U.S. Department of the Treasury

 

As we meet here this morning, I want to emphasize—as the President did in his State of the Union address last week—that this can and should be a breakthrough year for our economy.  As the GDP report for the fourth quarter of last year underscores, our economy ended 2013 strong and is poised for growth in 2014. 

 

The table is now set for us to build on the economic progress that we have made over the last five years—and it is incumbent on Washington to be part of the solution, and to avoid the brinksmanship of recent years that has done so much to diminish economic momentum. 

 

It was not that long ago that the crosscurrents of the worst recession since the Great Depression caused massive economic havoc and pain.  But with the combination of a swift policy response, which began in 2008 and continued into this Administration, and the hard work, determination, and resilience of American businesses and workers, we are coming back. 

 

The private sector has created more than 8 million jobs.  Our economy has been steadily expanding. 

 

The housing market is rebounding.  Manufacturing is on the upswing.  The auto industry is surging.  We are on a path toward becoming energy independent.  And we have seen our deficits cut by more than half over the past five years.

 

Still, we are not yet where we want to be—and not where we need to be.  We must continue to build on the progress we have made by doing all we can to help the economy grow faster,  help businesses create more jobs, and help more Americans acquire a basic level of economic opportunity and security. 

 

And that is why the bipartisan action in the House and Senate to pass a budget at the end of last year and an appropriations bill last month is noteworthy.  Democrats and Republicans, found common ground, made compromises, and worked together to reach an agreement that keeps our government running for the remainder of this fiscal year.  And it makes real policy instead of letting our government run on autopilot.  Moreover, the budget set a blueprint for a second year of regular policymaking.  The specter of another shut down is behind us, and the economic headwinds generated last year by the across-the-board spending cuts known as sequestration are reduced. 

 

Policy decisions in the omnibus appropriations bill also provided an opportunity to move forward with smart investments and pro-growth initiatives like early childhood education and expanding the number of manufacturing centers.  That translates into real opportunity for children to enroll in Head Start and for students at community colleges to develop the skills they need to find jobs by learning cutting-edge technology.

 

While this was a step in the right direction, lawmakers still have another responsibility they must meet.  Even though the House and Senate approved a budget and passed a bill to keep the government running, they did not yet provide the borrowing authority to pay for the spending commitments they made.

 

Last year, Congress passed a temporary suspension of the debt limit that lasts only through February 7, which is the end of this week.  After that, in the absence of Congressional action, Treasury will be forced to use extraordinary measures to continue to finance the government. 

 

Let me repeat: in just a matter of days, the temporary suspension of the debt limit will end, and the Treasury Department will have to start using extraordinary measures so the government can continue to meet  its obligations.

 

At different times of the year, these extraordinary measures provide more or less of a cushion depending on variables that we cannot control.  For example, at some points in the year there are large trust fund investments that can be deferred—which provide a larger amount of borrowing capacity. 

 

At the same time, net spending, which varies from month to month, determines how quickly the headroom provided by extraordinary measures will last. Now, unlike other recent periods when we have had to use extraordinary measures to continue financing the government, this time these measures will give us only a brief span of time before we run out of borrowing authority.  In February, the same large trust fund investments that were deferred last year are not available, and at the beginning of tax filing season, tax refunds result in net cash outflows that deplete borrowing capacity very quickly. We now forecast that we are likely to exhaust these measures by the end of this month. 

 

The BPC report issued last week came to the same conclusion.  And even though these are estimates, it is clear that extraordinary measures will not last very long.  After we exhaust this borrowing capacity, we will be left with only the cash we have on hand and any incoming revenues to meet our country’s commitments.  Notably, we expect our outlays over the coming weeks to exceed our net inflows—largely due to the payment of tax refunds—so we will draw down our cash balance faster than at other times of the year.  Without borrowing authority, at some point very soon, it would not be possible to meet all of the obligations of the federal government.

 

Given these realities, it is imperative that Congress move right away to increase our borrowing authority.  It would be a mistake to wait until the 11th hour to get this done.  As House Speaker John Boehner has said—not only should the United States never default on its debt, we “shouldn’t even get close to it.”  The fact is, simply delaying action on the debt limit can cause harm to our economy, rattle financial markets, and hurt taxpayers.  Just think about it, around the time of last year’s stand-off, we saw consumer and business confidence drop.  And investors and market participants publicly questioned whether it was too risky to hold certain types of U.S. government debt.  Such a question should be unthinkable. 

 

So the bottom-line is: Time is short.  Congress needs to act to extend the nation’s borrowing authority, and it needs to act now. 

 

It is important to remember that increasing the debt limit is Congress’s responsibility, and Congress’s alone.  That is because only Congress has the power to extend the nation’s borrowing authority.  No Congress in the history of the United States has failed to meet this responsibility.

 

Still, some in Congress have suggested that extending the nation’s borrowing authority should be tied to spending cuts.  But as one Republican member of Congress put it: “The time to fight for spending cuts is when you’re talking about spending, not at debt ceiling time.” 

 

The point is, as I have noted before, raising the debt limit has nothing to do with new spending.  It is about fulfilling spending obligations that Congress has already made and paying bills that have already been incurred.  Refusing to raise the debt ceiling will not make these obligations or bills suddenly vanish. 

 

And the President has made it clear time and again that neither he nor any other President should have to pay a ransom so the United States can pay its bills.  Presidents from both political parties have always stood firm on the importance of protecting the full faith and credit of the United States.  We should never put this precious asset in jeopardy.

 

I continue to urge Congress to increase our borrowing authority in a timely manner, and have provided regular updates as new information about our ability to finance the government has become available.  The truth is, the longer we wait, the greater the risks become.  Whether it is the economic recovery, the financial markets, or the dependability of Social Security payments and military salaries—these are not things to put at risk. 

 

In the aftermath of last year’s shutdown, lawmakers on both sides of the aisle demonstrated that they understood what an impediment Washington had become to economic growth.  There is no reason to repeat the mistakes of the recent past. 

 

Progress in Washington around the budget and the farm bill can mark the beginning of a productive period of bipartisan action.  Congress should act quickly to resolve the debt limit without unnecessary delays or political posturing that could snowball into a manufactured crisis that the American people so clearly want us to avoid.

 

Thank you, and I look forward to taking your questions.

 

 

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