The committee will come back to order. I want to thank our witnesses for being here today, and i think we will move into the questions and answer period. Im going to reserve my question time and i will go to mr. Brady. You all recognized for five minutes. Thank you, mr. Chairman. And a thank you for all of those who are here. Your testimony is very helpful. One, clearly america will pay its debt. That is made clear by republicans and democrats in congress. We always have, and i hope that those who choose to be melodramatic about it can say to gain political advantage, if you would please stop, that would be helpful. Secondly, there is absolutely no chance the president s request to have a permanent, unlimited debt ceiling will kerr. This is constitutional will poker. As we have seen in the past its also been a helpful tool not only on checks and balances but to enact spending reforms and restraints that can be helpful, although in my view have not been helpful as they have in the past. A third point is that the claim we heard earlier today that a shortterm extension of the debt limit may raise the u. S. Government debt service costs. That is highly speculative. But rooney 11 gao study showed significant results. Three out of every five had no impact. The 2012 report was based on only one event. Statistically inconclusive. The bipartisan estimate are based upon both of these gao studies, and they missed the point. The fact of the matter is unsustainable spending over time without doubt will raise cost of our borrowing in america. Thats why we are all here today to deal with this issue, or attempt to give our best insight. Id like to ask dr. Foster a question with related to the debt ceiling. Many of us see the other side of that coin as a credit downgrade, the second one, which has serious consequences, not just for our borrowing but for borrowing of Small Businesses and consumers at home. My question to you, and i know theres different opinions, but what do you think congress has to do . What steps should we take to create not just medium term Fiscal Consolidation addressing that issue but longterm dealing with our longterm drivers of debt and spending . What do we need to do to avoid a second downgrade . Well downgrade by second to avoid another downgrade, which on our current path is almost assured, really need to do two things and they are pointed out in the letter expressed in the first downgrade. One, dont raise any question about not raising the debt ceiling. Ultimately, we have to do that. And the second as we have to get our longterm fiscal house in order. That means we have to get the entitlement programs under control, achieving two goals. One, the reform is necessary to make sure they achieve the results were heading which is protecting at risk populations while spending money so we can afford to spend, and no more. That are simple entitlement reforms straightforward. They have been wellvetted that this congress should adopt i believe fairly quickly. There may be legislatively complex, and these are the kind of reforms received my partisan support in the past. Commonsense thing. Its frustrating in fact that we dont taken more seriously and move on them because they have profound impacts, where the problem really is. Yes, we have a series problem with a trillion dollars budget deficit today but really largess that is the problem is dwarfed by our long run fiscal empowerment program. We know some of the basis reform, bipartisan reforms that can be enacted that will go a long way to getting medicare and Social Security, in particular under control on a more sustainable path. Thats where congress should be looking as we debate fiscal policy this year beginning with the deficit. Do you think investors looked beyond that debt ceiling to those fundamentals you talked about, answering questions american essays about getting the financial house in order . Que . Que x do you think that creates the most uncertainty Going Forward in the longterm . It is a tremendous source of uncertainty. There are others but that is a major source of uncertainty. Credit markets will surely look at as indicated by the letter transmitting the Credit Rating downgrade. Thank you, mr. Chairman. Yield back. Mr. Rangel is recognized for five minutes. Thank you, and welcome back, mr. Chairman. Im under the impression that the debt ceiling is to give the authority to the president to assure our progress, the each and every nickel that we would fall get it back. I also believe that we have to have some guidelines on spending in order to share with creditors and americans alike, the fact are we going to reduce unnecessary spending. Having said that, some people believe we have to have this involved debt ceiling with the deficit. And, of course, thats controversial. Under the system of prioritizi prioritizing, payments that some people are pushing forward, they would believe that we can determine just to were going to pay out interest to, we get a better handle on the spending part of the fiscal dilemma. And i just want to ask dr. Johnson some questions that these programs that think you pay interest on your debt is, number one, priorty. I think every family would like to pay off interest. Social security, and then third, somewhere active duty military, and i think patriotic as well as political. But under the scenario, dr. Johnson, will we be paying the people that we borrowed from in china the debt that we owe china, the biggest creditor or one of the largest before we would pay our American Military that got caught like i did in korea, fighting the chinese . Does this work out in terms of avoiding the payment of a debt that woul we pay off our debtors before pay off our military . Is that part of this plan . Welcome mr. Rangel, no, i dont think these plans are very detailed, worked out credible plans. But yes, i have seen the notion expressed that the u. S. Would pay its debt in the form of interest and principal on bonds, at substantial fraction held by the chinese government, for example. Ahead of payments that would make of other kinds, which would include presumably the way that his friend, payments to active Service Military personnel, for example. That seems like a very strange notion. It seems to me if you owe anybody any money whether it was your country or your company and you are not giving the executive director of the authority to pay whats already been barred, that shouldnt make our lenders feel comfortable, but about the question of reducing spending, is there a vehicle that congress can exercise its ability without jeopardizing the reputation of credit . I mean, we have to deal with it, but you say, and most people, i think most people believe that dont attack the debt ceiling and integrity of the United States to use the constitution vehicles you have. What can th congress do to exprs americas concerned about spending . As you know far better than i did you have a wide range of tools and, in fact, you have more than 200 years of fiscal history in which congress did exactly that. Congress exerted for many, many years both of the tax consistent with spending. And nobody ever put the debt ceiling or the u. S. Willingness to pay its obligations on the table in the way it was placed in the summer of 2011, and the way here it is now being placed on the table again. Its a big mistake and 2011 to create this degree of uncertainty and fear in the u. S. And around the world and the big mistake to do it again today. Why would any good thinking patriotic american want to use the debt ceiling as a vehicle to reduce spending rather than the other legislative opportunities it would have . What would the reason be . Certain not to embarrass the United States of america. I have no idea, mr. Rangel, but i can tell you that well, if you dont have any, then maybe it is the objectives of this president at whatever cost, some leaders our socalled leaders have said, that they want to stop this president and the were unsuccessful in that measure. So maybe, maybe they decided to change tactics and maybe this discussion is a necessary and we find some of the way to a handle on the deficit. At me thank you for your contribution to this hearing as you have so many times before. Mr. Chairman, i yield back the balance of my time. Mr. Johnson is recognized. Thank you, mr. Chairman. Mr. Foster, in his famous farewell address president eisenhower said quote we cannot mortgage the material assets of her grandchildren without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow. In your testimony you say that, with respect to our fiscal future, quote a change of course is inevitable. The question is what kind of change . You one that once such a change may be brought by credit markets increasingly and tolerance of washingtons fiscal imprudence. In essence you are saying if we dont do anything, its only a matter of time that Financial Markets will, so to speak, blow the whistle on washington, and see the game is over. In other words, we are on borrowed time here, arent we . Yes, sir. Im afraid we are. This is rather an unusual posture for americans to be a. Its not traditionally even though weve had a fair amount of Government Debt its range in the order of 40 of our economy, which is completely manageable. This has shot up dramatically and its going to continue to shoot up under current policies. The evidence is very clear in academic literature. Its very clear in international observation. There comes a point where your debt in terms of your economy reaches leve a level in which ct markets become noticeably disturbed and you become very worried. And if its Rising Interest Rates which then spread throughout the economy. Mortgage rates and Consumer Rights and so forth. This is a certainty, and it is the path we are on that will have extreme consequences that we are not used to think about in this country spend i asked the question how much time do we really have. You know, with the u. S. Per person debt now 35 higher at. Wendy think we face our greek moment when do you think we take our greek moment to get our fiscal house in order . Right now we are having good newsbad news situation. The good news is that despite all that we have done wrong, were still one of the safest places in the world to invest. Theres a lot of places around the world that Capital Investment wants to be so keeps coming into this country, driving down or Interest Rates even after raising debt rapidly. While at some point that is going to reverse and capital will flow out again. And Interest Rates will rise rapidly. When that will happen i cannot say because i dont know when for example, europe is finally going to get its fiscal house of monetary houses in order. Once they do this process will reverse and well see the consequences of what we have done. Germany, making a move now. Mr. Hoagland, we you care to comment . I agree with dr. Foster that we are probably the best looking force in the best looking horse in the glue factory today. That may not last. I would also say im very worried about as i sit in my Opening Statement that we are looking at debt to gdp thats close to 77 . And while in the past weve had debt to gdp after world war ii at that level, we didnt have 50 of it owned by Foreign Investors and thats what scares me in terms of our sovereignty. We think were to do with is his Going Forward. I agree also the real issue here is mandatory spending and putting procedures, processes and building upon our regular order of process up your of getting budget resolution adopted, agreement, reconciliation bill and working it through the regular order. And thats what i would say that this is not the perfect solution in terms of a threemonth extension, they put you back closer to what would normally have been a regular order process. I think thats positive. Id like both of you, if we dont get it in order, you, your Small Business owners, to our young families you are Aspiring College students, what kind of future are we looking for for these folks . I think the standard of living that we could experience and enjoy, we have to be honest with ourselves that were less thing that standard of living for our future, for future generations, our children and grandchildren. I dont think theres any question this level of debt would lower that standard of living. People stop wanting to come here. Thank you, mr. Chairman. I yield back. Thank you. Mr. Mcdermott come youre recognized for five minutes. Thank you, mr. Chairman. I have to tell you, listen to this hearing, its like were living in alice in wonderland. Here we are hearing from witnesses telling us how to use default creatively or use it to get some leverage, or something, civil talking about it here is destructive. The whole world is watching this hearing. Its the first hearing on this issue. And the whole point of a society is to create and run a government in order to make order for people. People dont like chaos. And this hearing is about how to create chaos to get what you cant get politically with the votes. Businesses and workers in my district think this kind of talk is crazy. Today were talking about a crisis manufactured by the republicans. A crisis manufactured to achieve policies that the voters wouldnt vote for at the ballot box. Republicans are taking the economy hostage every single time to get a chance. They are threats are workers and businesses, investors, retirees, job growth stop every time the republicans have a crisis. The economy falters. This is a republican confidence in Economic Policy that is not working. The biggest problem with the republican arguments that are before us, and we just heard it again, is that spending and debt, they are the problem but this is a misdirection. The Public Congress and republican president s were happy to run up huge deficits to wage war they didnt pay for, or take tax cuts for individuals and industry, and give billions to oil companies. Deficits are not what the republicans care about. What republicans want to do is end the guarantees on medicare and Social Security. We just heard somebody say its that entitlement payment that is a problem but i disagree. I think this problem this country can social safety nets and pay for it. And that ought to be happening. Whats happening on the other side of the aisle. Is they want everybody was looking at doing well to just do well. If you arent doing well, well, youve got to deal with it. Its your problem. Its social darwinism. Its survival of the fittest put into Public Policy in this committee. That is the republican policy, and i respect that they want a different policy than i do, but we out to be honest about this. We just watch people say spending in the tv cameras again and again and again. Spinning is just a term the polls like. Republicans wont say what they want to cut because the public doesnt want their policies, but the word spending polls very well so we hear a lot of it. But we dont hear debate because the republicans want crisis but no solution. If we were serious about having a debate, we would Start Talking about what a medicare should be cut or how are going to change it, or how are we going to find positions, all those things should be on the table, but we dont have that. What we say is, lets just cut. And when you Start Talking across the board, youre talking about medical research and youre talking about nasa into talking about noaa. Youre talking about all these Government Agencies that dont have anything to society. What we are spending our time talking about this deficit stuff in raising the crisis, raising the deficit, we are simply saying to the world, the first time america is not going to p pay. Now, my question to you, mr. Johnson is if this was such a good idea, why havent we done it before . We could have saved a lot of money by not paying our debts. Why have we suddenly decided that this is the time to do it . Give me some understanding so the American People can understand why, after all these years since world since the first world war, i voted under george bush, both of them, to raise the debt limit. But now were going to stop paying. Please tell me why they are doing this. Its not a good idea and its not the way the policy front of not just as world war i but go back to 171819 after the initial assumption of debt and the restructuring of debt, which Alexander Hamilton began proposing for this country. Policy has been to always pay your debt and other obligations. And it took a long time to convince the world that the u. S. Was the safest place to put your reserve assets or your rainy day money, and it was a great achievement to announce it is being squandered and throw it away for, i presume, some negotiating purpose makes no sense from a broader economic perspective. Thank you. Times expected i would ask unanimous consent to place in the record a statement of Administration Policy on h. R. 325, for the Administration Says the reason the administration would not oppose a shortterm solution to the debt limit and works for to work with house and senate. Without objection so order. Mr. Tiberi come youre recognized for five minutes. Let me expand a little bit on mr. Mcdermotts line of questioning and just get a Quick Response from the four of you. Back in 2006, keeping on the senate floor, then senator obama announced he intended to vote no on the debt ceiling increase. He went on to say, i quote, to oppose the africa i post the other to increase americas debt limit. We now depend on outgoing Financial Assistance from Foreign Countries to finance our governments reckless fiscal policies over the past five years, our federal debt has increased by three and a half trillion dollars, to 8. 6 trillion. Would love to