Continuing Appropriations

Floor Speech

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Mr. REED. Mr. President, we are 5 days into the government shutdown, but unfortunately there has been no progress in resolving this issue. I disagree with some policies championed by my colleagues on the other side of the aisle, and indeed I sometimes disagree with the President and Members of my own party on specific policy prescriptions. Case in point: raising the student loan interest rate and the so-called JOBS Act. In both cases I tried to make my best argument on the merits of the issue, and then we voted, moved on, and I am still working to try to improve both laws. I haven't given up, but I have not shut the government down because my views didn't prevail.

So I say to my colleagues on the other side, the way to change laws you do not like is not to shut down the government at the expense of your fellow Americans and at the expense of our economy; it is to try to build consensus and persuade a broad swath of the American people that there is a better way of doing things and making concrete proposals.

It has been pointed out many times before that the House of Representatives has attempted to repeal the Affordable Care Act 45 times at last count, I believe, but I have yet to hear any credible plan put forth to replace it or strengthen it or make it work better. And the American people want our constructive efforts to succeed. They would like it modified if it needs modification. But the attitude of some of our colleagues has been to just strip away the whole book of significant legislation--and replace it with what? We don't know. That is irresponsible.

This Senate and this Congress is a great institution. Our Founding Fathers, in their wisdom, set up a system with plenty of room for debate, different points of view, and checks and balances. But checks and balances are not what is happening today. The government has been shut down not because Congress can't agree on levels of funding. We agree. We have actually agreed with the House on their level. The real reason is that some on the other side of the aisle--and I do think it is just a small cadre--have a very different vision about the government itself. And this is not hyperbole. We can all recall that during the Republican Presidential primaries we had candidates seeing who could out-promise whom in terms of eliminating aspects of the Federal Government. They proposed getting rid of the EPA, the Commerce Department, the Department of Education, FEMA, and the Department of Energy--not reforming these agencies, not changing their missions, not making them more efficient or more effective, but just doing away with them--and that spirit is animated in the House today, unfortunately.

I am particularly glad that view did not prevail in the last election because these agencies are vital to all Americans. Looking back at Rhode Island, we were victims of serious historic flooding over the last several years. If FEMA had not been there to step in and help us, we would still be trying to pull ourselves together. As a small State, like Connecticut and other States, we do not have the resources to do it. We saw the same thing with Hurricane Sandy. They were there helping efficiently and effectively. And that is one of the agencies my colleagues are not allowing to operate today.

Many small business men and women in my community, manufacturers, et cetera, have been aided immensely by the Department of Commerce. That is something else that was on the hit list during the Presidential primaries by Republican candidates.

Those of us who enjoy clean water, fresh air, and the importance of a healthy environment--i.e., every American--even if they do not notice it or admit it, their health and the health of their children would be jeopardized severely if EPA was eliminated. There are calls repeatedly to make it more efficient, more effective, make it more businesslike, and those calls have to be recognized and heeded. But the notion that we would just wipe it away and the private markets or private self-interests would ensure that our air is clean, that our water is clean, and that our health is protected is not something that is either realistic or, indeed, even something that is arguable.

There is room in this country for a range of views, and I recognize that many of my colleagues, who consider themselves members of the tea party, are simply doing their best to represent the views of those who sent them here. But I would hope everyone who has been entrusted with the responsibility of government could work together to at least make the government function--i.e., to stay open. That is a basic responsibility our constituents entrusted us with when they sent us to Washington.

There is nothing patriotic about shutting down the government, putting hundreds of thousands of people out of work, and potentially forcing our country into default. And the hundreds of thousands out of work are not just government employees. As my colleague from Connecticut pointed out, now defense contractors are beginning to furlough. These industries are the heart and soul of so many communities. When these jobs are lost, there is a multiplier effect, which affects the entire community. And this cascading series of economic problems will get worse each day we keep this government closed.

Both sides need to work together, but we have already significantly compromised on our side. Again, as the Senator from Connecticut pointed out, we are voting for a continuing resolution at the House level, not our level--a multibillion-dollar gap. We have accepted that. At least for the interim period, the 6 weeks or so of this continuing resolution, we accept the House's position. And of course, for many of us who have been arguing vociferously to end this sequestration, to increase investment, this was a significant compromise. We are not seeing that reciprocated on the other side; it is ``my way or the highway,''--stop ObamaCare or nothing gets done, Government doesn't work, and we will default on our credit.

That is reckless, irresponsible, and does not serve the interest of those who sent us here.

It is time for those who are proposing the wild plans of shutting down the government if they don't get exactly what they want to grasp the reality of the situation. We cannot keep this government closed. This closure will last as long as Speaker Boehner wants it to. He can, under the rules of the House, call up this bill within hours--perhaps less--or Republicans can join Democrats and sign a discharge petition to bring it to the floor regardless of the Speaker's position. Those are two paths that should be taken immediately to open this government.

We all have a shared responsibility for the government. As I sense it, one of the basic rationales of this government is to keep the lights on, keep people working. Let's get to the difficult negotiations on how we improve efficiency, how we improve operations, but we have a responsibility to keep our government open--to open it and then keep it open--and the longer this shutdown drags on, the more people will be affected. Cancer patients, young mothers, scientific researchers, Federal employees, people who take prescription drugs all are being negatively impacted. Government contractors are being laid off.

Let's work together and reopen the government for business. Let's continue to debate the issues. We have many issues we can debate but not under the sword of Damocles--of a government that is closed and an economy that is beginning to lose more and more of its momentum and strength. That harms the American people irresponsibly and recklessly for a very narrow self-interested principle.

There is another aspect here too. It is not just the government shutdown, but we are coming perilously close to a potential default on the debt of the United States. The government closure is affecting our economy dramatically, but a default on our debt could be catastrophic. There is a growing risk that this brinkmanship on the part of the Republican Party could force us to default. We are only 12 days away from a potential default because the tea party Republicans would rather play their games over the Affordable Care Act, ObamaCare, than choose to do what we have always done--pay our bills.

This is not about borrowing more money to spend more. This is about paying for those things we agreed on--Republicans and Democrats--through congressional appropriations, through legislation creating programs such as Medicare and Medicaid and Social Security.

These are obligations we have incurred, and we won't be able to pay all of them. Indeed, on October 17, unless my Republican colleagues end their obstruction, the Nation will not be able to pay its bills, causing dire consequences for American workers and our economy.

Many commentators have pointed out a default will destabilize the national and global economy. It could cause another financial crisis and over the span of a month cause an estimated $106 billion shortfall of Federal spending that would cause a severe economic contraction.

If we can't pay our debts, then we will contract federal activity. That contraction will be multiplied in the economy. Our economic growth will slow. In fact, not only decelerate, it could collapse. Ironically, one aspect of that is it will almost overnight increase our deficit as less economic activity produces less revenue, there are more people who are laid off and eligible for unemployment insurance. It is a downward spiral.

Economists on both sides agree that it is just the specter of default that has serious economic consequences. In fact, we have already seen the 1-month interest rate of Treasuries jump over the 6-month and the year-long rates. The markets are already voting. They are nervous. They are nervous that the Republicans will carry out these threats, and you can see it in what they are demanding in order to buy the short-term paper of the United States versus the longer term paper.

We just have to look back at August 2011 to know there will be consequences. Back then, Republicans pushed us perilously close to defaulting on the debt, and that manufactured crisis set back job growth and the economy. The Government Accountability Office estimated that the 2011 debt ceiling crisis cost taxpayers $1.3 billion in that fiscal year. It also rattled American households and created economic uncertainty. From June to August 2011, consumer confidence fell 22 percent. And I suspect that if this debate--particularly with respect to the debt ceiling--continues to pick up over the next few days, American consumers will become more and more nervous.

It took several months after August 2011 for the recovery of consumer confidence, for people to come back into the marketplace to begin to participate. The S&P index of equity prices fell about 17 percent in that period surrounding the 2011 debt ceiling crisis, and it did not recover to its average over the first half of year until 2012. So we are going to see a market effect. We know that. That was August 2011, and indeed I am concerned that this crisis is even more perilous because the opposition seems to be more intransigent. Those people are saying there won't be any consequences to default or repeal of ObamaCare is more important than anything else, even the economic well-being of the United States.

Roughly half of U.S. households own stock either directly or indirectly through mutual funds or 401(k) accounts. So this fall in equity markets, which we saw in 2011, will cut across a wide swath of the American public. We saw in 2011, the result of the approaching deadline and debate over whether or not pass the debt ceiling, wiped out about $2.4 trillion of household wealth. This decline in wealth leads to a decline in consumption, and consumer spending accounts for roughly 70 percent of our gross domestic product. So put the links together: People are nervous. They pull back. The economy pulls back. Growth begins to decelerate, in fact reaching zero--or worse. That is demonstrably the effect in some degree from what happened in August 2011, and would likely happen again--in fact, this time, perhaps worse.

Already we are starting to see some of the warning signs. We are seeing banking institutions prepare for the worst. According to the Financial Times, on October 3, 2013:

One senior executive said his bank was delivering 20-30 percent more cash than usual in case panicked customers tried to withdraw funds en masse. The move to source extra cash is a precaution to deal with an unnecessary upturn in demand, banks said. ..... Banks are also holding daily emergency meetings to discuss other steps, including possible free overdrafts for customers reliant on social security payments from the government.

But this potential consumer dash for cash is only the tip of the iceberg when it comes to entirely avoidable self-inflicted economic wounds if we get close to--and certainly if we do not raise the debt ceiling, and default.

According to The Economist, the noted British magazine, Treasuries are ``more than 30 percent of the collateral that financial institutions such as investor banks use to borrow in the $2 trillion triparty repo market.'' That is the source of overnight funding for most large financial institutions and many other institutions. ``A default could trigger demands by lenders for more or different collateral. That might cause a financial heart attack, like the one prompted by the collapse of Lehman Brothers in 2008.''

We are just barely understanding the inner relationships of all these different financial instruments and financial markets. But this is not the only financial instrument that could be affected. Money market funds are a prime source of investment by thousands of Americans--both institutions and individuals. According to the Federal Reserve's September 25, 2013 Statistical Release on the Financial Accounts of the United States, money market funds in the second quarter of 2013 hold $449 billion of U.S. Treasuries.

Back in 2011, Matthew E. Zames, the chief operating officer for JPMorgan Chase and the chair of the Treasury Borrowing Advisory Committee--which offers observations to the Treasury Department on the overall strength of the U.S. economy as well as providing recommendations on a variety of technical debt management issues--wrote to at that time Secretary Geithner and expressed concern of:

..... a run on money market funds, as was the case in September 2008 after the Lehman failure. In the event of a Treasury default, I think it is likely that at least one fund would be forced to halt redemptions or conceivably break the bruck. Since money funds investors are primarily focused on overnight liquidity, even a single fund halting redemptions would likely cause a broader run on money funds.

And from the same 2011 treasury borrowing advisory committee letter:

Because Treasuries have historically been viewed as the world's safest asset, they are the most widely-used collateral in the world and underpin large parts of the markets. A default could trigger a wave of margin calls and a widening of haircuts on collateral, which in turn could lead to deleveraging and a sharp drop in lending.

What this is saying, essentially--not just in the United States but worldwide--this could have a huge, immediate, unpredictable global effect on markets, causing deleveraging, causing a sharp drop in lending, causing confusion and uncertainty. One thing we should recognize, particularly after the events of 2008, is markets do not like uncertainty. And when things are uncertain, they pull back. If the expectation is a declining market, there is a premium to the institution or individual that can get out first. When they start getting out, people notice, and then you have a stampede to the door.

The consequences that are possible are staggering, and yet we hear so many of our colleagues glibly sort of saying that, if they don't get our way on certain aspects of this bill or that bill, they are going to default on the debt of the United States. I think that approach is very, very dangerous.

We are seeing already some indications from financial markets that these factors are beginning to affect economic behavior. Again from the Financial Times, October 3:

Money market funds dumped October Treasury bills on Thursday, in the first sign of investor unease that Washington may not raise the federal debt ceiling in the coming weeks and risk triggering a technical default by the US Treasury on its debt.

From the Institute of International Finance this month, a well-respected organization:

Just when the global economy is showing signs of stabilization, with Europe emerging from recession, and geopolitical risks in the Middle East seem to be subsiding, consumer and investor confidence could be tested by a range of political and policy uncertainties ..... What is truly unprecedented is a possible, but still unlikely--

And I hope that is the case, unlikely--

combination of government shutdown and failure to lift the current $16.7 trillion debt ceiling by October 17. The impact of such a failure of political leadership on business, consumer and investor confidence is difficult to say and could lead to further downgrades of the U.S. sovereign debt. Reflecting rising credit risks, 5-year CDS spreads for the U.S. have risen by 45 percent in the past 3 weeks to 33 basis points and could test, or exceed, the previous high of 62 basis points reached during the previous threat of default in 2011.

That is an indication the market is getting very nervous about what we are doing. These rising rates are not good for the United States. They mean the market is beginning to look at the default as possible and the risk is being written into the instruments that they are providing in terms of insurance, if you will, on U.S. Treasurys and other securities.

On October 17, the extraordinary security measures the Department of Treasury has had to employ since May 19 will be exhausted. The Treasury Secretary told us that. On that date, Treasury will have approximately, in their view, $30 billion on hand to meet the government's daily expenditures which can be as high as $60 billion. That $60 billion represents payments for the Nation's bills on things such as Social Security, Medicare, national defense, and education.

However, some tea party Republicans have decided to dismiss this issue and say they are planning to limit the fallout. That they should not be blamed for it because they have a plan in case of default. They call for, what they argue is prioritization, where some of the U.S. bills are paid and others are not. But their plan for prioritization is just another version of default. Indeed, the House-passed legislation that would prioritize payments. However, in a letter to Speaker Boehner, the Department of Treasury made clear prioritizing payments ``would not protect the full faith and credit of the United States'' and that prioritization is ``simply default by another name.''

It is shocking to witness the lengths some of my colleagues on the other side of the aisle are willing to go in order to win political points and gain negotiating leverage. They are threatening the economic well-being of every American by refusing to do something, at least at this point, as essential as paying the Nation's bills. Paying the Nation's bills should be a routine matter. There is no alternative. Congress has always done so. Since 1960, Congress has acted to prevent a default on the debt 78 times, 49 of which were under Republican Presidents.

Indeed, President Reagan said in 1983 that ``the full consequences of default--or even the serious prospect of default--by the United States are impossible to predict and awesome to contemplate.''

Regrettably, because of some colleagues, particularly colleagues in the House of Representatives, there is a serious prospect of default, something President Reagan warned us against.

He also, I think quite rightly, pointed out the consequences are impossible to predict. The markets, frankly, are much more complicated, much more interrelated, much more driven by technology today than in 1983. Automated computerized trading was not a common feature of markets in 1983. Today it is. Today, algorithms have programs that look for declines in products and then begin to sell it's not an individual broker who says: Listen, I know this is going to be worked out in a couple of hours. It is a machine and we have seen these machines go haywire. There is a real possibility that initial reaction to a technical default on the debt could trigger some of this trading in a way that even the people who built these elaborate algorithms do not fully understand.

This is very serious, more serious today than in 1983. But President Reagan's words were prescient then and decisive then and right then and they are the same today.

This should not be a negotiating chip. Speaker Boehner's threat to default in order to extract dollar-for-dollar cuts to programs, to make changes in this program or that program, is risking the economic viability of the United States and indeed the world's financial condition.

Also, the Speaker suggested we have always done it this way. He said every major effort to deal with the deficit in the past years has been tied with the debt limit. That is not supported by the facts. Over the past 30 years, 77 percent of laws passed by Congress to pay for spending already accrued were not statutorily linked to deficit reductions or budget reforms; 77 percent were simply done because we have to extend the debt ceiling. We will do it. We always have.

Furthermore, several of the deficit reduction measures identified by Speaker Boehner as tied to paying our Nation's bills included significant new revenue. According to U.S. Treasury estimates, the Omnibus Budget Reconciliation Act of 1990 raised $126.6 billion over 4 years and the Omnibus Budget Reconciliation Act of 1993 raised $188 billion in new revenue over 4 years.

I do not see the Speaker coming up and saying we have a plan. We are going to make adjustments here on the spending side and on the revenue side and then we are going to tie it to the debt ceiling. No. In fact, this discussion of revenue increases or revenue positions, spending cuts, all of this is not appropriate to the debt ceiling discussion. It is appropriate for the conference on the budget. We have had a budget in the Senate since March and we have been prevented from going to conference with the House Republicans by Republican Members in the Senate.

There is a bipartisan demand, many of my colleagues on the Republican side have asked, suggested we go to conference. That is the appropriate way to deal with this--not threaten the world and the American people with default on our debts but doing a budget in regular order, taking up the budget, talking about revenues, talking about changes to programs, talking about continued efforts to reduce our deficit, talking about growing the economy. That ultimately is the best way to reduce the deficit.

You cannot expect, as the Speaker implied by citing budget reforms tied to the debt ceiling, which contained revenue, that Republicans are serious. That is not going to be the case from what I sense from the other side.

We have a real challenge before us. The challenge is that there seems to be this blase altitude in some respects, particularly in the House, among certain of their Members that: So what if we default. Other countries have defaulted. We saw something like it in Greece.

But Greece, for example--it is very difficult to compare the two economies. I do not want to suggest that our experience will mimic their experience. It is a much smaller economy. It does not have an independent currency. It is tied to the euro. But their debt in 2012 was basically challenged. While the intent of restructuring was to avoid default that would require payment of credit default swaps on Greek debt, the International Swaps and Derivatives Association in 2012 determined that they had technically defaulted on their sovereign debt. This would trigger credit default swaps being called. One estimate of the net notional value of the Greek credit default swap outstanding at the time was about $3.2 billion, but in that economy it was a significant number and according to a Forbes article on March 9, 2012:

While no one expects the Greek settlement to have systemic implications, it does set the precedent for any subsequent restructurings, which could take on added importance if big, troubled peripherals like Spain or Italy take a turn for the worse.

The Greek situation is not identical to ours. In fact, because of the size of our economy, because of the ubiquity of U.S. Treasurys across the globe, in so many different instruments, in so many different institutions, a default could be much worse. But the Greek example does demonstrate there are consequences to default.

The Wall Street Journal on September 7 2013 pointed out:

..... since tipping into recession in 2008, Greece's economy has shrunk more than 20 percent from its peak while successive waves of austerity measures since the start of the Greek debt crisis in 2009 have helped push tens of thousands of businesses into bankruptcy and sent unemployment to a record of around 27 percent.

The Pew Center reports that unemployment among young Greeks under 25 years old skyrocketed to 62 percent in June, 2013.

Austerity in some respects is another word for contracting government spending--contracting government engagement in the economy. This shutdown is essentially a miniausterity program for the last 5 days because we have contracted government contributions to the economy. Hundreds of thousands of Federal workers furloughed, additional private sector contractees furloughed, extraordinary measures taken to shut down the government. These measures will lead inevitably to the contraction we have seen in other places.

Holding the full faith and credit of the United States hostage to appease a handful of irresponsible and reckless House members who are fighting battles that have been lost several times is not what our democracy is about.

I urge immediate action to get our government up and running again and our bills paid. Then we can focus on a more pressing need--creating jobs, opportunity, and prosperity for families in my State of Rhode Island and across this Nation.

With that, I yield the floor.

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