earlier comments that when you t th e talk about the american people don't want this bill there was a when period w hat time that that was correct because the bill was made in front of everybody on c-span, whoever watches c-span.
8:38 pm
but enough people did becauseid there were a lot people interested in whatere was fp lg happening. it wasn't a very pretty process. i mean you know, the public option for a simple. op ti al franken and i put a public auction bill on the floor and we thought it was going to save floor. thought i was the world and then all of the talk talk shows to get up either blastingup eher it or loving it in excess in excess in both cases and there was only one little problem with the public auction. on. it didn't have any votes in the finance committee which couldn't have gotten very farve the end we wa did our psublic option which was a based on a $50 billion medicare b benchmark so it was a real cost od saver and very good obviously going into a non-profit option as you buy your health care that's very appealing all of which is true, but all of whichs was unpersuasive because it u sounded likenp too much. m
8:39 pm
maybe if we called it the freedom or something it would we have been different. i have no idea. but it doesn't matter. it didn't get the votes. have b my version got ten votes. chuck schumer gave another and votes got eight votes or i guess it was the opposite and it didn't matter because we then came upht with a medical ratio which of course nobody precedes to understand because of the such ridiculous wording except that that it it works, so i want to talk of ao talk couple of things like that until until somebody comes and then i will then i w gladly yield the floor. speak? does the senator wish to speak? l okay, i will not be too long all over me that is not a safeas statement. as it happens on the poll over a period of months and monthsthey people see this happening and t they didn't like it and people lined up on one side or the other and they didn't like it. well, it turns out that "the newns
8:40 pm
york times," cbs, and i don'tyork necessarily have to trust themdon' do i because they took a poll ie don't trust polls this is 80% of americans oppose repeal.oundhat i just felt that inside andf live there. p ol i don't sort of live by then polls. but it is based on the january 20th of this year. let's suppose it is off by 10% it's off by 15% kuhl one thing that from becomes clear from that general hi number certainly it can go go higher, it could go lower, ise d on that people don't want repeal have fish so then that takes you to what if we do have the repeal? a does the retial then beat you to would a thought process that would then be substituted for what we the created? and the president signed?ly and then quickly one comes to
8:41 pm
the threealization that there isn't an alternative from the other altern side. at o they're neverth has been the alternative from the evin side.the and from that quickly files the w deduction that what they want is the present system. and if that is not true, thennd they could come down and tell me about but that's what i have to believe because i haven't heardof the the new ideas of thewhat it w alternatives to what it was thatlished ove we worked on and accomplished over a very difficult period of months, many months and a guest andnd agony and screaming at helmholtztown hls and all the rest of it all of it all which was worth it because the it bill although not perfect was aeal real step forward not talked about and looks at the ha s fee-for-service system that haslacy in always been a fallacy in the american health care system. you could automatically get paidwhatev for what it is you do if you areta l a doctor hospital or some
8:42 pm
medical equipment you get paid for what you. do no questions asked. to don't save money or improve imp health care byro giving that. productivity efficiency is done by oversight accountability, asking questions, asking people to show through the evidence of what they've done for as better particular service that it'sr better than it was the year an before indictment the unpleasant not fit for the floor but biggest problems in the country s today isomethi something called alm it's anos almost every hospital in it the country and unfortunately it emanates m from bathrooms that bathr they are not kept that clean.o so if we don't do our bill and it's its repeal of the hospitals that are not judged on what mrsa and
8:43 pm
media other things, to the mri and one hospital or to mehdi and one town can only support to but b has set in because you could make money off of them that they are not used very much all these have to be checked and looked at carefully before people are becau paid. that's the way you save money and that is the reason that the health care bill that was finally signed saves petroleum, tr $300 million over 20 years and two injured $40 million in the millionn the jury first year.r. it is a cost saver. s so by definition if we went backto the p to the present system you havehet to start with the fact that we would be losing that savings and our d therefore getting it on to our deficit. so h we have a trillion, 300 million more in deficit over 20 years and etc. it is not wise.utely but in the cost isn't absolutely undstand
8:44 pm
everything and we understand that. t the senator from new hampshire certaiy unde understands that. we have to use good judgment.he publi so then you look at the publicou option which didn't work and theio . medical loss ratio and a lot of folks don't know what that is even today even in this body. a v but it's a very simple systemimply where you simply say it will disappear if senator mcconnell's amendment passes that health insurance companies are required to spend 80% of all of the 85% it's is a large institution 85% is a small business or individual 80% they they have to spend aboutrcentage o their percentage of their premiumsn health they collect on health care andhow then they have to show that the hhs that it's being spent on health care that makes americanshem better or at least keeps them where they are yet to the
8:45 pm
bathrooms get cleaver to be crude about it but also quitectually quite accurate about. syste that is a very good system of because it is a sort of mandating or it's called want oversightto could ove the american people support to of oversight because it is so much of their income they have to spend on health care and the medical loss ratio is a very strange name but a very sound principle, 85% or 80% of all premium dollars has to be spentn health on health care and the health care can't just the health care but it has to be better health previous care than it was in the previous two or three years. obviously we are not into that system entirely yet. unt won't be entirely until 2014. is it possible for me to explain that and very disturbed that
8:46 pm
this bill that we are notto wanting r to repeal insures 32 million people that don't have health insurance and i am saying to myself, madamident, 32illion president, 32 million there's a lot more than ther e,that of insured ifthat that is the only thing we can afford to do because we didn't ts -- have enough money so let's say it's 45 million looking down into the future and then let's decide there are a lot more than many that, millions more who are undensured underinsured. with so you may be dealing with and 50 million people and all of a prct suddens their prospects foretting h getting health insurance sy they simply disappear because the week repeal the bill. no truth in telling the going 42 million people or not going get to get that on the 2020 again 2020, because of the lack of funds. had we had to do as much as we could as soon as we could but wet more than couldn't do more than that didn've the because we didn't have the money and everything was scored by cbo as which is a free ladinos was very
8:47 pm
tough.ed b but i'm astounded, astounded by of the prospect of the excellent people who are ton this side ofexcellen the aisle, excellent people. they're like us a different party, you know, so what. but they would say 32 million lose our health insurance, the we are going to get healthg t insurance but now they are notance. going to get health insurance, so they are on the road. so what happens then? well, they take up the practice which i saw first when i was the chairman of the children's commission for four years in the lat 80's early 80's and we went to rember on chicago i remember in one visit and chicago is a robust health care city and the folks outhere there told me at that particular year eight emergency rooms had closed down in hospitals.
8:48 pm
why? because they were being overwhelmed than even. t second by far the most expensive part of the hospital. daydreamed the health care because the emergency service. people wait five or six hours. we've all been through it, andthey then they get their health care so may be fitted so inefficient and approval, such an awful system where more attention because ofalth insurce health insurance would allow more cautious and attentive logical work to be done on gon patients so that's gone. that simply gone.eally emergency rooms are really important. but a lot of them argonaut of business because they still to can't afford to stay.y. they areth too expensive with hospital corporation that makes that decision.cision. i don't blame them for for that. and and i think, and i will trynow my because i know my colleague
8:49 pm
wants to speak, i feel that wheneer and s i was a volunteer and i sometimes talk about that on the long floor, a long time ago and we there depended upon something called -- there were no jobs no health care, and nobody went to school because the school bus didn't didn't come to pick up the kids because they were considered too far of a away so i latched on to the really community and that is the reason commun i went tity.o west virginia and stayed in west they dependedey on a rurald it wasight community center and was right the next door. lincoln the lincoln county community cent. health center and it wasn't a di hospital so they didn't have to a worry about going into an an elevator because many of them in many the parts of many states haven't them been in the elevator before they an cross the traffic light which is red or green all of that is new a to them they just live in theht that rural places and deal with it that way. true in i expect this is true in parts of new hampshire although they've gotten pretty
8:50 pm
sophisticated. c om but the community health centers people trust. why? because because they are not hospitals. theye on they are on the first floor an old safeway store, a hardware old store but inside our doctors and nurses and health i.t. which is in this bill and heavily promoted which may be coming on. th its own but i doubt it.hey this bill is really important to us.anyb they can communicateody, with in west anybody in the medical center not just west virginia but in the world and they can get experts to look at let's say a a will on authority-year-old former.ncer? is that just a mole or is that kids are?i've and i have seen that done. virgia the doctor of the western years university. this is 20 years ago. i can't believe that. looking at a kid in moscow with
8:51 pm
a physician's assistanttechnolo on attending and they put the vendor technology on that will is n -- mole and the doctor is able to say it is not cancerous so that is a wonderful event, but cenrs community centers, people poor gravitate to.'re they are easily accessible.ave ver they have very good doctors. l there's a lot in the billot to help that kind of doctor and p nurses and the whole health i. flighty issue which makes the work they do accessible anywhere else in the state or in the country or in the world those would be delivered. we would have $10 billion in our bill. 1,000 new community healthed by centers all across america.
8:52 pm
i am excited by that.america. i did it's great for the rural rur. america.f ameri and a lot of america is yourca rur role. most of america is moral thathink so that i think about the subsidies for the small business i spoke to a chamber of commerce owest in the rural part of the conservative west virginia the didn't like the bill.ple. they were all small business people. no big business is down there. i spent three hours with them b and i went through the whole health care bill but what wasro unusual to them as i stand que around and in other words you don't just sort of say this is good this is that here i am. an you say have at me and i willest the answer you as best as i can
8:53 pm
d and would you don't agree with the utility that. they ha td no idea that they get 35% tax reduction or tax credit for getting help the injured. they can't afford. tha maybe 35% isn't enough. but they get that and they get that until 2014 and then and after 2014 the close of to 15%. they didn't know that. the and all of a sudden the possibility of keeping their employees and doing the rightecause thing by their employees because people in new hampshire's in the deal began people would west virginia cared about each other. beaut that's one of the duties of the small states. c people really they want to do the right thing because they all live together. they don't commute to theurbs suburbs, not a lot of suburbs are mailed. so that was really impressive got
8:54 pm
a to be and when my left i got a standing ovation. i have to put that aside because -- sll i really stand to leave cricket believe that standing is but what i do believe is that they are interested at that t point they didnhe't know it was the rlead there was no reason bill. they should know it was in the belly button somebody who had been a major parort comes and talksri to them and the answers all their questions at which theend poin whi ch endpoint of which is three hours and i get up and leave.d i the so that perplexes me if the-- minority majority leaders, the minority leader's amendment prevails that i don't think that there is ane coming,e alternative coming we go back to the present system. the senator from leaving they say yes there is an alternative alterna and we will have to listen to that and if we do in alternative thre that whole negotiation may be
8:55 pm
i don't two or three more years i don't think people can wait that long. but at in the east and then i that. worry about the doughnut hole. you know that. that it's so unfair seniors to get to a surge of and get their prescription drugs and keep paying the premiums the them for about 05000 something from 2,000 something to 5,000 something they don't get anyprescr prescription drugs. that's the bill not whole which c we close. it's a lot of leg year 2020 but they know that is going to close and that's gone. so the have that's gone. so they have to work the systemy as best they can, pay the and premiums they can and if they can't then they are out of luck and they will get cut off. i will just say to of the for pre-existing conditions for particur, which children that start right away which which is in fact now is so
8:56 pm
brutally devastating if it disap disappears. in -- a child comes in, i was speakingn before a talked and ate-year-old canr -- kid,-year-old kid that had cancer.r he was killed by the fact he couldn't get any treatment l im because the annual limits and n ow that is in effect now and noethnd lifetime limits and the annual limits comes in 2014 but he kid's died, and i was a friend of that kiep kid and i knew that kid and i t keep in touch with his parents. in she died, couldn't get health he care under the present system. under our bill he would have gotten health care.can say you can say maybe it was too late but that doesn't matter in the sense that he's just an somebody wh example of somebody that's sick who could get health care andare other wise they couldn't get health care and so he died.cause i am haunted by that because i sam
8:57 pm
remember his name was sam he he's was a lovely kid and he's notf the around anymore because of the old health care system.onclud so let me just conclude bys saying that i don't think -- it uses words and acronyms andf rver federal aviation if we ever get backget back to that and acronyms aret. not bad they are just friendly. they still mean something andomething i because something is complicatedn it's bad doesn't mean that it's bad or wrong it just means complicated.ated a people have to understand how to underst the parts work together very with hard to do. but i would plead with my colleagues to be cautious about repealing something which is in place which appears to people just don't want to see it g repealed the want to get thening t chance, they're certainly beginning to see the benefits about
8:58 pm
from that and it's just started. a it's just a month and a half old old. and. it's a month old. i would say we need to be that, but cautious about that, but particularly about the repeal means going back to the present prese syste system or any substantial part of our present system.residing that would be a tragedy. i thank the presiding officer and i yield the floor.
8:59 pm
9:00 pm
>> senate budget committee chairman kent conrad has called for a summit to address the country's economic problems, including the $14 trillion debt. those comments came at senate budget committee hearing on the u.s. economic outlook. this is two hours and 15 minutes. >> the hearing will come to order. i want to welcome everyone to the senate budget committee today.
9:01 pm
today we'll focus on the u.s. economic outlook. this is one the series of hearings on the economy. we are taking a close look at how the economy is performing and where it is headed. later this week we will examine specific challenges the economic faces, such as housing unemployment the state fiscal crises that are occurring around the nation. today we are fortunate to have three outstanding witnesses. economist who have a long history of providing valuable testimony to this committee and others. we look forward to hearing from dr. richard berner, a managing director and co-head of global economist and chief u.s. economist at morgan stanley. good to have you back dick. dr. simon johnson the senior fellow at the peterson institute of international economics and the sloan school of management.
9:02 pm
it's good to have you back simon. and dr. david malpass president of encima global. we thank you for making yourself available to the committee. we deeply appreciate that. let me begin of having a brief review of where we have been, my own analysis of what has brought us here and where we are headed. let me just start by saying i believe t.a.r.p. and stimulus were critically important to averting a global financial collapse. i was in the room when the secretary of the treasury in the bush administration and the chairman of the federal reserve told us that if we did not act on t.a.r.p. that there could be a global financial collapse in days. those are the words they used to us. they minced no words with us. they were as clear and compelling as they could have been. so the t.a.r.p. was put in place.
9:03 pm
let me just put up the first chart that i think shows the clear evidence that t.a.r.p. was effective. this shows the t.e.d. spread, the difference between the government can borrow for and the private sector can borrow for. during the height of the crisis the t.e.d. spread was nine times normal. you can see at its peak. when t.a.r.p. was put in place it came back very markedly to normal levels and now has gotten back to the its historic relationship. again the t.e.d. spread is the difference between what the private sector can borrow for and what the public sector can borrow for. we have seen a normalization in the t.e.d. spread. one the tip offs that we had that we were headed for trouble in 2008 we saw erratic behavior in the t.e.d. spread in the year
9:04 pm
before. let me go to the next chart if we can. economic growth -- we had a negative 6.8% in 2008 the fourth quarter. we now see economic growth has assumed. in the fourth quarter of 2010 we saw positive growth of 3.2%. we have now had six consecutive quarters of growth. we see the same evidence evidentiary pattern. in 2009 the economy was losing more than 800000 private-sector jobs a month. in the december 2010 the last month that we have data for the economic gained 113000 private-sector jobs. we have now had 12 consecutive months of private-sector job growth.
9:05 pm
third we've also seen a dramatic rebound in the stock market after falling to a low of 6500 in march of 2009 the dow has now risen back up well above 11,000. in fact, approaching 12000. two highly-respected economist, dr. alan blinder the former vice chairman of the federal reserve and dr. mark zandi who was advisor to the mccain campaign completed a study last summer that measured the impact of federal actions including t.a.r.p. and stimulus including both the fed's monetary policy actions and the fiscal policy actions taken by congress and the administration. here is a quote from their report: "we find that its affects on real gdp jobs and inflation are huge and probably averted what could have been called great depression 2.0. when all is said and done the
9:06 pm
financial and fiscal policies will have cost taxpayers a substantial sum not nearly as much as most had feared and not nearly as much if policymakers had not acted at all. if comprehensive policy responses saved the economy from another depression as we estimate, they were well worth their cost. the next chart shows dr. blinder and dr. zandi's estimate to the jobs that we would have had without the federal response. it shows we would have 8.1 million fewer jobs in the second quarter of 2010 if we had not had the federal response specifically the t.a.r.p. and stimulus. a similar story can be told by studying the unemployment rate. the unemployment rate averaged 7.9% in the second quarter. according to dr. blinder and dr. zandi if we had not had the federal response, the unemployment would have been 15%
9:07 pm
in the second quarter and would have continued rising to 16% in the fourth quarter of 2010. there's no question that the unemployment rate has remained stubbornly high. just a little over a year ago three years ago, it stood at 5%. it nearly doubled within a year and has fluctuated in the 9% plus ever since. last week the nonpartisan congressional budget office issued it's budget and economic outlook projecting the unemployment rate will fall only slightly to 9.2% by the fourth quarter of that year and fall farther to 8.2% by the fourth quarter of 2012. and the economy is growing at a much slower pace when compared to past recoveries. when measured against the nine previous recoveries over the past 60 years we see the current recovery lags considerably the nine previous recoveries.
9:08 pm
why is that? i believe it's because so much damage was done to the fiscal this and financial system in this downturn. if you look at the previous recovery since world war ii some of them have been relatively sharp. but none has seen the damage to the financial system done in this downturn. so that's dramatically affected the credit markets, and that dramatically effected business. that obviously effects economic growth and economic activity. you know i will never forget when ms. roamer put out her forecast that we'd see 8% unemployment. and i told the white house at the time and told anybody listening that they could throw that forecast right out the window. because that forecast was based on the last nine recoveryies since world war ii. there was no basis for a comparison because there was not
9:09 pm
the damage to the financial system in the previous recoveries as we experienced in this one. so i thought it was a forecast that had no merit. but we are now at a critical juncture. we've been boring 40% of every dollar that we spent. that is clearly not sustainable. spending is at its highest lev as the share of the economy in 60 years. revenue is at its lowest level as a share of the economy in 60 years. it seems to me readily apparent, we've got to work on both sides of the equation. gross federal debt is already expected to reach 100% of gross domestic product this year well above the 90% threshold that many economist see as the danger zone. let me just recommend to my colleagues the work that has
9:10 pm
been done by two of our most distinguished economist. carmen reinhart is the lead author of the book "reviewing 800 years of financial crisis." in her work and the work of professor rogoff at harvard they concluded that when countries reach a gross debt of 90% of gdp they see future economic growth reduced substantially. and we are at 90% gross debt to gdp. now one thing i want to be clear on is in the press, typically, you don't read about gross debt. you read about the publicly-held debt. publicly-held debt is about 30 percentage points lower than the gross debt. so our publicly-held debt today is in the 60 percentage -- 60
9:11 pm
percentage -- percentile change. but the gross debt is over 90 and will be at 100 by the end of this year. again, the work that was done by carmen reinhart of the university of maryland, dr. rogoff at harvard concluded that when your gross debt reaches 90% you see future economist growth impaired. and impaired in such a way that translates into a million fewer jobs. that, at the end of day is what we must keep in mind. i believe that the deficit and debt reduction plan assembled by the president's fiscal commission on which i served got it about right. the plan was stabilize the debt by 2014 lower it to 60% of gdp let me emphasis that is on a publicly-held debt measure by
9:12 pm
2023 and roughly 40% by 2040. publicly-held debt would be stabilized and brought back from the brink and over time worked down to what most economist say is a far more sustainable level. there were 18 members on the commission. 11 supported the report fives five republicans, one independent. that's 60% of the commissioners supported the conclusions of the report that would reduce the debt by $4 trillion over the next ten years. i believe that proved that democrats and republicans can join forces when we face an eminent threat to this country and i believe the debt is am imminent threat to the nation. we can pus together a credible responsible realistic bipartisan plan. this year we need to finish the job. it will require presidential
9:13 pm
leadership and it will require a congress that is willing on both sides to come together, to do things both of us would prefer not to have to do. i hope very much we face up to this this. because a failure to do so would mean very serious consequences for the country in the future. we'll now turn to senate sessions for his opening remarks. i want to thank members for their attendance here today. and thank the witnesses for their participation. senator sessions. >> thank you senator conrad. you've raised the challenges that's facing us very well. i know have made a case that a lot of what we've done has been successful. and i understand that. but there are others who have concerned about what we've done and how well it's worked and how
9:14 pm
much we have accomplished. i'd like to get into the discussion with our excellent panel. i'm sure we'll learn a lot from them. it does appear we've been kicking the can down the road. and i thought that the round table discussion in barrons with some of the world's biggest financial investors early this year raised some of the same problems and questions that you've raised and maybe some others also that lead us to a conclusion. we've facing a very, very serious national challenge that i believe this committee as you indicated at our last meeting will have to provide leadership for. and i would be glad to be with us in that effort. i had the honor to meet with mr. mateek, former prime minister of
9:15 pm
new zealand that took over the country that was running deficits for quite a number of years. he participated in leading that country to sustained surpluses and unprecedented economic growth. growth in sound currencies and he told me recently that we believed we need to have a goal of a balanced budget. i think that it is a psychological political question for us to ask. it's not easy to get there. i'm convinced we can get there. but the american people are goal oriented. if we can articulate for them a real substantial reduction in this debt and show them how their maybe some short term pain but long term gain i believe politically we are in a better situation to accomplish that than we've been in some time. i just would quote from that barron's round table interview with some interesting questions. and out of switzerland, they
9:16 pm
said there are two worlds. the industrialized world and emerging world. the industrialized world continues to live in the fiction that it can afford it's current lifestyle by going further into debt. at some point the bond markets will rot against that. the private household sector, not only in the u.s. but several industrialized countries, remains stretched financially and will continue to deleverage, reduce their debt. but the public sector is leveraging up. there's the threat he suggests. bill growth handling more money than any man in the world at stemco job fund. printing your way out of this or kicking the can is possible for some countries, but solution isn't to create paper. it is to create goods and services that the rest of the world wants to have. they ask what are the prospects for that? he said the obama administration
9:17 pm
has failed miserably in that regard. it is focused on consumption and fiscal stimulation that will give us 4% growth in 2011. his estimate the estimate for these experts from 2.5 to 4. he had the highest growth projection for this year. then he adds it gives us nothing more than that. it's a sugar high that quickly disappears in 2012. and so we are facing some serious grim pros techs. the unemployment has not come back well. as we would like to see it. indeed, at the end of the year the government survey indicates that the hours worked had not increased which is an indicator that unemployment will go down if weekly ours are going up. that's not a good factor.
9:18 pm
the wage increases was slight very slight this year and below inflation. so that puts our net wage income not in a very good position. the amount of jobs added looked better than they are because we have to add what 150000 a month to stay level. so we've seen job increases, but not much above the level that you have to have to really reduce unemployment. and if wages aren't increasing the net money circulating isn't where it needs to be. so i'm worried about that. and what i think -- what i would like to be in a position where we were with mr. volcker. one of his associated just retired from the fed. brookings said that mr. volcker said enough is enough. we have to get off of this road. he stood firm they protested they asked for the resignation
9:19 pm
circled his building, probably some from north dakota, and alabama too probably. but he said we knew we were right. we knew we were right. and i just don't sense that we have that kind of leadership today. i was disappointed that the new chief of staff, mr. daly taunted the republicans on his sunday show sunday saying where is the beef? you tell me where you are going to cut. what did that mean? i say that means that the administration isn't prepared to leave. they are not prepared to discuss the seriousness of the challenge that we face, and suggest that if somebody else steps up and makes suggestions about how to reduce this deficit, they may well even be attacked by the president and his administration. i hope that's not true.
9:20 pm
that's what it seems to suggest for me. i didn't see the kind of leadership that i hoped for in the state of the union. so mr. chairman you said a few things political i said a few things political. but the truth is our country is in serious trouble. you and i both agree with that. we are going to have to work together to do better, and thank you for calling this hearing. >> thank you. let me just say to members of the committee what i said at the last hearing i think even more strongly today. it's got to start somewhat. and in the congressional process we're it. i don't know what other committee going to take this on. appropriations committee is not in a position to do it finance committee is not a position. i think very clearly it would fall to us. look, i would much prefer that there would be a summit with the
9:21 pm
white house the congressional leaders, republican and democrats house and senate, sit down and craft a long term plan to get us back on track. i think that would be the best way to proceed. because i think it's very important this be done before we get into a debate on the debt limit extension. because of the debt limit extension has to be the way of getting a result to get a plan. that in itself has serious risks attached to it. we could lose credibility in the bond markets globally if that's the leverage that has to be used. we are much better off as a country as the plan put in place prior to the debt limit debate. but if there's not going to be that kind of summit, then i don't know of an alternative to this committee and the committee in the house trying to craft a
9:22 pm
long-term plan. and begin sort of bottom up. so again i issue again a call for a summit. involving the leaders of the house and the senate and the president or his doze -- doze knees for the plan in may. i don't think we can wait for that. i think we have to prepare ourselves to begin crafting a plan here. and look, it's not going to be easy. but we've got a good beginning. we've had an excellent hearing with the head of the congressional budget office. we have an excellent hearing today. we'll turn now to our witnesses. dr. berner, welcome back to the budget committee. plead piece. i understand you are going to be retiring soon from this position, not retiring, but
9:23 pm
leafing -- leaving this position. you've always been someone that's been an important resource for this committee. >> thank you. thank you chairman conrad and ranking members sessions and other members to committee. let me tell me that your anecdote reminded me of when i was back at the fed. i was in the building when the tractors were circling the building. in the sects months since i last appeared before the committee the economy has improved. the aggressive monetary policy and fiscal stimulus helps. while the recovery remains subpar, it will promote faster growth. the legacy of the crisis enduring. lenders are still hesitant to lend. home prices are still declining.
9:24 pm
we need much faster job gains to lower the unemployment rate. now we expect the economy to grow by 4% after inflation over 2011 and 3.75% over 2012. two policy related factors assure moderate growth and raise the odds of somewhat better outcome. first the 1-2 punch from the new fiscal stimulus and fed achieved and second a dramatic reduction in political uncertainty after the summer. three key elements in the stimulus package a one year payroll tax holiday, unemployment expenses will booth growth this year as you with see in the slide here that i'm putting on the screen. partly at the expense of 2012. there are four other factors that are already promoting more sustainable growth. first i'm going balance sheet healing expect in mortgage
9:25 pm
credit. second the handoff from rising output to increased hours. the employment in increase is under way. third, strongly growth is boosting input output and capital spending is healthy. thus, however we have a two tier economy. long leadership from capital and spending are offsetting from weak houses and home price and custom state and local government budgets. low inflation has promoted low bond yields. in return this has helped the federal interest cost. we believe that will begin changing as inflation raises. rising inflation and global food and energy quotes will push it higher. let me talk about six risks that still lurk for the economy. two of those are domestic. home prices could decline by more than the 6 to 11% in the baseline. state and local budget could be
9:26 pm
more intense than we expect. four risking
9:27 pm
policy will take two forms. those in defaults and short sales which allow under water borrowers to sell the house and market value without writing a check to the current lending. adding could energize the policies, earn principal forgiveness, streamlining short sale program will help the writedown process for those borrowers facing foreclosure.
9:28 pm
the recent discussion about fixes housing finance has involved the right role for the government and how to reform the gse. this debate is spirally appropriate. it does create uncertainty for lenders and overlooked the need for policy choices. first the legacy of bad loans. only then can policymakers implement reform. what about policies to improve employment? private payrolls have risen by about 1.2 million over the past year, but over the past 18 months have been essentially flat. much of that weakness is reciprocal. however labor immobile, mismatches between skills needed and uncertainty about policies in washington. briefly fixing housing will improve labor mobility and help employment and better training will improve the skills. i'll discuss remedies for
9:29 pm
benefit bos and uncertainty. addressing our structural budget problems will improve long term economic prospects. i'd like to conclude with a couple of remarks on each. our healthy economy would directly improve the budget outlook as we know. more indirectly, fixing our housing and employment problems with targeted remedies would stainable boost the economy. then we could safely unwind in place, further reducing deficits but addressing structural budget challenges by reducing the entitlement will free up resources in capital. in the long run, it's almost entirely about federal spending. directly through medicare and medicaid and tax treatment of employ-provided health care benefits. addressing health care cost will improve employment and the budget. high and rising benefits provided through the workplace drive up labor cost reduce employment and hurt growth.
9:30 pm
the cost of employment health care benefits is six because benefits are paid on a proworker basis. in my view it helps explain why american workers cut more aggressive than other countries. it also increases medicaid eligibility, pressuring state budgets. the grants plug the state budgets holes but added to federal red ink. the upshot that high fixed cost of health care benefits have enlarged the job deficits and budget deficits at every of level of government. reducing health care cost is the next logical step in health care reform. the affordable care act includes reformed aimed at medicare but more is needed to reduce the cost for employers and employees alike. changing the tax treatment at health care benefits would be a good place to start. we're only starting to debate solutions for a long term budget challenges. we need the bipartisan leadership to tackle them, and steps that are fair and called
9:31 pm
for shared sacrifice and benefits. to cut the expenses and spending do not address the challenge. the commission that you mentioned, senator, they offered sound principals and a balanced menu for action. the policy changing including the size of per spected tax hike weigh in the decisions to hire, expand buy homes, exexpend. you can reduce that crafting the incredibly plan to restore fiscal sustainability. mr. chairman and members of the committee we have many challenges ahead. our short term challenge is to enhance the odds for sustainable recovery and promote sustainable fiscal policy and preserve our safety nets. thanks for your attention and for the opportunity to offer advice. i'd be happy to answer any questions. >> thank you very much. now dr. johnson. welcome back simon.
9:32 pm
please proceed. >> thank you very much senator. i'd like to begin by endorsing your call for the summit on the issues before the debt limit comes to the point where we have a crease si. i am the chief of the international policy fund. the imf constrain for the u.s. government obvious reasons. i'd like to channel those experience and the sentiments that you would hear from them. they are worried. they think that you face the potential issue with the u.s. debt particularly as international investors shift around the world in the europe and asia. i think your citation of bill gross is spirally appropriate and exactly right. my recollection though mr. gross who was in no way responsible was at the front calling for various kinds of bailouts and calling for the
9:33 pm
public sector to use it's balance sheet to support the financial sector and prevent the second great depression. we can check the record. i'm sure that's where it was. that moment, his advise was fairly appropriate. now we see people like himself people who are speaking appropriate levels and yield at reasonable and acceptable levels of risk. they start to look elsewhere and start to press us. i absolutely think that the chairman put the emphasis in the right place at the beginning. saving the financial sector given the alternatives before 2008 was the only reasonable responsible thing to do. it was enormous. i like to quote the senator the change in net government held by the private sector to compare the cbo baseline from early 2008 before the crisis really broke to the latest one. that's about a 40 percentage point increase roughly doubling of net federal government debt as a result of the measures that the government had to take. most of which were the ultimate
9:34 pm
stabilizing. most of which was the fallen tax revenue that you get from having a massive recession. a very small part of that was the stimulus. i'd also remind you the bush administration had a stimulus in early 2008, and the similar in 2009. we can second guess. doesn't really matter in terms of the impact on the debt. but the fiscal issue this we face is because the financial system blew itself up and i think on this dimension the financial crisis inquiry commission got it exactly right. the financial system, particularly some of the biggest players got out of control captured the hard -- hearts and minds of regulators. the bank of england, by the way talks of their experience which is parallel and part of our experience is a boom. you go through repeated cycle of boom-bust bailout. you can't do it indefinitely. because you run up against a
9:35 pm
debt constraint. which is what senator reinhart and rogoff has pointed out. there's no reason why the u.s. would be exempt. if we look at where we are in the cycle, i agree with much of what dick said. i'd less positive, i'm afraid, even on this moment in the cycle when we should be having some recovery. if you look at what's happening to employment and compare the same as you used senator chron -- senator conrad, but focus on the loss of employment before the recession started. we're down by 6% we went down by 6% we are still down 5% from that peak. that's not like any other recession in the postwar period. every other recession by two or three percent in terms of employment and come back within 12 to 24 months. the 2001 was slow recovery. we didn't lose the unemployment. it is not a recession, it's a mini depression of the pre1907
9:36 pm
variety when there ewed to be big financial crisis a lot of balance sheet and farmers would go bust for example, out in the west and northwest, and it would take a long time to climb out of those debt holes. i think that's what we are looking at. and i think in terms of the employment picture, i'm very pessimistic. i was -- last weekend i was asking everyone i could find where are the jobs. the corporate sector has come back. the 1600 companied are doing very well. there are plenty of profits. but they are not hiring in the united states. they are hiring elsewhere. and i think even this part of the recovery is not going to go very well for us. we're going to struggle. and we haven't fixed the problems in the financial sector. the financial sector still has too little capital. this is the view of the bank of england david miles the bank of england put out a financial paper. the "financial times" has a lead
9:37 pm
editorial on it today. we don't have enough capital. we didn't fix the risk in the sector. even after we prop them up they don't want to lend at least in the small to media size business sector. it's not a good deal for the rest of the economy and supporting the unemployment and there is i'm afraid, the incentive for them to take on exactly the same kinds of risks as they had before. professor at the stanford university and about 20 of her colleagues have been working on the issue and writing about it very clearly and very forcefully. we do not have x enough equity. this is not just about the united states, it's a global problem but we should be the leaders of it. we are not. if anything we're lagging compared to the british and swiss who are moving more decisively on this issue. and i would say while we're in a recovery phase we should expect the next 12 months to improve and jobs to come back, it's
9:38 pm
going to be slow and painful. it's already worse than any other recession. it's primarily because the financial sector got out of control. and unfortunately, when we had the opportunity to fix it we didn't do it completely. the financial was council which has responsibility. financial stability we have learned is absolutely critical to overall policy. you can't decorate it from monetary and fiscal policy in the way we thought we could separate it. they are not doing a good job on the dimensions. too much trying to push the banks forward with very thin capital, and too much encouragement of or allowing them to take on what beginning to look again like irresponsible levels of risk and accessive leverage which, again, will come back and hurt us whether or not we fix the fiscal problem. i share the worries. the financial sector will come back and hurt us again and again and again unless we really
9:39 pm
reform it. >> thank you very much. now we'll go to mr. malpass. again welcome. [inaudible comments] >> thank you mr. chairman and senator sessions, others on the committee it's great pleasure to be here and thank you for the invitation to testify. i think we have a full blown fiscal crisis. we've been kicking the can down the road. it's time now for action to hold the line on spending. i think we need a full upheaval in the culture of spending and deficits that is controlling our government processes. before turning to my testimony, i'd like to give a little background. my slides are available on encim which is dedicated to smaller governments so people watching can follow on. i'm going to go through some of
9:40 pm
the slides. and as in the side senator sessions mentioned paleosol core. -- paul volcker. i was in this room on the staff of the budget committee. i was here when paul volcker said enough is enough. we are at that point where people need to be saying we can't afford it, even though it might be a good program. if i may i'll go to the first slide. my testimony is broken into three -- into four parts. one is the economic outlook which is for moderate growth. the second is the fiscal outlook which is for lots more debt and deficits. the third party i address the risks of this high debt to gdp ratio. the question is whether we are at a turning point a tipping point where we could see investors turn away from u.s. debt. so i'm going to address that in some detail.
9:41 pm
then in some testimony i give some policy suggestions. in particular, i think we need to start cutting spending now rather than the summit approach which has been tried so often. i think the goal should be to find a cut that you could make tomorrow or late this week and find a process that can actually implement that. you'll have the continuing resolution expiring on march 4th. that gives a very good opportunity to begin cutting spending. second policy suggestion is that we need a -- that we need a debt to gdp limit that's not there right now. when they wrote the institution -- constitution, they had no idea that people would be able to borrow $9 trillion as we are now, and cbo numbers put us up to $24 trillion. if the founding fathers had known that was possible, they would have put a limit on that end of the constitution. i think they also would have said that the maturity of the
9:42 pm
debt needs to be long term. because we make ourselves riskier by having a short maturity for the debt. i'm going to show you a graph on that. then two more policy points. i'm very concerned about the fed's policy of quantititive buying up the government debt. this is a huge new role for the federal reserve that should be wound down without delay. and forthly tax reform is critical. i advocate putting a permanent extensions of the existing tax rates into the baseline so that there can be an actual process where growth tax reform could be reduced by congress. with the baseline the way it is now, many of the tax rates temporary, it's too high of a hurdle for congress to actually come up with growth oriented tax reform. in the first -- in the next slides here, i show you the economist outlook. we've had a very severe
9:43 pm
recession. what it shows is the gdp of the country and the hammer blow that was hit in 2008 and 2009. i expect gdp growth to rise from 2.8% in 2010 to 3.5% in 2011. but that's still not going to be enough to make up for the losses. we have structural problems, i'll mention three. the tax code the labor barriers and the regulatory expansions. so those slow down the private sector. secondly we have growth of the federal spending and debt. which is a burden on the private sector. and third the debt and credit problems which still plague. i'll show you a graph on that. the next slide here gives you a little bit of good news. tax receipts are rising. this is the fourth quarter of 2010 divided by the fourth quarter of 2009. we are up 8% in tax receipts. next slide. the problem is -- so that's -- the fourth quarter of '02 over
9:44 pm
the fourth quarter of '09. it's up through december. 8% growth -- 8% higher money coming into the federal government. the problem is you can see that was from a very low base. from our next slide, you can see the dip in receipts. and under cbo's very optimistic projections that's going to gradually be made up but even so the debt is yawning widely. and so the problem is that the growth that we are envisioning doesn't really reduce the magnitude of the deficit. you can see that the budget moved into surplus in the clinton administration. it narrowed in the bush administration the expansion in 2010 and -- 2007 and 2008. what we need is to get it much more narrow than the current cbo projections are going. unfortunately in their work last week and the new baseline, they increase the deficit to 1.5
9:45 pm
trillion for the current fiscal year. next slide. this is the total debt of of the united states. one point even though the private sector is deleveraging the government is borrowing as fast as the private sector is deborrowing. we have 2.7% gdp in debt. this shows you the breakdown. we have -- it's $35 trillion of debt in the country. it's broken down here. household debt is roughly $13 trillion. the federal state and local debt is $11.4 trillion. let's pause. where is that number going to go? the federal, state and local debt is going to $28 trillion, meaning way up in the ether of this hearing room when -- way off of the charts in just the
9:46 pm
next five or ten years because of the large deficits. and you can also see the noncorporate businesses at the bottom here are shrinking. they are losing credit, and they are getting taken other by bigger businesses. we have an economic policy that favors big government and big business right now. that's hurting jobs. on the next slide here you can see the projection. federal government debt going marketable debt going to 100% of gdp, assuming the bush tax cuts are extended. on on nine i'll go quickly. because i want to dwell on the maturity of the debt later on. this shows you the detailed numbers. $35 trillion and the breakdown of the debt including $9 trillion of marketable, and an editional $4.6 trillion that's in the social security trust fund.
9:47 pm
that shows you this is a way to tie out where the national debt really is residing. next slide. shows you a barrier -- >> david, can you stop you on that point. so people that are listening maybe are able to understand i think the point that you've just made is total debt in the united states, federal, state, local corporate, individual, about $36 trillion? >> yes. >> so if we were to have a 1% increase in interest rates that would had $360 billion a year in burden to this economy. it would be like tax increase; right? the affect of a tax increase if we had a 1% increase in interest on $36 trillion of debt it'll be like a $360 billion tax increase. >> that's true. it would be a burden on the people who are borrowing money.
9:48 pm
the good news on the interest rate increase is the u.s. household sector, i'll show you a graph in a minute showing that the u.s. household sector is the biggest creditor in the world. much of that interest would be paid to the people in the united states who are saving money. you are right it would be a burden on the people who are now maybe growing expanding borrowing money. but it would sure help a lot of seniors who are might now getting nearly 0% interest on their savings. i favor the increase in the short term interest rate by the feds in order to bring some stability in the short term credit market. it's odd to have a country running with interest rates near zero. but the point is exactly right. there's a giant debt burden out there. as we think our way through this crisis one of the hard parts is we haven't reduced the total amount of debt at all and
9:49 pm
probably won't. and it makes us sensitive to interest rates. what are the banks doing here? the large banks are beginning to lend a little more. the top line is large banks the bottom line is small banks. you can see there's no loan growth going on from the smaller banks. they are still under the regulatory thumb. there's a very harsh regulatory environment. >> david can you tell us in terms of the chart -- >> yes. >> -- what is the period of time that we are dealing with? i can't read. >> this runs from december of 2008 through present. just in 2009 large banks reduced their lending from $850 billion down to $650 billion. >> very dramatic. that's what i was referring earlier in terms of financial crisis. dramatic affect on credit markets, huge affect on the economy. >> that's exactly right. and we're still -- these show not exactly digging our bay --
9:50 pm
our way out of that. most of the new credit in the economy is coming from the government which may have been stabilizing as it goes along. but it creates it's own set of risks. and to wit the next chart shows that cbo's various forecast, every couple of years, cbo says the stable debt the debt to gdp is going to stabilize at an ever higher level. in 2008 it looked like 30% debt to gdp. in 2009 they said 50% debt to gdp. just in august of 2010 the debt was expected to stabilize at 60% of gdp and now cbo is up to 77% of gdp. this is not -- i'm not making the point that cbo -- no one can forecast. i'm making the point that the government debt is growing at a huge rate in cbo is recording
9:51 pm
it. next chart shows us two kinds of debt. the lower line is the publicly-held debt. the marketable debt. that's the $9 trillion. >> what page is that? >> this is on page -- 12 on the graphs. and in the testimony it's on page 9. >> uh-huh. okay. and the testimony gives the background and numbers to it. what we see is that the debt limits the statutory debt limit is now up at 14.3 trillion almost at the size of the gdp and certainly going to go above it. my own view that debt limit has to be increased. it's not the right debt limit to try to regulate, because it goes up with inflation it goes up with the growth of the economy and also with the social security trust funds and the other trust funds, and so that number congress really -- i
9:52 pm
think could not use as an appropriate limitation on the amount of debt. and i'm recommending that we shift over to marketable debt to gdp as the ratio that you could limit for the next 100 years. that number should be decided on and then used as a limitation on government debt. on page 13 then this shows you and i won't dwell, you know better than i the various breakdowns of spending. i will note this shows you the spending per gdp per various parts of the budget and notable is that the interest on -- the interest cost are going to go up very dramatically even in cbos really optimistic -- they are assuming interest rates stay well behaved. nothing like what's gone on in greece. well behaved interest rates. the interest cost shoot up. look where the cost comes from.
9:53 pm
defense spending. this is the president's budget from fy '11 and also all over spending, meaning you are not controlling medicare costs medicaid costs or social security. it's going to come out of huge cuts just in the next five eight years for all of the other government spending and services that come out of the federal government. the next chart shows us the same kind of presentation, but in dollar terms. so what you can see is the medicare medicaid cost at $1.6 trillion. notable on this graph is interest costs will almost over take the entire defense budget by 2021. in the cbo ten year budget window. one point that i'll make on this graph is i think congress should be looking at spending this way, meaning that there's all of these things that you spend money on. it doesn't matter so much
9:54 pm
whether it's entitlement, mandatory discretionary it's all just dollars. and it goes out very rapidly. so rather than dividing the debate into what we do about entitlements and what we do about the rest just find a way to cut $1 billion this year and $2 billion next year and we'd be ahead of the game. whatever it comes out of the public will cheer and say good job and then you'll get some support for doing the next round of restraints. on 15 i only have a few more here. on 15 this shows you -- i'm going to show you two or three graphs that are the optimistic side of the cbo forecast. cbo is assuming that tax receipts go above the 20% level that we've never gone above before. look how much it does. by 2016 '17 '18 '19 we're above 20% of the economy in tax receipts.
9:55 pm
i don't think we can achieve that. i think once you get up to that barrier you kind of hit a wall for the economy. so i doubt, you know, we've been talking about how huge the debt projections are coming out of cbo. i'm afraid it's going to be worse than that. on 6 -- the next page shows you mentioned that one saving grace for the united states that's not available in southern europe is we have a huge amount of assets that have been build up. this country has been growing for 200 years. and people put it away in housing where the mortgages have been paid off and in cooperations where you've got a lot of assets. so it's 425% of gdp in household assets, versus that 245% debt. so that should give us some hope. we can dig our way out of this hole if we start restraining depending.
9:56 pm
next chart shows you again an optimistic cbo forecast. again, these are -- these are legitimate forecasts. i'm not -- i'm not saying anything wrong with cbo doing it this way. they get guidance from the committee from congress itself. what i am saying is that we'll be lucky if we get the deficit and debt numbers that they are projecting could be it can be worse. this shows you the net interest per debt goes up to 4.5% or maybe 5% of debt. which is lower interest rates. they are assuming it's lower on the coming debt than the past debt. which is hard to imagine since we have so much more debt. normally as your debt grows, you have to pay more. we're assuming in the forecast that we pay less than historical. i want to ship now to the tipping point. the next chart showing you the
9:57 pm
difficulty here. here's -- the cbo forecast. what they show you is that interest rated are expected to rise to the 4 to 4.5 yield curve. that means the short end will be borrowing at 4% on the short end, and 4.5% on the long end. that sounds good, but as the next -- but challenging that is in the next charts shows us the very short maturity of our debt. this is a key point that we have not only a huge record amount of debt, but the nature of that debt. if we get into a hiking cycle, we're in deep trouble. i'm worried that what we'll get into. the affect the fed buying back the long term debt. the treasury has issued long term debt which stabilizes the country. the feds buying precisely that
9:58 pm
safest debt and buying it back into the u.s. government. so the effective maturity on the national debt has gone down to 40 months. we're back to the 1970s level of risk in terms of short nature. if we think about how the crisis happens, the tipping point happens the yield curve for greece, next chart, shows you what happened to greece. they were going along happily in 2010 -- 2007 with the low yield curve. and bam. the debt exploded higher. same thing on greece -- excuse me on ireland. when they went above 90% as the chairman noted the reinhart and rogoff book points out what happens when you hit 90%. the u.s. is headed there. let's go to to -- they hit that in 2010. looked what happened to their
9:59 pm
interest rates. they spiked interest rates in the middle of 2010 and that just created a catastrophic problem in the budget deficit as they hit that. so on -- as we think -- next chart. as we think about the tipping point they concern is that we're going to be stuck with such slow growth that the living standards will continue going down. look at the two periods within the 1970s, and the 2000s have been -- have seen a decline in the median household income. that puts us at risk. if we aren't in economic super power that adds to the household income, we're in trouble as a country. that's where we stand right now. 24 -- assume. next chart shows you that -- we don't want to get to this point. this is europe hitting the tipping point president the interest rates shoot up the
10:00 pm
deficits explode, they can't roll their debt. that's what we are trying to avoid. and 25 shows you the feds explosion of assets. which is one thing that's been distorting the markets because the fed is absorbing such a huge amount of fiscal deficit right now. :
10:01 pm
the use that opportunity to add new controls on to the national debt. i recommend a debt to gdp limit as opposed to the current nominal debt limit. debt to gdp limit say 50% and also a limitation or requirement that the average maturity of the debt stay at five years or longer. we are cheating ourselves by halving the current government issue short-term debt putting us at risk and then certainly, the fed should wind down this asset purchases. they are shortening that effective maturity of the debt, causing substantial market disruptions and climbing rapidly. finally, tax reform is a high priority, and i think in order to get it done when you should do is meet the extensions of the current tax rates permanent and
10:02 pm
the baseline and the way you could have a legitimate discussion about what to do about future tax rates. thank you very much mr. chairman and senators. >> thank you. let me just go to each of you and ask you in turn a -- look, this committee is the budget committee and our obligation is to provide budget outlines to our colleagues. we've got a lot of decisions to make. one of the fundamental questions is how quickly do we impose fiscal discipline, fiscal austerity. the commission concluded, and it's interesting not only did the president's fiscal commission conclude this, the domenici commission concluded this and the esquire commission concluded this. all of them bipartisan commission's. all of them concluded for the
10:03 pm
next 18 months to two years we ought to make modest changes but put in place a plan that over time over the next ten years substantially reduces the debt on the rate of the president's commission $4 trillion of debt reduction. domenici rivlin was even more aggressive on the deficit reduction as well as the esquire commission, all of them bipartisan commission's. what would your advice to us the be in terms of the ten year plan? how aggressive should we be on the front end with imposing austerity, how big a change should we be seeking to achieve over a two-year window?
10:04 pm
>> his senator conrad, would generally endorsed timetable and the general tone of each of three commissions. manly that we don't have a short-term debt problem. we have an enormous long-term debt problem and we need to come to grips with that. if we had a short-term debt problem than market and market participants would be reflecting that, and one of the things we can use as a priority to engage in a we have a short-term debt problem is the responsibility of markets. when markets start to question whether or not you can serve as your debt, then you can see a rise in interest rates and a widening and spread relative to other benchmarks in the marketplace on a global basis. we don't have that yet. we enjoy lower interest rates and favorable borrowing terms right now. but of course that's going to run out and i think as laicized in my testimony and as you just mentioned, the important thing is to craft a credible plan to address the long-term problems,
10:05 pm
and as i just want to emphasize that credible does not easily we are going to cut 1 billion here or we're going to have a five-year freeze on discretionary spending. credible means we are going to attack those long-term problems. we are going to look at them specifically and address the root cause of our long-term fiscal problems. >> dr. johnson, what would your advice be with your respective question of timing? >> mr. chairman, can i ask to do that in an economic sense not addressed in your comments to what you might think the political realities are that is up for us to try to face that we would like your best opinion on what we should do. >> if i could end comments are not adjusted for political reality. >> i thought that. thank you. >> why not in favor of precipitous as dirty as the kind of british government is now
10:06 pm
embarked on and we will see in the quarters ahead how that program does. the data from the last quarter is at decline in gdp and the [inaudible] partly that letter and october and november were bad months. to the extent we don't need that kind of immediate cut but i think we do need something over the medium term. my opinion is more aggressive and certainly we're david is when you're carrying the massive financial sector risk it's also by the way with the irish character in david's chart the irish will consider to have responsible fiscal policy. they blew themselves up on the fiscal side because three banks went road and destroyed themselves and were taken over by the government because the government felt another alternative. that's where we are. so 50 present of gdp or 60%, a
10:07 pm
number commonly used, is too high on this you want to deal with the financial risk but we didn't do that. so when you're carrying this amount of contingent liability, over a ten year period i want to get the debt down even lower, because i feared the market can turn quickly. senator sessions, the next time you or i see mr. gross we should ask him how long would it take to change your mind, flexible towards the year autozone if they sought out that siskel financial problem, which i think they will do the next 12 to 18 months. i think it would take 20 minutes to move the portfolio. that is how fast it can move against us and that's what happened as david said to the irish. >> that is what tom freeman called the electronic heard. david? >> i think the goal is to avoid the electronic heard, so actually to get the private-sector to start hiring people, so i think i feel a little differently than many economists that if we cut a lot
10:08 pm
now in the federal government, people would perk up and take notice. global investors would start putting their money into the united states rather than moving it to asia and elsewhere, so i want to emphasize that positive feedback mechanism from going on a diet now. if you're going on a diet don't say three months from now we will have our plan laid out to just stop eating as much this evening and then if you can -- >> david, let me just say to you the problem is that's not the way the schedule of congress works. you know? we have a schedule here and the schedule is we've got to have a budget resolution that guides the admissions. i happen to agree with you. it would be wonderful if we could do it but it doesn't work with the schedule of congress so we've got to deal with that and that's why i again, i ask for a summit.
10:09 pm
i think if we want to send a signal america is going to face up to this problem and we are going to put together a credible plan nothing would be more effective than the leadership of this country sitting down and coming up with that plan and not wait for the diplomat. you say? we are not going to have appropriations bills for months because they come later in the cycle, so we can't do what i think you would like to see happen but i feel would be helpful to the credibility because we just don't get to that stage until little later. >> this is a tough fix, so i agree with all of you that we need the longer term cuts and rethinking of how we spend money and it needs to be better substantial. so a wonder in the markets right now is whether there will be in the ability by the u.s.
10:10 pm
government to actually do some of these cuts. so if there's anything between what the u.k. did and doing nothing over the next six months that at least would like begin to change the minds. right now u.s. corporations are taking their money outside of the united states. they are in the u.s., it's very cheap rates and invest in asia and they're worried the u.s. can't cut spending. so if there would be a symbolic or concrete types of changes to give the reinsurance - clustered getting jobs right away. senator sessions? >> dr. johnson, i would just say the t.a.r.p. bailout hasn't cost the taxpayers a lot but the stimulus bill cost $900 billion
10:11 pm
at 4% interest that's $36 billion a year that we will pay for the rest of our lives suppose because of this one effort and nobel laureate gary becker and i quote on the floor before that passed he said he did not think would be sufficiently stimulative and i believe he has proven to be correct. said they would be far less than 1 dollar. he said .7 and should try to be above that if you could get there. but anyway, either here or there. i guess in one sense you could say this is not a crisis now but i would contend that $1.5 trillion deficit is a huge finger and we will pay interest on that forever presumably, and interest is crowding out so much of our future potential to invest as the president would say in things we would like to
10:12 pm
spend money on. it's just going to be a huge thing even if the interest rates stay at the rate the cbo projects. mr. malpass you didn't comment i don't think, on the theory that if you get debt so high it reduces growth and puts you in a serious stagnant position. do you agree with that theory and those that provide greater urgency for us at this point in time? >> i think it definitely does. so as more and more of the economy is directed by the government s the debt goes up that reflects the government directing more parts of the economy and your growth rate goes down, and i think we are already seeing that in this
10:13 pm
lower average growth rate for the u.s. over recent decades. it is a grave concern. >> the debt to income revenue to gdp referred to, i think you referred to it 14.8%, one thing i need believe causes that i'm not seeing any research done on it but we have our revenue to the high income individuals who then tend to be more volatile, and so now i understand it's down to 1438% of gdp by 2015 and moody's is concerned with the debt rating. how would you comment on that? >> the slower economy hits people that were earning more in so that is slowing and the
10:14 pm
slower smaller percentage of earnings of talks is coming from high earners. i think it also means and helps explain why job growth has been so weak. we really depend on what on new businesses and small businesses for creating jobs. and so in the current environment are not doing that as much. there have not been scoring, you know, creating things like google. we are not going to have this dry period of entrepreneurial and innovations of the will be costly in the long run too. >> dr. berner and dr. speed, to allow dr. johnson's comment about what the u.k. is doing i feel a fundamental question is are they taking their medicine now and put them in a longer-term healthy growth path
10:15 pm
or is there a reduction in spending and increasing taxes i think it's 3-1 tax revenue cuts on increases. is that too much austerity above like you to add your views on that. >> welcome you know senator each country is to determine the pace at which they decide to impose the austerity and in the u.k. have decided to stretch out over a four year timeframe the kind of austerity that we are seeing. i think that the u.k.'s particular problem right now in terms of gross are relate to other things besides the fiscal austerity that they have imposed. but one thing that we know is they also have an inflation problem in the u.k. which is higher than ours and most of the developed world, and so that limits their flexibility to maneuver as well. so they have a little bit less
10:16 pm
flexibility to maneuver than we do. right now we have low interest rates, low inflation federal reserve that's a very supportive of growth. we may not have the flexibility in the future, so the answer i think is to -- >> with regard to the u.k. you think in the long run they will benefit in the austerity measure. >> in them long run they will benefit from those of syria measures. the question is whether they have the right balance given the other policies. that's absolutely right. >> i agree with that. i think we would be better off if we could move faster even on the short run on a fiscal austerity. itt chairman's point our system is of a parliamentary system. they have a way where a small group of people can say look let's change the fiscal course. ours is going to take a lot of work, among a lot of senators congressmen, the administration and so on.
10:17 pm
i would note the pound strengthened quite a bit when the u.k. made this change and that made them in terms of their living standards if you think of the dollar per capita in the u.k. they've gone up while wars are going down because of that change, and also i don't think that we should measure it only in terms of their gdp growth rate which was weakened in the fourth quarter. we have to look at jobs and future jobs being created, and i think by the government should bring some discipline that is attractive to the business environment and we will see the job growth doing a little bit better even in the short run for the u.k. than what we've been experiencing here. >> to the economist thinkers masters of the universe affectionately. the political world is unusual. it's not quite the same coming and the idea that we can just move in and out and make changes is not accurate, the
10:18 pm
opportunities to make changes my firm belief is right now there is an opportunity to go further than wall street thinks it's possible and reducing spending and put us on the south half to something disastrous to the economy. i think we ought to to get into of the opportunity to reduce spending now. i criticize the bush administration. we had surpluses and somehow it got around that deficits called matter. they forgot the political world. i'm in here saying we can't spend more because it's going to run up the debt and lose our surplus a did they are saying it doesn't matter? once you politically get fitted theology going it runs out of control. so the american people are at a point of wanting to be more frugal right now. i think that we ought to get
10:19 pm
now. thank you. >> senator wyden. >> thank you for a fine presentation. before this meeting there was an extraordinary discretion you don't see very often in the senate, senator conrad, senator coburn and others put together a meeting on the debt and for the economy is headed and a little after eight there were 32 united states senators interested in actually getting into the details. you don't see many meetings like the one that was held this morning. what i was struck by because the numbers just wake-up call if you're spending $3.7 trillion receive 2.2 it's not hard to figure out that and what the implications are. and what i was struck by was the single most important thing here is to send a major message to the country yet to a financial market that you're getting serious, and you're doing
10:20 pm
something significant and what senators seem to get focused on was the idea that he make a substantial down payment this year in deficit-reduction and deal with at least one major long term problem. one major structure problem. i had met that i think structural issue of to be tax reform, senator gregg and dhaka senator sessions predecessor introduced legislation the would create according to the heritage foundation 2.3 million new jobs per year and i think because of what you have described in terms of the economy in terms of the long term has got to get a shot in the arm to the economy but i would like to go down the road and ask each of you to give us your sense first of all of a number, and actual number the
10:21 pm
would constitute a reelected for making the down payment this year in terms of deficit reduction, and then you're take on what would be the major long-term issue that the congress would actually tackle and enacted into the law come and you already heard my judgment that it ought to be tax reform because of growth. all three of you and also note in oregon we are glad to have an oregonian before the panel. >> thank you. we don't know exactly what the number is 100 billion isn't in pressing the financial markets. something on the order of four or 500 billion, and i did what is important here is not so much discretion as revolt and around that be implemented today that you commit to a larger number
10:22 pm
and have a plan to make that number is understandable and make a credible so the financial markets will to get on board and will be surprised by that number. and i want to say i totally support and i support david's for devotee indoors that have enormous benefits to the economy in a number of respects and i hope you find a co-sponsor on the republican side. >> we will. >> -- to support your proposal because i strongly support it. >> very good. mr. johnson. >> i think this is absolutely the right question at the right time. something in the order of 10 million, tens of billions doesn't do anything in this context and i don't even if you talk about hundreds of billions that makes it that much different. i think you need to be talking about the big chill the dollar items on the horizon and there were too. lummis tax reform where the good news is the taxes so antiquated and messed up that even if you don't want to raise revenue in
10:23 pm
the gdp over the cycle there are plenty of ways to improve incentives and when you are improve incentives you will get some additional revenue. we take in terms of taxes lot of gdp ten to 15 percentage points less than other industrialized countries that have better tax systems. using it makes the tax system better. the second is health care medicare in particular. that is the big budget buster by 2014. i doubt you want to take on medicare in this congress but those are your two choices those are the things that would make the difference here and i have to say in this context i did not support the tax deal the end of last year the was a big deal over the next foreseeable future the was the big number in the wrong direction, there was a bipartisan consensus away from fiscal responsibility quite contrary everything has been said here this morning and i'm sorry senator sessions stepped off. he said somebody said deficits
10:24 pm
don't matter during the bush administration. i believe the was vice president cheney who said ronald reagan taught us the deficits don't matter. and i hope as we approach ronald reagan's 100th anniversary next week we will reflect on how far from being appropriate for today, today's reality is. >> i do think one other part of your testimony is very helpful as you are conveying a sense of urgency because in this town saw about the politics of procrastination. what i wanted as the part of your agreement with a one-year extension of the bush tax cuts so that you would force congress to step up this year and actually deal with these kinds of issues because my concern is of less dewaal and others can help convey the sense of urgency, you would have exactly the same debate in the lame-duck session of the 2012 congress as
10:25 pm
we had during the lame-duck session of the 2010 congress and that is why i wanted something that would force action. mr. speed, your thoughts to the number and the question of the big structural issue if you get to pick one? >> thank you for representing oregon. >> about how much can be done here in our system and so i think as you go into this one of the most heartening thing is if the 30 senators this morning were together as you mentioned, that's a big step, that's the kind change that people want that markets will be looking for and say if you got all those people in the room something might come out of it. my view is we think you're hitting on that short extensions are of existing spending where you take many bites of the awful a thing could be a procedure that might work. so as the continuing resolution
10:26 pm
discussion comes up whenever the amount of spending that kim -- spending cuts that can be done in that resolution of you can do it multiple times in a given year, that's going to get you a lot of credibility in terms of the financial markets and job creation from the private sector. so i think $100 billion near term spending cuts would be useful. whatever the numbers, then kind of make up a promissory pinky promise of some kind that you're going to come back to three months later and try to do another round of things that you can work on. as far as what structural reform longer-term and tax reform would be very good if you can get another co-sponsor and the forward with that, and i recommend a baseline where you look at directing the baseline so that it gives a more level playing field, otherwise your
10:27 pm
swimming up this vast current. the cbo scoring undercuts the tax reform process to the degree the normal scoring you won't be able to the growth oregon to reform. the of the procedural change in suggesting is that you fill this vacuum of limits on the debt to gdp limits would be very comforting to the market's. market's concern right knows you're going from 60% marketable debt right up to 90 and looks like the guy delete might go to 110 rediker of the threshold of the chairman of lynch and to the to -- mentioned. forget of a limitation other than the statutory debt limit that would give some underlying confidence. i can't -- i need to make one defense of president ronald reagan. there was the idea that his economics were not the right economics. remember what he was saying that we can't look at the deficit alone. we've got to get the tax rate and the spending so we needed to
10:28 pm
cut both of those to enable the private sector. my view is that worked very well in the 1980's and we created a huge amount of jobs and growth out of good sound economic policy in those years. >> thank you, mr. chairman. i would like to thank the panel for their testimony as well. several questions i would like to follow up on something that mr. malpass address which is the increase in the debt limit, and you've advocated that we need some structural changes essentially to get this escalating deficit and debt under control. i happen to share the view that we should make structural changes we might have different on which ones to make but i think it's important that we use this occasion to begin to get our long-term spending problem under control.
10:29 pm
so i am not in the camp that argued said under no circumstances should we raise the debt limit. i also accept your general-purpose the it's a rather blunt instrument and the disruptions that would occur are to be avoided if we can. however, the it's very important as we approach this that we understand what might occur and what might not occur if there is some period what time we do not raise the debt limit upon reaching it. so my first question is a simple and actual historical question and that is is it true that we have had recent episodes in the past several decades where we have reached or debt limit. we have not raised immediately upon reaching and and we nevertheless did not the fault of the marketable debt securities has issued by the government. >> yes, and in the late 1990's there was a period of roughly
10:30 pm
four years. it's on page nine of my testimony. my view is those were rather unique. one of the things the was happening was defense spending was being cut sharply. another thing the was happening is there was a temporary slowdown in the entitlement spending that to the generation coming you know, the beebee boom hadn't yet started to retire, so on page nine it goes through those. also in those years something was happening come in this country is on the screen. fannie mae and freddie mac were really ramping up which operated almost like government spending. remember they were kind of off budget and yet they are really ended up being taxpayer liabilities so that counts paper over that particular period of time. i don't think that we could make that right now. >> if i could offer for just a second. it is for a short kirker with
10:31 pm
time the debt limit isn't right and when the debt limit is not raised is it true that tax revenues still come in? it floods in to eat spinach if my numbers are right something on the order of 40% of all the money that the government is expected to spend its going to come in the form of tax revenue. some the only order of 6% of all the money the government is going to spend is currently scheduled for interest on our debt. the question is it possible for the treasury in the event of the debt ceiling is raised and this is in some ways a disrupted thing if that doesn't happen but the the treasury could nevertheless ensure and that those people opening of the marketable securities of the government would receive their interest payments and those payments can be made. >> yes that's possible. the fiscal deficit is large so each month the government is in
10:32 pm
a negative cash flow of roughly $120 billion, so what would happen each week is someone committing the treasury department or you members of congress would have to be deciding who not to pay and the concern is the disruption -- >> i anderson this is disruptive but the point is a narrow point and that is due those people holding securities necessarily need to not get their interest or principal payments and i think you're a little nudging that to the estimate senator i think you're playing with fire in that scenario. one point that wasn't covered in david's comprehensive review visit it situation is borrowing from abroad. >> it's not just internally funded debt. we are the world's largest borrower, and this is very dangerous. there are others out there in the world. i know the your autozone doesn't
10:33 pm
look appealing right now but it will turn the soil from. the chinese are working hard right now. i really don't think that you want to create potential disruptions at this time because it's nothing said the dollar has to be the number one reserve asset forever and the british pound lost this position earlier in the 20th century exactly through the fiscal year responsibility and global overreach. >> i would simply argue that i did the fiscal irresponsibility is what has gotten us into this situation and the refusal to do anything about its is the worst message we could send to the market. the fact the revenue will be more than ten times the expected cost of interest makes it very clear to me that no responsible treasury secretary would never allow a default to occur on our debt. he would be so disruptive and so damaging that you are in to the millions of savers of americans as well as others that i can't foresee how we treasury
10:34 pm
secretary would permit that to happen when he or she would have more than ten times the revenue needed to prevent it from happening. but let me move on to another question if i could come and that is as alarming as the magnitude of the debt that we have discussed today is i may have missed this, but i don't recall a discussion about another component that worries me. in fact, i would argue it is even bigger than what we talked about and that is the unfunded liability implicit in the promises we made to the big entitlement programs, and if you attempt -- if you quantify the present tell you of that shortfall, is it true that that is actual several multiples of the actual publicly traded debt that we have? >> yes it is senator, it is and obviously different calculations will give you different results. i think everybody agrees the present value of the liabilities is enormous and check if you have a medicare, medicaid social
10:35 pm
security you come up with an unfunded liability when added to the debt. it really would exceed the assets that david show and his charts. beyond that if you look at another issue which is the unfunded liabilities of the state and local governments those which are on the books as the gap between promises they have made for their pensions and the assets that they have as well as the unfunded lie the bodies for the health care promises that they have made that would add on top of the federal liabilities to what you're talking about. so the answer is definitely yes and resoundingly so. >> but we also need to add and score appropriately the contingent liabilities that arise out of the financial sector because we just pushed the debt by 40 cents of gdp because of the way -- i think all of this needs to be included and i think that we agree on that. >> can i add one more? i agree with those points. the actual size of government is we are we to go on. 50 years from now there's going
10:36 pm
to be a defense budget to be theirs could be federal the education budget and so on so i can guess you think about the problem i'm not as focused as defined in title words from the discretionary spending. there are all commitments to the people that there's going to be a government in the next generation and the next and we just don't have the money right now. >> thank you very much. i see my time is expired. at this time in the future will buy would like to address another perspective i feel this is even worse and that is something mr. malpass mentioned briefly which is what strikes me as potentially very optimistic forecast about the level of interest rates come in and of course when you have a huge debt if you are wrong about your optimistic forecast but the interest rates that has devastating consequences. thank you mr. chairman. >> thank you for that point because i think that is one of the critical points that somehow we need to be able to persuade our colleagues of.
10:37 pm
what is the risk of a failure to act? we have a very benign interest-rate environment now very low interest rates, even a record low interest rates. some are saying that's an indication we don't need to have. my own view is it is giving us a period of time within which to act a failure to act in that period of time could lead to much more serious consequences. you'll get that ten year cbo outlook, the are projecting a low interest-rate environment for a decade. well be that happens. media doesn't. if there is one thing that is clear and we have seen it in the case of greece, it was clear and mr. speed's presentation of greece, ireland, everybody else has run into one of these situations the change in your
10:38 pm
interest rate environment can have been like that and then you are really in the suit. >> mr. chairman, thank you. just a quick observation about how very optimistic this interest rate assumption strikes me, and that is the assumption is interest rates refer to something less than their 20 year need over the last 20 years. that despite the fact that the fed is embarking on an absolutely unprecedented program, which the very purpose of which is to increase inflation expectations to the it's my fear they will be very successful increasing inflation expectations and inflation itself and it's hard to fathom how interest rates don't respond by going considerably higher. if that happens all the numbers change pretty dramatically. >> if i could add a point to that. beyond the inflation issue it seems one of the biggest issues out there is that in this global
10:39 pm
environment market participants around the world view us as credible. if they start to question our ability to service our debt and ability to meet our obligations that's when interest rates adjusted for inflation would start to rise and the risk premium in the debt will start to rise and as you put it so eloquently that is when we are really in the suit curious but let me - one. it's worse than this because globally i would commend the report by come mckinsey what are the global savings going to be worth the and the global investment going to be in their assessment is led by the nobel prize winner their assessment is in justin real terms looking globally the interest rates will head up so you should get your concerns about the interest rates on to the real rate and they say we are coming out of it period that have had unusual low rates because of savings hundred and investments and reasons they
10:40 pm
are receiving. let's be clear to reach go up because economic is good and the as liben put it the strong growth around the world and the rates should go up but if they are going up because there are concerns about our credit worthiness, then that's where our economic performance longer-term basis will suffer and the spiraling becomes quite negative. >> can i just make this point, one of the concerns i have in listening to the discussion that is unfolding in this town is the focus on the bonn defense discretionary spending because non-defense discretionary spending is about 16% of the budget. the president used the number 12% in his state of the union because he had an unusual treatment of homeland security and some other things he put into defense pot that normally wouldn't be there to devotee keep at the international in the defense caught, but let's go
10:41 pm
back to that basic formulation. domestic non-defense discretionary spending a 16% of our budget. yet it's getting almost all the attention for how we solve this problem. and we are borrowing 40 cents of every dollar we spend. you eliminate that all you haven't solved this problem. so, the part of our budget is growing as a share of the size of the economy our entitlement accounts, medicare social security, premier li the health care much bigger than social security. that's seven times the problem of social security. and did somehow we don't want to talk about it. i think i know why we don't want to talk about it. if you ask the american people, they say you don't need to touch medicare, you don't need to touch social security, you don't
10:42 pm
need to touch defense come to the need to touch revenue. i would just say this. if that is the conclusion that social security doesn't have to be touched and its cash - today, medicare doesn't have to be touched on the defense doesn't have to be touched revenue doesn't have to be touched you can't solve the problem. there is a mathematical certainty you cannot solve the problem. so some of us are going to have to help the american people understand the unfortunate reality. the unfortunate reality is all i believe all those things are going to have to be touched. the sooner we do it the better. because the less draconian the solutions will be later on. the worst time to deal with it is when you are in a crisis. if there is anything increase
10:43 pm
should have taught us and ireland should have taught and portugal should teach is the worst type is when you are in a crisis. dr. johnson, and you are the former chief economist at the international monetary fund. probably nobody that i know whereof has a deeper understanding of global economics than do you. what would be your advice to this committee with respect to the question of how you deal with this in a systematic way? what parts of the budget have to be dealt with over the longer term? does domestic discretionary spending, nondefense does that get you out of the whole? >> no senator it doesn't. the advice would be or maybe it will be if we get desperate
10:44 pm
would be the medium-term fiscal framework. you need some very clear and agreed upon rules, you need a bipartisan consensus, to see this is what we are going to do on the tax reform and particularly on medicare. social security is a problem but that can be addressed in a relatively straightforward way. medical costs explode this is gdp and by the way compared with other countries like for example in year of the have the same problem they just don't account for it as we do. if they score their future medical spending like the cbo score for us we will see the same problems in most of western europe if that is any consolation. so if you have that framework if you have rules that are agreed upon, then you have the outside of the point david made but not be the parliament and democracy. if you look at the rules in the framework the markets are going to know it would take a lot to undo them and you could look into something like ten, 15 years down the road which the markets with respect and it's
10:45 pm
also hard to get on a understand that that is from a global comparative perspective the advice he would get and honestly with a very big creditors to the chinese i guess the chinese president paid a visit recently to see how his money is to get felt okay about that, but ultimately they will not feel okay. the creditors will demand this could change, to back to the demand and on behalf of the volume of to the highly indebted countries around the world so we should do it ourselves now. before we are rushed into a situation where it is a crisis did you can only do really damaging cuts. >> let me say one other thing and then to senator sessions. >> i hope free lunch when we deal with these opportunities this year we are not just dealing with short term non-defense discretionary spending. we are talking of a 60 billion to 100 billion. in one year we got $1.5 trillion
10:46 pm
problem and while that may send a useful signal it doesn't touch the problem. we need a multi-year comprehensive plan that reduces the debt over the next ten years by i believe at least $4 trillion. and now we are talking on the scale that really has some credibility. senator sessions? >> thank you. this is a very difficult issue. i have been with my staff since i have been the ranking member and i still don't have a handle on it but i can tell you anybody that thinks that it's easy to get this house and financial order is not correct as you've indicated, mr. chairman. i would note those that we ought not think that we should ignore
10:47 pm
discretionary spending. i feel very strongly about that. we have 35% in the state department just last year to be 35% increase in to the epa, double-digit increases for agriculture. president bush was criticized for the agriculture increase. i don't think he had a single year over the 2% increase. we had 12% i think 12% increase. i just saying we have 2010 levels that are unusually high and we are going to have to go back to 2008 or if not lower. i criticize the debt commission and their work on one point. they certainly serve the national purpose and i may well have voted for the product if i had been on the committee. but i would just say the goal was given to them by president obama was to reduce the deficit to 3% of gdp over ten years and that's what they did.
10:48 pm
high interest and the projected deficit in ten years, 3% of gdp is 700 billion to a trillion dollars. so i would ask the three of you first come is that a sustainable deficit? just briefly if you would. >> senator, if that's the end of the story than the answer is no. >> would be good progress. >> would be good progress of supply. it's the story continued there was a continuing commitment to make further progress so then you got the deficit down because ultimately in order to stabilize the debt in relation to our economy, you're going to have to make further progress over time and that's really what's important. >> collis mcginn point on this? in terms of the commission the president is the goal of 3%. but we exceeded. we went to 2.3 in 2015 and then
10:49 pm
down to 1.2 in 2020. because we believe, and i think it was a strong consensus that we had to go further. -- before, mr. chairman. i'm glad because it was depressing the more than i should have been depressed. in a kiss dr. johnson. >> i think that you have pushed this as far as you can. it's a question of the risks in the global economy you don't want to borrow the money from somebody else to better meet better use. i would be surprised if the u.s. dollar hasn't the same level of predominance as a reserve currency it has today and i wouldn't be surprised if we share the stage with a stronger bureau and a much stronger chinese currency. you quoted earlier somebody said during the bush administration
10:50 pm
deficits don't matter. i think the was vice president cheney. >> i heard -- >> but i just wanted to make sure -- did he actually say ronald reagan taught us deficits don't matter? >> i'm not sure but i think there was a private conversation that sort of leaked out and became a part of the agenda. but mr. greenspan recently said at a luncheon that i was that while in the early 2000's we could handle a little extra debt. so why even the fed was in the view that when we went into the recession in 2001 in little deficit wouldn't hurt us. but the truth is politically once you lose the high ground, when you lose the political high ground in congress it is hard to get it back. >> if i could just reinforce that, senator with regard to the proposed debt to gdp. if you go back to the 50% or of course the europeans have a 60% limit under the treaty the
10:51 pm
intergovernmental treaty it hasn't done him any good. it's too high when you get into the message dhaka and want to use the fiscal policy to respond and offset something that strikes you completely out of the blue 50 or 60 per cent of the gdp is too high. >> the shocks are going to be big and push you over the 90% level we are worried about. >> i took the plant will lead me below were number 40% debt to gdp ratio would be more acceptable. but what you need to do i think is have been escalating penalty if you are above it. in other words, some discipline on the budgeting process. on a windy to produce budgets that bring us down below the debt to gdp limit or some kind of mechanism to give it some teeth. if i may, i have written down on several and think in terms of this problem where you should begin today making small decisions or they aren't really
10:52 pm
small but do the things you can so i will list several things we talked about. one is i think the fed should lie down in its treasury bonds. this is a huge problem where the fed is body of the long-term debt and therefore shortening the maturity of the national debt. that puts us at risk. second in the same day, treasury should be issuing more long-term debt. we've got to get our debt maturity longer to be prepared for what comes in the future. third is that elected the slide in order to open a window for tax reform. right now the way the congress procedures work is not credible to embark on tax reform because you've got to soak up making permanent the assisting rates. the alternative minimum tax for example x tigers and everyone knows it's going to be have to text into the future to be there
10:53 pm
shouldn't be part of the baseline cost of that some you need a directive baseline in order to create a more level playing field. fourth is using the continuing -- >> david, could i just stop you on that plate? this is the only thing i've heard you say today with which i strenuously disagree. and the reason i do is that if it is not in the baseline, what does that say to congress? and you and i know that it gets added to the debt. and i will tell you i am in the sections camp on this. as soon as you send a signal now hear that you can crosslines and it doesn't matter and things are for free that psychology takes hold her down here. when we cross the line on social security and go back to reading the social security trust fund and i use those words, i know we economists have a different view, i tell you that broke a disciplined and now here.
10:54 pm
by bigot chairman greenspan not to take that position because it's psychological but it matters around here. when you cross the line around here by the door. >> if i could interrupt with a moment and agree with you. one thing we have not discussed this budget process. back when david and i were working in washington to get there, the budget process was important and congress have a process in both houses. the process was stuck to your predecessors. the cantelon and reinforced the process. it's something we haven't discussed today and we need to restore to the discussions about the budget because we think in terms of credit devotee what will help restore the credibility besides the commitment to deal with our long-term structural problems is a game plan for getting here.
10:55 pm
>> let me just say the dirty little truth in this town is that people don't want to deal with the budget process disciplines because the truth is they don't want the discipline. they want to be free to cross every line and it's on both sides of the aisle. i regret to say in your right. we should have i think a return to some of the strict discipline is that helpless get out of the whole and 80s and 90s that proved to be quite effective. but you know absent will no process self. i took away from your time. >> this is really serious important issue. i think senator mccaskill no the legislation got 59 votes that would have made statutory
10:56 pm
caps using the president's budget to violate that he did what has been a fire wall of a wintry fidelity we realize the numbers are too high and we have to wrestle with that. this is about the economy and one question i would like to pursue a little further mr. malpass made reference to it is the fed action the same articling was reading in mr. hickey with the editor of high-tech strategists said we continue to print money and a lie not correct mr. speaker that the fed buying treasury is that fair to say?
10:57 pm
>> it risks that. maybe a rhetorical point or a model point tactically the fed barrault's from banks so as long as it creates excess reserves that the fed, so as long as we have this stop in their retreat process where the banks are not lending then there hasn't been a natural expansion of the amount of money in the private-sector. >> with the leverage that the fed uses -- clinical that have been so far is the fed is taking on the rest of the private sector by owning long-term debt so they are exposed to interest rates go up the tax payer expose but from the standpoint of the actual lending going on by the banks it hasn't expanded. this may be a distinction without a difference and the play is taken that by the fed going down this line people worry about the fed, they were
10:58 pm
about the dollar and about the united states. >> similar to you a few weeks ago when i asked that question he said 100% certain he could fall back and not allow inflation to take off but he said he said the 100% certainty he has the tools to avoid that. >> i would say we shouldn't be taking this risk. the original goal was to lower the interest rates on the corporate bond. that hasn't worked. what we are exposing ourselves to is the shorter maturity. their body and the long term bond. that is the opposite direction that we should be going to the estimate leading us more exposed to the short term. >> it's like to take -- here you are worried about keeping your job if the banker calls abuses
10:59 pm
wouldn't you like to move from a 30 year mortgage down to a three year floating rate mortgage? you know what to do don't take that choice and that is what the fed is doing. they are moving the country from a long term fixed rate mortgage to a short-term floating rate mortgage at a time we are already a little bit shaky. >> with regard to this question may be in the if you would like to comment on that it's a matter out there in the public and in the financial markets mr. hecky says that in 2000 easy money led to the growth in the woods is and in interest would treat housing bubble and then the credit crisis now rates from zero to get a response from the economy the fed must print more money. they did and everything looks great right now but as of june when fell $110 billion they are printing per month they might not look so


info Stream Only

Uploaded by TV Archive on