The Budget

Floor Speech

Madam President, this weekend I was in eastern Oregon holding townhalls. At each gathering, citizens asked me: How important is August 2? Are the Members of the Senate going to be able to come together and make sure our Nation doesn't default?

I rise today to address that question. Indeed, it would be historic, the first time in the history of the United States that we will have refused to pay our bills.

Some of my colleagues have called into question the significance of such an event. One of my colleagues said:

I am a little bit cynical about the scare mongering and putting America's back up against this August 2 deadline just to get an increase in the American credit card.

I heard some of my colleagues talk about the situation in which they view paying the interest on Treasury bills as equivalent to a family holding a mortgage; and the fact that the United States has other bills, such as checks to write to our veterans and our senior citizens, as more equivalent to utility bills; and that somehow, as long as you keep paying on your mortgage, you can quit making your payments on your utilities; that is, other payments for debts and obligations we have already incurred.

I want to clarify that this is a deeply flawed analysis because we don't have our national debt locked in for 30 years in a situation where we don't have to worry about changes in interest on it as long as we keep making our payments. Indeed, every week there is an auction of Treasury bonds. Thus, even if we make our payments on our interest, if we are not making our payments on other obligations in the United States, that translates into a sense that we are in trouble, and we will have to pay higher interest on the Treasury side. So it is as if you had to refinance your family mortgage and you knew that if you didn't pay your utility bills, you weren't going to be able to get that bill refinanced or at least you would have to pay higher interest. The consequences are substantial because this would be an increase in interest that is like a tax on all Americans, on all small businesses, on the entire economy, and a tax that buys us nothing of value.

A Representative from the House has said, referring to the possibility of losing our AAA rating:

I am not as worried as Moody's or anyone else as this economy gets worse ..... I don't take the premise that we're going to default on our obligations.

Quite frankly, to believe that we can ignore payments on our debts and not have serious consequences is way off the mark. If we don't hit August 2 with action and we don't get our act together by then, on August 3 we will fail to make payments, and there will be a severe impact on our national economy. No matter how we shuffle around the money, we will not have enough money to pay some of our obligations, whether it be our interest payments, Social Security checks, checks to veterans, military checks--you name it--and our credit rating will be downgraded. Already, the ratings agencies have stated as much. As Senator Schumer and others have shown very effectively, there is no way for revenues we have coming in to cover the full set of obligations we have incurred.

This cavalier attitude about the consequences of default ignores the fact that default will have an immediate impact on interest rates and could send our economy into quite a tailspin. That is the last thing families need--higher costs in the short term and perhaps a severe loss of jobs and a much deeper recession. That would put us in a hole deeper than the one we have now. It would not facilitate our path to a solution; it would hinder our path to fiscal responsibility.

I thought I would note that the impact on families is fairly direct. Most major items families buy are with loans. A three-quarters of a percentage point increase on the interest rate for Treasury bonds, which J.P. Morgan has estimated would be the minimum it would rise in default, translates into serious costs for a family.

Let me be clear. This is the best-case scenario. The consequences could be much more severe.

Let's start first with the consequences on a mortgage. The average family takes out a loan of $172,000 to buy their home, with a monthly mortgage payment of around $1,000. The expected increase in Treasury bond rates would translate into higher rates for mortgages, and it would cost the average family about $1,000 more per year. This would be on new loans. Families who have adjustable-rate mortgages based on Treasury rates would also be impacted.

Let's take a second look at credit cards. Families use credit to pay for everything from food, to gas, to prescription drugs--it is especially true during hard times such as we are in now. The median balance for an American with credit card debt was $3,300 in 2009. That means the average family with credit card debt will pay about $250 more in interest per year.

Let's turn to some of the other family expenses.

Analysts estimate that a technical default on bonds will also diminish the trading value of the dollar, maybe causing it to fall 5 percent or so against competing currencies. This would have a direct impact, and we would feel it most directly in the cost of oil. I have been arguing that we need a plan to end our dependence on overseas oil. We send $1 billion a day out of our country. That creates jobs overseas rather than here at home. But ending our dependence on overseas oil can't happen overnight, so all of the costs of that additional oil, at a different exchange rate, would be felt in the family budget.

Indeed, if there was a decline of 5 percent, the impact would be felt on food. It takes a lot of energy to power agriculture. The estimate is about $318 more per year for a family. That is a J.P. Morgan estimate.

Similarly, on utilities, we have all heard horror stories throughout the recession that families have to decide which utilities to pay first. Mothers and fathers are sitting around the kitchen table thinking, Can we get by without electricity or should we postpone the water payment or perhaps the natural gas payment? Default would make the situation worse for families, adding, at that 5 percent estimate from J.P. Morgan, about $182 more per year. Remember, this is the best-case analysis.

Gasoline at the pump is similarly affected. Taking a look at average consumption per year, families would pay about $100 more per year on gas. Again, that is the best case.

If we total these, we can see that the overall cost for a middle-class family would be on the order of about $1,850. We can round it off to about $2,000 per family. I don't know about the block you live on, but on the block I live on $2,000 is a real blow for working families.

That is just the beginning of this story because, as it unfolds, the impact on the dollar and the shock waves that would flow would very likely send us into a double-dip recession. Now, it would have an impact as of August 2 or 3 on Social Security and Medicare payments. A bipartisan committee has taken a look at it and backed up Senator Schumer's statement that there would not be enough revenue coming in to cover all of our obligations. The stock market would probably take a hit, and 401(k)s could be severely impacted. Other savings could be severely impacted. We all know how that felt in late 2008 and 2009 when families often saw their life savings wiped out in a few short weeks.

The bigger issue is jobs. Perhaps more than half a million jobs could be lost. This analysis is from the Third Way. Their estimate is 640,000 jobs. Oregon has about 1 percent of the Nation's population. This would translate into about 6,000 to 7,000 jobs in my home State. We would love to have an increase of 6,000 to 7,000 jobs in Oregon, and we would hate to see a loss of 6,000 to 7,000 jobs. I know that would extend throughout our Nation. We need more jobs, not fewer jobs.

In addition, this situation will have an impact on our debt. Contrary to what some of my colleagues have said, it will make the situation worse, not better. That is because the interest payments on the debt will go up--$1.3 trillion additional in new debt. Is that really the direction in which we want to go? Is that really good stewardship of the economy--to impose a situation in which Social Security checks might be halted and veterans might go to the mailbox and find it empty; that the bills will have to be missed, and it will put people more directly in harm's way in terms of being able to keep house payments up and avoid foreclosure in a situation where we already face a tsunami of foreclosures across this country? At a minimum, the American families will be impacted by higher costs on their homes, credit cards, essential goods--food, gas, utilities--and then with the significant possibility of hundreds of thousands of Americans losing jobs, and additional debt, not less.

It is important that we come together and have a sound deal so that we can avoid this situation. This isn't about incurring new spending, this is about paying the bills on spending decisions that were made in the past. I disagreed with a lot of those spending decisions. I disagreed that Medicare Part D should have been enacted without a way to pay for it. I disagreed with the giveaways for the best off in America, the wealthy and well-connected, when we could not afford it, which reversed the surplus into a deficit in this country. I disagreed with a strategy where we are spending $120 billion in Afghanistan and a strategy of nation building that is not the best use of national security and of our soldiers, who are there to fight for our national security. Those decisions were made in the past, and we must pay the bill on those decisions, even though I disagreed with them.

Then we need to put together a plan that takes on our deficit and our debt. That plan has to put all of the options on the table. Some of my colleagues across the aisle said: Well, we want to protect the tax spending programs, where we have tucked in tax provisions for the wealthy and well-connected. They want to defend those, and they want to cut the programs for working Americans.

That is unacceptable. We have seen an enormous increase in the disparity between the wages and welfare of our citizens in general and the best off becoming much wealthier proportionately. We can't continue to say that we are going to protect the well-connected while attacking working families. That is not the America we want to build. We want to build an America where families can thrive, provide a great foundation for their children to also thrive. That means all policies have to be on the table, all spending programs, whether in tax bills or in appropriations bills, have to be on the table, and we have to weigh them one against the other to say which is most important in creating a stronger economy, which is more valuable in strengthening the financial foundations of our families.

That is the process we must go through, and that is the process that will put us back on track. But let us not doubt for a moment that when the citizens of my State come to a townhall and say, How important is it that we get this figured out by August 2, the answer is, Very important. When they ask, Will it hurt us if we fail, the answer is, Yes, it will hurt us. We will be shooting ourselves maybe--I say in the foot, maybe worse.

This is a serious issue. We must come together, not as Democrats and Republicans but as Senators working together for the best future for the United States of America.

Mr. President, I suggest the absence of a quorum.

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