Partial transcript of remarks by Treasury Secretary Jack Lew at the Economic Club of Washington on Sept. 17, 2013:
…I would like to start by talking about current economic conditions and challenges. I would also like to speak about what is at stake for our economy over the next few weeks.
As we meet here this morning, it is important to remember that five years ago this month, our financial system was in the throes of a devastating crisis.
The crisis exposed fundamental weaknesses in our economy that had been building for some time, and it helped trigger the worst recession since the Great Depression. In the months before President Obama was sworn into office, we were shedding more than 800,000 jobs a month and our economy was shrinking at an 8.3 percent annual rate.
The President moved immediately to stop the recession, and he began to lay a foundation for long-term economic growth. He took action to repair our aging roads, bridges, and highways. To invest in education so that more young people could graduate high school and go to college. To fix a health care system that was not working. To reshape the financial system so it does a better job of protecting consumers and investors. To lock in lower taxes for 98 percent of all Americans. And to make it easier for entrepreneurs and businesses to innovate, grow, and hire.
Since 2009, our economy has been expanding. Private employers have added 7 and a half million jobs over the past 42 months, and businesses added more than 2 million jobs over the last year. Manufacturing is expanding while the housing market continues to improve, posting gains in sales, prices, and residential construction.
Because of the policies we have put in place, our deficit has fallen faster than at any point since the demobilization after World War II, and should continue to decline relative to GDP over the 10-year budget forecast. And because of the resiliency of our people, our businesses, and our economy, we are in a much stronger position today than many imagined just a few years ago.
But we are not where we want to be yet. Too many Americans cannot find work. Growth is not fast enough. And the very definition of what it means to be middle class is being undercut by trends in our economy that must be addressed.
These trends—like the increase in income inequality and the decline in upward mobility—did not happen overnight. And it is going to require work and focus to reverse them.
But we cannot do that—we cannot focus on what is important—if some in Washington continue to create uncertainty about whether our political system can meet its basic responsibilities and avoid creating self-inflicted wounds to our economy.
I know from my talks with business leaders that this is a concern for many of you. That is why it is important for Congress to work with the President to replace the senseless across-the-board spending cuts known as sequestration with balanced policies that reduce the deficit and strengthen our economy.
And that is why it is also important that Congress move as soon as possible to raise the debt ceiling and eliminate any uncertainty about America’s ability to pay its bills.
As many of you know, we will soon be unable to finance the government if Congress fails to raise the debt ceiling.
Raising the debt limit is Congress’s responsibility because Congress, and Congress alone, is empowered to set the maximum amount the government can borrow to meet its financial obligations.
It is important to note—as I have done before—that the debt limit has nothing to do with new spending. It has to do with spending that Congress has already approved and bills that have already been incurred. Failing to raise the debt limit would not make these bills disappear. We reached the debt ceiling in May. Since that time, Treasury has used what are called extraordinary measures to avoid defaulting on our obligations.
I notified Congress in August that these extraordinary measures would be exhausted by the middle of October. If Congress fails to act and those measures are exhausted, we will have to use what cash balances we have on hand to fund the operations of a nearly $4 trillion government. At that point, meeting our nation’s financial obligations—including Social Security and Medicare benefits, payments to our military and veterans, and contracts with private suppliers—will be put at risk.
Some in Congress seem to think they can keep us from failing to pay our nation’s bills by simply raising the debt ceiling right before the moment our cash balance is depleted. This is misguided for several reasons. For one, it is not possible for the U.S. Treasury to know with precision when that moment will be because outgoing payments and incoming receipts vary significantly each day. Operating on a small cash balance creates the real danger that on a day that we anticipate having a positive cash balance we will actually have a negative one.
At the same time, we are relying on investors from all over the world to continue to hold U.S. bonds. Every Thursday, we roll-over approximately $100 billion in U.S. bills. If U.S. bond holders decided that they wanted to be repaid rather than continuing to roll-over their investments, we could unexpectedly dissipate our entire cash balance.
The point is, trying to time a debt limit increase to the last minute could be very dangerous.
Make no mistake: If Congress does not act and the U.S. suddenly cannot pay its bills, the repercussions could be serious. The impact on families and businesses could be significant. Investors losing confidence in the full faith and credit of the United States could cause damage to our economy.
Failure to raise the debt limit – or even an extended debate on the merits of doing so like we experienced in 2011 – is a self-inflicted wound that can do harm to our economy right at a moment when the recovery is strengthening.
No credible economist or business leader thinks that defaulting on the full faith and credit of the United States is good for job creation or economic growth. They understand that Congress choosing not to pay the government’s bills is unacceptable, and could hurt our economy. Consider the words of another Treasury Secretary, James A. Baker III, who served under President Reagan.
Faced with a threat to our nation’s credit, Secretary Baker told Congress: “A failure to pay what is already due will cause certain and serious harm to our credit, financial markets and our citizens.”
Of course, failing to meet our financial obligations should be an unthinkable event. Never in our history has the United States defaulted on our debt obligations. Congress has always lived up to its responsibility to protect the nation’s credit.
Those in Congress who think default is an option claim that it is possible to protect our economy by simply paying only the interest on our debts, while stopping or delaying payments on a number of our other legal commitments. There is no way of knowing the irrevocable damage such an approach would have on our economy and financial markets. As administrations of both political parties have previously determined: these “prioritization” proposals are unworkable. They represent an irresponsible retreat from a core American value: Since 1789, regardless of party, Presidents and Congress have always honored all of our Commitments.
We cannot afford for Congress to gamble with the full faith and credit of the United States of America. At the same time, we should never be put in a position where we have to pick which commitments our nation should meet. How can the United States choose whether to send Social Security checks to seniors or pay benefits to our veterans? How can the United States choose whether to provide children with food assistance or meet our obligations to Medicare providers?
Now, as a matter of fact, up until very recently, Congress typically raised the debt ceiling on a routine basis. The debt ceiling was raised 18 times under President Reagan who had a Democratic House of Representatives during his entire eight-year term. It was raised six times under President Clinton who had a Republican House of Representatives for six years of his eight-year term. And it was raised seven times under President George W. Bush who had a Democratic House of Representatives for the last two years of his eight-year term. During that period, many of the debt limit increases were passed as stand-alone bills. There were, though, a handful of times when a debt limit increase was embedded in Congressional legislation dealing with broader fiscal challenges. But the threat of default was not a bargaining chip in the negotiations.
That all changed two years ago when the issue of raising the debt ceiling turned into a high stakes political drama. We saw for the first time a debate take place over whether the United States should voluntarily default on its obligations. Some actually argued that default was a viable outcome. There were in fact members of Congress willing to default on our full faith and credit rather than reach a good faith compromise.
America does not want to relive what happened in 2011. That drawn-out debt ceiling dispute and brinksmanship led to business uncertainty, a drop in consumer confidence, and the first ever downgrade of the nation’s AAA credit rating. The resulting drop in financial markets undercut economic growth for months. Anxiety spread across the country and around the world as Congress delayed action until the very last moment.
I want to repeat what the President has already made clear: He will not negotiate over the debt ceiling—he will not accept measures that would tie a debt limit increase to defunding or delaying the Affordable Care Act, which was passed by Congress, and upheld by the Supreme Court.
The time to make policy is before, not after, we have made commitments. This is a stand that Democratic and Republican Presidents must take to make clear that under no circumstances will the United States fail to pay our bills.
Now, the President is willing to negotiate over the future direction of fiscal policy. That is why he proposed a budget that reflects the difficult choices he believes we need to make as a country. Within that budget, the President included reforms to entitlement programs and the tax system that would spur economic growth and cut our deficit. And he has made it absolutely clear that he is ready to sit down with Republicans and Democrats to find common ground.
Elected leaders have a responsibility to make our economy stronger, not to create manufactured crises that inflict damage. The very last thing we need now is a fight over whether we raise the debt ceiling. Not when we face serious challenges both domestically and internationally that require our full attention. And not when we know the kind of damage a financial and economic crisis can cause.
The truth is, Congress can get this done. The time to do it is now.