[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


                  UNCERTAIN DEBT MANAGEMENT: TREASURY
                   MARKETS AND FINANCIAL INSTITUTIONS

=======================================================================

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
                          AND MONETARY POLICY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION
                              __________

                              JUNE 6, 2023
                              __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 118-28
                           
                           
                  [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
                  
                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE
                    
52-940 PDF                WASHINGTON : 2023                    

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

               PATRICK McHENRY, North Carolina, Chairman

FRANK D. LUCAS, Oklahoma             MAXINE WATERS, California, Ranking 
PETE SESSIONS, Texas                     Member
BILL POSEY, Florida                  NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
ANN WAGNER, Missouri                 DAVID SCOTT, Georgia
ANDY BARR, Kentucky                  STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas                AL GREEN, Texas
FRENCH HILL, Arkansas                EMANUEL CLEAVER, Missouri
TOM EMMER, Minnesota                 JIM A. HIMES, Connecticut
BARRY LOUDERMILK, Georgia            BILL FOSTER, Illinois
ALEXANDER X. MOONEY, West Virginia   JOYCE BEATTY, Ohio
WARREN DAVIDSON, Ohio                JUAN VARGAS, California
JOHN ROSE, Tennessee                 JOSH GOTTHEIMER, New Jersey
BRYAN STEIL, Wisconsin               VICENTE GONZALEZ, Texas
WILLIAM TIMMONS, South Carolina      SEAN CASTEN, Illinois
RALPH NORMAN, South Carolina         AYANNA PRESSLEY, Massachusetts
DAN MEUSER, Pennsylvania             STEVEN HORSFORD, Nevada
SCOTT FITZGERALD, Wisconsin          RASHIDA TLAIB, Michigan
ANDREW GARBARINO, New York           RITCHIE TORRES, New York
YOUNG KIM, California                SYLVIA GARCIA, Texas
BYRON DONALDS, Florida               NIKEMA WILLIAMS, Georgia
MIKE FLOOD, Nebraska                 WILEY NICKEL, North Carolina
MIKE LAWLER, New York                BRITTANY PETTERSEN, Colorado
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee

                     Matt Hoffmann, Staff Director
       Subcommittee on Financial Institutions and Monetary Policy

                     ANDY BARR, Kentucky, Chairman

BILL POSEY, Florida                  BILL FOSTER, Illinois, Ranking 
BLAINE LUETKEMEYER, Missouri             Member
ROGER WILLIAMS, Texas                NYDIA M. VELAZQUEZ, New York
BARRY LOUDERMILK, Georgia            BRAD SHERMAN, California
JOHN ROSE, Tennessee                 GREGORY W. MEEKS, New York
WILLIAM TIMMONS, South Carolina      DAVID SCOTT, Georgia
RALPH NORMAN, South Carolina         AL GREEN, Texas
SCOTT FITZGERALD, Wisconsin          JOYCE BEATTY, Ohio
YOUNG KIM, California                JUAN VARGAS, California
BYRON DONALDS, Florida               SEAN CASTEN, Illinois
MONICA DE LA CRUZ, Texas             AYANNA PRESSLEY, Massachusetts
ANDY OGLES, Tennessee
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 6, 2023.................................................     1
Appendix:
    June 6, 2023.................................................    37

                               WITNESSES
                         Tuesday, June 6, 2023

Arkin, Jeff, Director, Strategic Issues, U.S. Government 
  Accountability Office (GAO)....................................     6
Driessen, Grant A., Specialist in Public Finance, Congressional 
  Research Service (CRS).........................................     4

                                APPENDIX

Prepared statements:
    Arkin, Jeff..................................................    38
    Driessen, Grant A............................................    50

 
                       UNCERTAIN DEBT MANAGEMENT:
                          TREASURY MARKETS AND
                         FINANCIAL INSTITUTIONS

                              ----------                              


                         Tuesday, June 6, 2023

             U.S. House of Representatives,
             Subcommittee on Financial Institutions
                               and Monetary Policy,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:04 a.m., in 
room 2128, Rayburn House Office Building, Hon. Andy Barr 
[chairman of the subcommittee] presiding.
    Members present: Representatives Barr, Posey, Luetkemeyer, 
Loudermilk, Rose, Timmons, Norman, Fitzgerald, Kim, Donalds, De 
La Cruz, Ogles; Foster, Velazquez, Sherman, Green, Beatty, 
Vargas, and Casten.
    Ex officio present: Representative Waters.
    Chairman Barr. The Subcommittee on Financial Institutions 
and Monetary Policy will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time.
    Today's hearing is entitled, ``Uncertain Debt Management: 
Treasury Markets and Financial Institutions.''
    I now recognize myself for 5 minutes to give an opening 
statement.
    Thank you to our witnesses for joining us today in the 
Financial Institutions and Monetary Policy Subcommittee to 
discuss Treasury markets and debt management. Markets for 
Treasury securities are integral to the functioning of 
financial institutions and the products they provide. Trillions 
of dollars in Treasuries trades occur each day in the private 
sector and with the Federal Reserve through purchases, sales, 
repurchase agreements, securities lending, and more. Those 
trades help support the provision of financial services, and 
they depend on a highly-liquid, deep, and stable market for 
various types of Treasury trades.
    Stability in markets for transactions involving Treasury 
securities has been at risk at various times, and Treasury 
security holdings of financial institutions recently came to 
the forefront in the form of bank runs and failures. The rapid 
escalation of interest rates engineered by the Federal Reserve, 
following a prolonged period of near-zero short-term interest 
rates, placed many Treasury security holdings underwater and 
markable to a loss at current market prices. That was at the 
heart of the failure of Silicon Valley Bank and subsequent 
banking system instability. Instability in the markets for 
Treasury securities also began to arise given uncertainty 
surrounding the recent debt limit negotiations and our approach 
to a breach of the statutory debt limit.
    Today's hearing is what I intend will be the first of 
several hearings exploring the markets for Treasuries, given 
the importance of those markets to financial institutions and 
the provision of financial services. During the debt limit 
debate, as was the case in prior debates when we got close to 
default, information from the Treasury Department, which is 
charged with debt management responsibilities, was crucial. 
Yet, in trying to discern what was going on with respect to so-
called extraordinary measures, which have become ordinary, and 
about the so called, ``X-date,'' Treasury was not as 
transparent as it could have been.
    In deciding something as important as a limit on Federal 
debt that now stands close to $31.5 trillion, full information 
is necessary. Unfortunately, information is warehoused at the 
Treasury and sometimes kept behind closed doors, with the 
Treasury Secretary able to decide what information to provide 
and when to provide it, whenever the Secretary wants to reveal 
that information. That invites politics to enter into what the 
Treasury Department will tell Congress and the American people 
about the debt, how much cash is in the till, and how long the 
nation can stave off default.
    Only the Treasury Department knows best how long 
extraordinary measures are projected to last before we default. 
Only the Treasury knows best what the so-called projected X-
date is, which is the date of default. Only the Treasury knows 
best how much cash it projects will be in the pockets of the 
American peoples' till as we approach running out of cash to 
honor Treasury obligations. Only the Treasury, the Federal 
Reserve, the Federal Reserve Bank of New York, and the 
Administration know what contingency plans are in place to deal 
with an inability to make timely payments on Treasury 
securities and other Federal obligations.
    To be clear, such contingency plans are necessary because 
an inability of the Federal Government to make timely payments 
can arise from a debt limit impasse, but also from adversities 
such as a cyber-attacked system failure, natural disasters, or 
terrorist attacks. I have provided today discussion drafts of 
bills that address these issues, aimed at additional 
information provision and transparency for the American people 
and for the Congress about Treasury debt management and 
surrounding issues.
    Today's discussion with experts from the Government 
Accountability Office (GAO) and the Congressional Research 
Service (CRS), who have studied the debt limit and surrounding 
debt management issues, will help us discuss how to allow the 
American people and Congress to be better-informed about 
Federal debt management, and will provide information about our 
nation's fiscal health.
    The Chair now recognizes the ranking member of the 
subcommittee, the gentleman from Illinois, Dr. Foster, for 4 
minutes for an opening statement.
    Mr. Foster. Thank you, Chairman Barr, and thank you to all 
of our witnesses today. Recently in the news and noticed by a 
lot of people was this loud noise coming from what was widely 
attributed to be a sonic boom from some fighter jet scrambling. 
However, upon closer examination, it appears that this was 
actually the sound of the debt ceiling being lifted over the 
weekend.
    But there is a serious purpose here in this discussion, and 
I found a very insightful book entitled, ``Why Nations Fail.'' 
What it identified in country after country throughout history 
is that the failure of nations comes about through the 
development of what the authors called an, ``extractive 
elite,'' which is a group of people who capture the wealth of a 
country, use that wealth to capture the political power in the 
country, and use that political power to retain their wealth 
and to pass it down through generations. And a country that has 
been captured this way then ceases policies being adopted that 
are not in the long-term best interest or, in fact, are against 
the best interest of the country. That is really what is going 
on in this discussion today.
    Yesterday, I had the honor of being visited by a member of 
the German parliament, and I asked him, how do you deal with 
budget negotiations that don't converge? Do you have a 
mechanism like the debt ceiling? Because, frankly, we are 
almost alone in the world in having this debt limit. And he 
was, first off, very perplexed and worried, and wondered why we 
did this, not only to ourselves, but to the whole world 
economy, putting it at risk. But his answer to the question 
was, ``When we negotiate budgets, we agree on when the budget 
should be prepared and we stick to that schedule.'' I guess you 
can do that in Germany, but it doesn't seem to work in the 
United States.
    There are a variety of mechanisms, and one of my favorite 
ones is in Israel, where, if the majority has not passed a 
budget by a certain date, there are snap elections, and I think 
if we had such a rule in the United States, that would get 
Congress' attention. And maybe we would actually solve this 
problem where it should be solved, at the level of budget 
negotiations, and not by this artificial rule we made up for 
ourselves about the debt limit.
    I must confess that I am a little bit perplexed by the 
subject of today's hearing. We are talking about how the 
Treasury Department handles the brinksmanship surrounding the 
debt limit and the details of the X-date and so on. This is a 
calculation that is only necessary in the United States and 
only because we have made up this, frankly, frivolous rule and 
dangerous rule for ourselves, that, by the way, has proven to 
be completely ineffective at actually reducing the national 
debt.
    And I think we should also understand the situation that 
really drives this. We know it is often referred to the fact 
that we have a spending problem in the United States, but, in 
fact, both parties agree we shouldn't default on the national 
debt, and both parties agree that the uncontrolled national 
debt is a danger at some point. But what we don't see is the 
fact that there are two ways to handle this.
    As a scientist, I am always sort of a little bit annoyed 
when people take the ratio of two numbers which are not in the 
same units, like comparing apples to horsepower or something 
like that. It makes no sense, and when comparing debt-to-gross-
domestic-product (GDP), it actually makes no sense. Debt is in 
units of dollars, and GDP is in units of payment, dollars per 
minute, or a year, or shift, and so it makes no sense to 
compare them directly.
    However, if you compare debt to wealth, you get interesting 
numbers. The debt in the United States' publicly-held debt is 
roughly $25 trillion, a significant amount. The wealth of the 
United States is $140 trillion, the household net worth, so we 
are very far from bankrupt as a country, and as a result, this 
whole exercise we go through is a gigantic waste of everyone's 
time.
    Thank you. I yield back.
    Chairman Barr. The gentleman yields back. The Chair now 
recognizes the ranking member of the full Financial Services 
Committee, the gentlewoman from California, Ms. Waters, for 1 
minute.
    Ms. Waters. Thank you very much, Chairman Barr. Four months 
ago, I wrote to Chairman McHenry requesting that you hold a 
hearing on the harmful and potentially-catastrophic 
consequences of the brinksmanship that Republicans were 
engaging in with regard to the debt ceiling. Instead of holding 
that hearing in a timely manner, we are holding this hearing 
focused on criticizing Treasury's debt management.
    And instead of working to ensure this kind of brinksmanship 
over the debt ceiling never threatens our economy again, 
Republicans are using this hearing to consider bills to 
deregulate banks and undermine the Federal Reserve's funding, 
without regulatory experts who can discuss them. Republican 
threats to drive our economy up a cliff would have done real 
and quantifiable harm to our economy, even though we averted a 
default, thanks to President Biden's leadership. Let's focus on 
learning from this and never allowing such reckless 
brinksmanship to ever occur again. I yield back.
    Chairman Barr. The gentlelady yields back.
    Today, we welcome the testimony of Mr. Grant Driessen, a 
Specialist in Public Finance at the Congressional Research 
Service (CRS); and Mr. Jeff Arkin, the Director of Strategic 
Issues at the Government Accountability Office (GAO). We thank 
each of you for taking the time to be here. Each of you will be 
recognized for 5 minutes to give an oral presentation of your 
testimony. And without objection, each of your written 
statements will be made a part of the record.
    Mr. Driessen, you are now recognized for 5 minutes for your 
oral remarks.

 STATEMENT OF GRANT A. DRIESSEN, SPECIALIST IN PUBLIC FINANCE, 
              CONGRESSIONAL RESEARCH SERVICE (CRS)

    Mr. Driessen. Chairman Barr, Ranking Member Foster, and 
members of the subcommittee, my name is Grant Driessen, and I 
am a Specialist in Public Finance at the Congressional Research 
Service. Thank you for inviting me today to testify on behalf 
of CRS. As requested, I will provide a brief summary of 
extraordinary measures that may be used to delay a binding debt 
limit, discuss factors that influence when extraordinary 
measures will be exhausted, referred to as the X-date, and 
touch on possible economic effects of an anticipated or actual 
binding debt limit.
    As part of its Constitutional power of the purse, Congress 
uses the statutory debt limit as a means of restricting Federal 
debt. Extraordinary measures represent a series of actions used 
to extend the time before a Federal debt limit binds, and 
authority for their use rests with the Treasury Secretary. 
Extraordinary measures have been regularly invoked in recent 
years and have delayed a binding debt limit by periods ranging 
from a few weeks to several months. Ultimately, accounts and 
members of the public that are affected by extraordinary 
measures must be compensated for the delay in payment that 
results from such actions when the debt limit is subsequently 
modified.
    Extraordinary measures implemented in 2023 were generally 
consistent with other recent experiences and included the 
following: one, suspension of reinvestment in the G Fund of the 
Federal Employees' Retirement System (FERS), which was 
estimated to add $294 billion in headroom or fiscal space below 
the limit; two, suspension of invested balances in the Exchange 
Stabilization Fund, which was estimated to add $17 billion in 
headroom; three, declaration of a debt issuance suspension 
period, which was estimated to add about $8 billion in headroom 
per month, and would have added as a one-time measure $143 
billion in headroom if extraordinary measures had been active 
on June 30, 2023; four, suspension of State and local 
government securities, which was estimated to add no headroom 
to prevent further debt increases by approximately $6 billion 
per month; and five, exchanging Treasury securities for 
obligations in the Federal Financing Bank, which was estimated 
to add about $2 billion in headroom.
    The length of time between implementation of extraordinary 
measures and the projected X-date is a function of several 
factors, including the projected Federal deficit, amount of 
cash on hand in Treasury's general account, the timing of 
Federal receipts, and the timing of Federal outlays. All else 
being equal, higher net Federal deficits will lead to faster 
increases in debt subject to limit. There is also substantial 
variation in Federal budget outcomes across months, weeks, and 
days, which can make exact X-dates difficult to project, even 
as extraordinary measures are nearly exhausted.
    When extraordinary measures were implemented in January 
2023, initial estimates from a variety of sources generally 
projected an X-date between July and September of this year. 
Those projections also identified April, when many individual 
income tax returns are filed, and early June, when certain 
large payments take place, as periods of uncertainty in 
determining when the X-date will ultimately fall. April tax 
receipts were lower than expected and led to updates in early 
May, projecting an X-date in early June. In late May, Treasury 
further updated their X-date projection to June 5, 2023.
    The Federal Government has never failed to enact a debt 
limit modification before a debt limit binds. Economic theory 
and evidence from recent debt limit activity indicates that the 
effects of an anticipated binding debt limit or actual binding 
debt limit could include the direct effect of late or missed 
Federal payments on Federal borrowing costs, financial market 
effects, both in Federal security and other lending markets, 
and in market transactions where Federal securities play a 
prominent role, and indirect effects on borrowing and general 
economic confidence from households, businesses, and other 
governments.
    Thank you for the opportunity to testify today. I look 
forward to any questions that you may have.
    [The prepared statement of Mr. Driessen can be found on 
page 50 of the appendix.]
    Chairman Barr. Thank you.
    Mr. Arkin, you are now recognized for 5 minutes to give 
your oral testimony.

   STATEMENT OF JEFF ARKIN, DIRECTOR, STRATEGIC ISSUES, U.S. 
             GOVERNMENT ACCOUNTABILITY OFFICE (GAO)

    Mr. Arkin. Chairman Barr, Ranking Member Foster, and 
members of the subcommittee, thank you for inviting me here 
today to testify. My remarks today will cover the nation's 
long-term fiscal health, the impact of debt limit impasses, and 
potential actions that Congress could consider to address 
challenges that arise with both.
    Last month, GAO issued our seventh annual report on, ``The 
Nation's Fiscal Health,'' which examines the current fiscal 
condition of the Federal Government and its future fiscal path. 
Our central finding is unchanged from prior years: The Federal 
Government faces an unsustainable fiscal future as debt held by 
the public is projected to grow faster than the economy.
    For most of the nation's history, publicly-held debt as a 
share of gross domestic product, or GDP, has increased during 
wartime and recessions, but has decreased during peace time and 
economic expansion. Recently, this pattern has changed. 
Publicly-held debt as a share of GDP grew during 3 of the last 
4 economic expansions, and the level of publicly-held debt is 
projected to reach our historical high of 106 percent of GDP 
within 10 years, and reach 200 percent of GDP within 30 years, 
absent any changes to revenue and spending policy.
    Our growing debt is a consequence of borrowing to finance 
increasingly-large budget deficits, which occur when spending 
exceeds revenue. The Federal Government has run a deficit each 
year since 2002. Over the long term, deficits are projected to 
grow. As expected, revenues failed to keep pace with expected 
growth in program spending, particularly for Social Security 
and Federal healthcare programs, like Medicare. Likewise, that 
interest spending, which primarily represents the Federal 
Government's cost to service its debt, is projected to increase 
steadily over the next 30 years, further contributing to budget 
deficits.
    Debt limit impasses pose additional risks to our fiscal 
outlook. A failure to raise or suspend the debt limit could 
force Treasury to delay payments on maturing securities and 
interest. This would constitute a default, which could have 
devastating effects on U.S. and global economies as well as the 
public. Our work has shown that even without a default, a debt 
limit impasse can be costly. Uncertainty surrounding raising or 
suspending the debt limit disrupts financial markets and may 
cause investors to require higher interest rates to hedge 
against increased risks. Higher interest rates in turn increase 
Treasury's borrowing costs.
    In terms of actions that Congress can take to meet these 
challenges, one thing that GAO suggested is for Congress to 
develop a plan to address the country's long-term fiscal 
outlook and promote fiscal sustainability where debt-to-GDP 
ratio is either stable or declining over the long term. Part of 
such a plan could include considering alternative approaches to 
the debt limit. One example that we have identified is linking 
action on the debt limit to the budget resolution. This 
alternative would maintain congressional control and oversight 
of Federal borrowing and better align decisions about the level 
of debt with decisions on revenue and spending at the time 
those decisions are made.
    Another type of alternative to the debt limit would be to 
adopt fiscal rules which cannot help manage debt by controlling 
factors, such as revenue and spending, to meet a specific 
deficit or debt-to-GDP target. Enacting the changes to fiscal 
policy needed to achieve a sustainable debt-to-GDP target may 
require difficult decisions. For example, just to keep our 
debt-to-GDP ratio around the level that it has been over recent 
years, over the longer term, will require substantial increases 
in revenue, substantial decreases in annual program spending, 
or some combination of the two.
    Chairman Barr, Ranking Member Foster, and members of the 
subcommittee, this concludes my prepared remarks, and I look 
forward to any questions you may have.
    [The prepared statement of Mr. Arkin can be found on page 
38 of the appendix.]
    Chairman Barr. Thank you to both of you for your testimony. 
We will now turn to Member questions. The Chair now recognizes 
himself for 5 minutes for questioning.
    The Federal Reserve failed to acknowledge the impact of 
runaway fiscal spending and insisted that inflation was 
transitory for far too long. Due to this failure, the Fed had 
to raise rates at the fastest pace in modern history, 500 basis 
points in only 14 months. Had the Fed began to tighten monetary 
policy earlier, they could have done so at a more gradual pace 
with a lower terminal rate, avoiding the precipitous pace of 
rate hikes we saw and the resulting increased volatility in the 
Treasury market and the banking system.
    Can either of you please discuss how the recent changes in 
monetary policy, compounded with the Fed's decision to operate 
at near-zero interest rates for far too long, impacted the 
Treasury market, and how does Treasury selling at a loss for 
many institutions in our financial system affect the safety and 
soundness of the system as a whole?
    Mr. Driessen. I can maybe provide a limited answer. My 
research is really more focused on fiscal policy, and 
certainly, fiscal policy and monetary policy are not entirely 
independent of one another. And as Mr. Arkin mentioned, 
interest rates are something that really determines our net 
interest cost, and that is a huge factor in the future of 
Federal budgeting. But kind of outside of that, I don't think 
that there is too much to say in terms of kind of beyond that, 
an already unstable market, for any sort of reason would be 
more dangerous surrounding that episode.
    Chairman Barr. Let me just ask either one of you, does a 
precipitous rise in interest rates make it harder for bank 
management to manage interest rate risk, and does it make it 
harder for bank examiners to supervise institutions under that 
kind of interest rate environment?
    Mr. Arkin. It certainly can increase risks for banks, and 
we saw this recently with the failure of certain banks, like 
Silicon Valley Bank. We reported recently that Silicon Valley 
Bank had failed because of weak liquidity and risk management 
and how it really hedged against that interest rate risk, and 
that was really one of the causes of that downward spiral.
    Chairman Barr. One of the concerns that I am hearing from 
market participants is with regard to the drain of dollars from 
the financial system resulting from the Fed's reverse repo 
facility that provides money market funds a relatively good 
return on overnight lending. We are seeing dollars being taken 
out of the banking system and parked at the Fed. And I have 
been told this was particularly impactful when we were seeing a 
shortage of liquidity in the banking sector during the Silicon 
Valley Bank and Signature Bank runs. If the Fed continues 
paying high rates for parking dollars at the Fed instead of at 
banks where money can fund lending, will we continue to see 
market distortions?
    Mr. Arkin. I don't have an immediate answer for that. That 
is something on which we can get back to you.
    Mr. Driessen. It's much the same for me.
    Chairman Barr. I think we need to investigate this, and 
your agencies should take a look at it because this reverse 
repo facility is now used as a monetary policy tool, but as we 
see deposit migration, this could potentially be another source 
of instability in the banking sector.
    During the lead-up to the so-called X-date, the Treasury 
Department was incredibly opaque as to how it arrived at the 
conclusion as to when the U.S. would no longer be able to pay 
its obligations. The United States is on an unsustainable path 
in terms of Federal debt, as Mr. Arkin pointed out. Congress 
needs to have all of the information necessary to not only 
raise the debt ceiling, but also introduce necessary solutions 
to create lasting changes to our debt trajectory. Can either of 
you touch on whether or not your Agencies, or, to your 
knowledge, CBO or independent analysts have expressed concern 
about the growth of U.S. debt and also the opacity of the 
Treasury Department identification of X-dates going forward?
    Mr. Arkin. Yes, I can touch on that. Certainly, GAO, CBO, 
and even the Administration has touched on the long-term 
sustainability issue. Debt has grown substantially in terms of 
its relation to GDP, and projections from GAO and others show 
that that continues on an increasing pace going forward over 
the 30-year period, and over the longer 75-year period. And 
that is what we think of as fiscal policy being unsustainable 
because that difference keeps increasing and increasing.
    Chairman Barr. I would like to talk about contingency 
planning. I don't have time, but should the Treasury 
Department, in general, be more transparent with Congress 
during negotiations on avoiding default about X-date and other 
issues?
    Mr. Driessen. Yes. I can take a little bit of that. There 
are some regulations in the U.S. Code that require Treasury to 
report things more generally, 31 U.S.C. Sec. 3130, and then 
with the debt limit, there are specific portions of that. 
Treasury sometimes balances being a regular and predictable 
actor with minimizing Federal borrowing costs, and balancing 
those two are something you can----
    Chairman Barr. And it is unfair for me to ask a question 
that doesn't allow you time to answer, but I ran out of time. I 
now yield to the ranking member of the subcommittee, Dr. 
Foster, for 5 minutes.
    Mr. Foster. Thank you, Mr. Chairman. My first observation 
is that the ultimate solution to this is just to get rid of the 
debt limit. This is a ridiculous rule that we make up for 
ourselves. To that end, for the last several years I have 
introduced, along with Senators Van Hollen and Schatz, the End 
the Threat of Default Act, which simply repeals the debt limit. 
I think this is the ultimate solution here, and I hope that we 
pass it before we can get into a real crisis over this.
    Now, as the X-date approaches, the exact treatment of 
different forms of Treasury debt becomes more and more crucial. 
There have been suggestions made, for example, that if the 
United States simply resumes issuing what are called consol 
bonds, which are interest-only instruments, that since the debt 
limit applies to the face value of debt issued, these would 
simply completely evade, and there would be no limit on the 
number of consols that could be issued.
    Similarly, there are things called premium bonds that are 
sort of halfway between a consol and a standard Treasury note. 
There is also the suggestion that so-called STRIPS (Separate 
Trading of Registered Interest and Principal of Securities), in 
which the secondary market separates the principal payment and 
the interest stream as separately marketed and traded items. 
And if the Treasury were simply to hold auctions for only the 
STRIPS part of this, there may be no legislative limit to this. 
And I think maybe I will ask you for the record, if you could 
go through this and see what are the actual limits for the 
different forms of Treasury debt and how they relate to this? 
Mr. Driessen, I would appreciate that, and we will be asking 
you that for the record.
    Mr. Driessen. Sure.
    Mr. Foster. Now, I was very struck by Figure 1 in the 
report that just looks at the historic debt, and it sort of 
breaks my heart. This is a jail, and when you look at the 
greatest generation, they went out and fought World War II, and 
then they paid down the huge Federal debt of over 100 percent 
of GDP, or roughly 100 percent. And they paid it down, in large 
part, by adopting historically-normal, but very high tax rates 
on the very wealthiest among us.
    And during the period that the U.S. economy became great 
and took over the leadership in the world, so we did that in 
large part by educating the next generation, and in part by 
charging very high tax rates on the super-wealthy. I believe 
that there was a long period of time when we had a tax bracket 
that only applied to one single family, and I believe that tax 
policy did not destroy the wealth of that one particular 
family, and they seem to be doing okay, the last time I looked. 
So, that is the history of this.
    And then, something changed in the 1980s, and, frankly, I 
blame the boomers. I am a boomer myself, and the 
intergenerational wealth transfer here, I think, is really a 
very significant aspect of this. The long-term deficits are 
being driven by Medicare and Social Security, and so on, a 
large part of which is our boomers aging and showing up without 
assets at the end of their life. And a large part of the 
failure to have money to pay for that is because of boomers 
accumulating wealth. I think the estimates are that over $80 
trillion of wealth is going to be passed to the next generation 
by boomers as they die over the next 20 years, so there is 
enough money in our country to completely retire the debt. This 
is a point that was made by Donald Trump several years back 
before he controlled his messaging, as well as he does that, by 
simply saying there is enough wealth in the top 2 percent to 
retire our debt.
    And what happens when you have these big, very high 
interest rate nightmares that people have? Most of the 
Treasuries are actually held by United States citizens. And 
most of them, directly or indirectly, are pretty wealthy, so 
all of the interest that would be paid in those scenarios is 
simply more wealth transfer away from the government of the 
people into the pockets of the very wealthy.
    We really have to understand that what is going on here is 
basically greedy, wealthy boomers wrecking it for the future 
generations. And the solution to that actually is within the 
hands of the boomers, which is to simply change and go back to 
the tax policies that made the United States great, and get rid 
of things like the basis step-up and so on. And actually, 
charge higher rates in a number of areas, particularly when 
that wealth is passed to the next generation by one-third of 
the $80 trillion, that wealthy boomers are going to be passing 
to their children. One-third of that would be enough to 
completely retire the Federal debt, so let's just keep that in 
mind as this discussion goes on. I yield back.
    Chairman Barr. The gentleman yields back. The gentleman 
from Missouri, Mr. Luetkemeyer, who is also the Chair of our 
Subcommittee on National Security, is now recognized for 5 
minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman. I can't believe 
what I just heard from our ranking member, blaming the wealthy 
people of this country for our debt because they finance it. My 
understanding is that Congress and the President are in charge 
of our debt. We make decisions on how we spend money and where 
we get the revenue from. It is not people who have money, who 
buy the Treasury bills, who are out there for a general purpose 
to be able to fund the government. This is backward thinking, 
in my mind.
    Anyway, to continue on with the discussion here, gentlemen, 
ever since mid-January when the Federal Government hit the 
$31.4-trillion debt ceiling, the Treasury Department has 
deployed extraordinary measures to maintain payments on all 
Federal obligations. We know these measures have taxpayer costs 
associated with them, and I am sure they are not cheap. Can 
either one of you gentlemen tell us how much money that you 
project these extraordinary measures cost the taxpayers, 
including indirect costs that we have on the back end of this? 
I think, Mr. Arkin, you have listed it in your testimony?
    Mr. Arkin. Yes. We haven't looked at what the impact has 
been for this most recent impasse. When we looked back for the 
2011 impasse, it was in the range of tens of millions of 
dollars that it cost, and the factors that were in play then 
were similar to now, but we don't have a number for what is----
    Mr. Luetkemeyer. And you are talking about billions of 
dollars in your testimony.
    Mr. Arkin. Oh. I am not sure I mentioned that----
    Mr. Luetkemeyer. The economic costs that are yet to come, 
but the delay in contract payments, that sort of stuff, those 
kinds of costs, you had a figure and listed several different 
entities, sort of different items there.
    Mr. Arkin. Okay. Yes. I don't recall that number offhand, 
but we can get that.
    Mr. Luetkemeyer. Okay. Recent bank failures revealed that 
there is a tremendous liquidity problem, and if you issue 
another trillion dollars' worth of Treasury bills, it would 
seem to me that it would exacerbate that problem due to the 
continued increased cost of the rates on those Treasury bills. 
With the Fed, we have a problem with inflation.
    Yesterday, The Wall Street Journal talked about the 
lingering effects of the pandemic, stave-off expected 
recession, $500 billion still in the system has to be spent, or 
the extra savings they called it, that is going to keep the 
economy going and keep it pumped up. So if that is the case, 
the Fed is going to come up with more increased interest rates, 
I would assume, to try and solve things down again, and these 
increased costs are going to have another exacerbating 
situation with regard to the banks.
    The Fed is already upside down on the rates. A lot of the 
banks are upside down, as shown by the three recent failures, 
and we have a number of banks that are still in a rather 
illiquid position. It would seem to me that this is going to 
exacerbate the situation. Do you want to comment on that, 
either one of you?
    Mr. Driessen. All I would say is that I think that having 
15 years of consistent interest rates at a given level, whether 
it is low or high, regardless, when you have a sudden change in 
those interest rates, it is going to probably lead to some form 
of economic disruption. In this case, the interest rate started 
very low and went up again at a pretty high rate, but outside 
of that, I don't have----
    Mr. Luetkemeyer. It is very concerning to me, because in 
today's Wall Street Journal, there was an article entitled, 
``Big Banks Face Boost in Capital Safety Net.'' Because of the 
situation, the regulators are looking at a 20-percent increase 
in capital for the banks over $100 billion, and to me, that is 
tied back to this interest rate problem that is in our system 
right now. And I think it is going to be exacerbated by this 
increased debt that we have incurred, so I am concerned about 
how these things all fit together. And I just wonder if you 
either of you have a comment on that?
    Mr. Arkin. In general, rising interest rates are a risk for 
the fiscal outlook. Historically, over the last 20 years, 
interest rates have been around 1\1/2\ percent of GDP. Thirty 
years from now, that would be closer to 8 to 8\1/2\ percent of 
GDP. And you will see, based on the projections, at least an 
increasing share of Federal expenditures going to interest 
payments rather than to program spending.
    Mr. Luetkemeyer. Okay. I see my time is about up, and I saw 
what the chairman did you to guys. I am going to not to do that 
to you guys. With that, I will yield back.
    Chairman Barr. The gentleman yields back. Thank you. The 
ranking member of the full Financial Services Committee, the 
gentlewoman from California, Ms. Waters, is now recognized.
    Ms. Waters. Thank you very much. Mr. Arkin, you devoted a 
considerable amount of discussion in the paper that you 
presented here today--that portion is entitled, ``Debt Limit 
Impasses Disrupt Treasury Markets and Increase Interest 
Costs.'' And of course, when I gave my 1-minute opening 
statement, I talked about brinksmanship. I want to talk about 
that a little bit more.
    In early May, Treasury sold $50 billion of 4-week T-Bills 
that would mature in early June at a record 5.84 percent, which 
was the highest yield for any T-bill auction since 2000. In 
fact, researchers at the Brookings Institution found that 
between mid-April and May 22nd, investors charged a premium of 
1.4 percent on Treasuries that were scheduled to mature in 
early June, to account for the risk that they would not be paid 
on time.
    Mr. Arkin, can you lay out clearly, for the record, how 
these premium increases end up costing the taxpayers money when 
this kind of brinksmanship that you described, this impasse, as 
you described it, takes place?
    Mr. Arkin. Yes. There are costs to taxpayers. What we saw 
on the secondary market were yields that rose pretty quickly in 
May from around 5 percent to 7 percent. There are also broader 
costs for other types of financing that is tied to the Treasury 
market. Things like mortgages become more expensive, and car 
loans, so there is a broader impact on taxpayers and the 
general public.
    Ms. Waters. And this discussion paper that we have 
basically blames that increase on the impasse. Is that correct? 
Is that what you are saying here?
    Mr. Arkin. It is a consequence of the impasse. It creates a 
lot of uncertainty. It does create risks. We have seen things 
like the market void Treasuries that were supposed to come due 
on certain dates, the X-date, which we have talked about, the 
date at which Treasury would not have enough funds to meet our 
obligations or pay our obligations, and that has occurred as we 
got closer to potentially breaching the debt ceiling.
    Ms. Waters. Would you say that the recent impasse on 
raising the debt ceiling directly resulted in an increase in 
these premiums?
    Mr. Arkin. I don't know. As far as we have seen them 
historically, that has been the case. The uncertainty caused by 
whether Treasury will be able to meet its obligations----
    Ms. Waters. Specifically, I want to know, in these latest 
negotiations where there was brinksmanship, can you safely say 
that it caused the increase?
    Mr. Arkin. Yes. Our understanding at least is that is why 
we see rates increase. That is why we see certain actions that 
the market takes, as it has in the past, for impasses.
    Ms. Waters. Going further, the Brookings analysis that I 
mentioned earlier highlighted that compared to 2011 and 2013 
when similar brinksmanship over the debt ceiling occurred, the 
premium being charged to investors was much higher, and that it 
increased much earlier this time around. Would you agree with 
that?
    Mr. Arkin. I haven't looked at and compared specifically 
what happened this time around versus in 2011 and 2013, but we 
can get back to you with that information.
    Ms. Waters. Specifically, they found that the premium being 
charged was more than 4 times larger this time than past debt 
ceiling debates, when they observed a 0.3-percent premium, and 
it began several weeks earlier. Does this mean that this time 
it will cost taxpayers more, and if so, how much more would you 
expect?
    Mr. Arkin. Again, we haven't looked into that. I wouldn't 
want to hazard a guess in terms of what the cost was or what 
the change was. What we have done is really based on----
    Ms. Waters. Is there any plan to look into this so that we 
can make a determination about the cost?
    Mr. Arkin. It is something that we would be happy to talk 
to you about, and talk to your staff about what GAO could do to 
help support you with those questions.
    Ms. Waters. Thank you. And if it is okay with the Chair, I 
would like to see the result of you looking into it to see 
exactly what happened and how different it was from what 
happened in the last negotiations for raising the debt ceiling.
    Thank you very much. I yield back.
    Chairman Barr. The gentlelady yields back. The gentleman 
from Georgia, Mr. Loudermilk, who is also the Vice Chair of the 
subcommittee, is now recognized for 5 minutes.
    Mr. Loudermilk. Thank you, Mr. Chairman. And I thank both 
of the witnesses for being here today. Mr. Arkin, in your 
written testimony, you included a graph representing simulated 
growth in the public debt as a percentage of GDP. To summarize 
the graph, the GAO and the CBO estimate that the U.S. public 
debt would reach 195 percent of our GDP by 2053. Understanding 
that, how would the effects of this sharp increase be felt 
between now and 30 years from now, assuming Congress doesn't 
act to cut spending and reduce the deficit?
    Mr. Arkin. Yes, that is what the projections show, a pretty 
steady increase in debt-to-GDP. There are risks with that. 
There is always the potential of some fiscal crisis where 
interest rates would rise pretty quickly, and I think the 
difficult part is, no one really knows how much is too much or 
at what point it becomes problematic. What we have suggested is 
that Congress develop a plan to take a look at what would be an 
approach that would allow us to manage the debt in a way that 
brings that ratio down a little bit or at least keeps it 
stable, looking into the long term.
    Mr. Loudermilk. When I first came to Congress, I believed 
we needed to balance our budget. I don't know that in modern 
times, we have the political will to do that. That is why I 
think we need a Constitutional amendment to force us to do 
that, and I think we can get there. But I noticed when I first 
came to Congress that every budget that we were passing as 
Republicans balanced within 10 years. I was impressed by that. 
But then the next year, we passed a budget that balanced within 
10 years, and every year, we are passing a budget that balances 
within 10 years. We never decreased that. So, it seems that 
with a long-term plan that we stick to, which is what I think 
you are alluding to, we would be able to lower that curve. Is 
that correct?
    Mr. Arkin. Yes, I think so. Actually, the gist of it is 
having a plan with a target where you can look at revenue. You 
can look at spending and have those be a little bit more 
balanced so you are not driving deficits that drive debt that 
grow faster than----
    Mr. Loudermilk. Right. In fact, I have a bill that I have 
introduced every Congress, and I will be introducing again I 
believe this week or next, which is a balanced budget amendment 
to the Constitution that requires Congress to balance within 10 
years, and I hope I can get support for that from both sides of 
the aisle. Still on the debt issue, a significant portion of 
the U.S. public debt is held internationally. Other countries 
with high levels of public debt-to-GDP, such as Japan, hold 
most of their debt domestically. What challenges would high 
levels of foreign-held public debt create if our GDP reaches 
the extreme of the GAO's graph, and would there be a difference 
if more of our debt was held domestically?
    Mr. Arkin. We haven't looked specifically at whether there 
are risks to foreign governments holding a share in terms of 
with growth in that ratio in the future.
    Mr. Driessen. Yes. I think that is one change in recent 
debt patterns over the past couple of decades. I think it has 
been something like going from a share of foreign debt held by 
the public for the U.S. from about 10 percent to about 30 
percent or so as of right now. I think people who support the 
idea of allowing foreign individuals or institutions to hold 
our debt would say that it helps lower our interest costs, 
essentially. By having more people who are willing to buy it, 
you can lower your price, but there is a cost to that, right? 
The interest payments are exiting our economy and going into 
someone else's economy, and that can be viewed as somewhat 
costly.
    Mr. Loudermilk. Taking it a step further, and if you don't 
know the answer to this, that is fine, but thinking forward on 
this, should we have defaulted? Does it create some type of 
national security risk that so much of our debt is held foreign 
such that somebody like China could step in and purchase that 
debt from others? What impact would that have on our economy or 
national security?
    Mr. Driessen. We have looked at this a little bit and found 
that the risk at present is pretty low, only because I think 
the holding of all that debt is relatively dispersed. Treasury 
does have a table that it produces monthly estimating how much 
of our debt is held across countries. And you can see that the 
top holders hold a little bit more than a trillion dollars, 
which is still quite a bit of money, of course, but there is 
not kind of one single country that is holding the majority of 
our debt in terms of the total debt that is held across the 
world.
    And even within that country, it is held by lots of 
different people, and Treasury is turning over lots of its debt 
as part of its regular process, typically about two-thirds of 
its debt in a given year or at least in recent years. It is 
certainly possible by what we have looked at, but we don't 
think it is a huge risk.
    Mr. Loudermilk. Okay. Thank you. I see my time has expired, 
so I will submit the rest of my questions for the record.
    And, Mr. Chairman, I yield back.
    Chairman Barr. The gentleman yields back. The gentlewoman 
from New York, Ms. Velazquez, is now recognized for 5 minutes.
    Ms. Velazquez. Thank you, Mr. Chairman, and Mr. Ranking 
Member, for having this hearing, and thank you to the witnesses 
for being here.
    As we are discussing here this morning, long-term 
projections show that the Federal debt as a percentage of the 
economy is on a path to grow indefinitely. My colleagues on the 
other side of the aisle constantly use this fact to call for 
dramatic spending cuts, just as they did last week, and this 
call for cuts consistently harms our nation's most vulnerable. 
However, when House Republicans talk about the debt, they 
frequently fail to acknowledge the true cause of the debt level 
rise, which is the fact that for the past 25 years, under the 
Republican leadership, they have slashed taxes that primarily 
benefit the wealthy and profitable corporations. This has led 
to a lack of revenue and has put us on a path of uncontrollable 
debt.
    According to a recent analysis by the Center for American 
Progress, if not for the Bush and Trump tax cuts, revenue would 
be on track to keep pace with spending, and the debt would 
actually be declining. Instead, these tax cuts have added a 
dramatic $10 trillion to the debt since their enactment and are 
responsible for 57 percent of the increase in the debt ratio 
since 2001. So, when we talk about the debt, it is important 
that we talk about the facts and what is actually fueling our 
debt.
    Mr. Driessen, according to the Center for American Progress 
analysis, there has been a decrease in non-interest spending of 
more than $4.5 trillion over the decade since the Bush-era tax 
cuts became permanent, but the drop in revenue was 3\1/2\ times 
as large, the equivalent of more than $16 trillion over a 
decade. Would you agree with the assessment that while 
projections of spending have decreased, the projections of 
long-term revenue have decreased even more?
    Mr. Driessen. I think if you look at recent CBO 
projections, which are public record, you can find similar 
facts there. CBO just put out an alternative fiscal scenario in 
their baseline. They have both spending and revenue 
alternatives that they consider, but I know they also look more 
closely at the 2017 tax law and some alternatives there along 
with some spending.
    Ms. Velazquez. Thank you. Mr. Driessen, the CBO recently 
estimated that extending many of the temporary provisions in 
the Tax Cuts and Jobs Act (TCJA) could cost as much as $2.7 
trillion and increase the debt as a share of GDP by 2030 to as 
much as 118 percent. From a budgetary perspective, does it make 
sense to consider another large TCJA 2.0 package extension when 
the Federal Government is already seeing a revenue shortfall?
    Mr. Driessen. I think I would agree with my colleague here 
that we have kind of a structural imbalance with the Federal 
budget. And I think most folks just looking strictly on the 
debt side are relatively impartial as to how the Federal 
Government changes its operations, whether that is lower 
spending, higher revenues, or some combination of the two. I 
think it is up to the Federal Government to decide what it 
would like to do.
    Ms. Velazquez. I take that as a, no. Mr. Driessen, some 
people like to argue that large, one-time spending packages in 
response to a financial crisis or public health emergency add 
to our deficit, but they are just that, a one-time cost. Can 
you explain how one-time spending packages in response to a 
crisis do not increase the rate of growth in debt over the 
long-term?
    Mr. Driessen. Sure. I think general economic theory would 
suggest that in a severe recession, increasing your net 
deficits, wherever you are starting from, might be advisable, 
essentially, to kind of stave off some of the spiraling effects 
of an economic crisis. And even if you were looking strictly 
from a debt perspective, if you let a recession get too large, 
the deficit effects on their own, absent congressional action, 
would get quite large and would lead to an increase in debt. 
So, that counterfactual could be kind of what you are speaking 
to.
    Ms. Velazquez. Thank you. Mr. Chairman, I yield back.
    Chairman Barr. The gentlelady yields back.
    The gentleman from South Carolina, Mr. Timmons, is 
recognized for 5 minutes.
    Mr. Timmons. Thank you, Mr. Chairman. It is really 
troubling that there is not agreement that there is such a 
thing as too much debt. I don't understand how we are having 
these conversations. I ran for Congress 5 years ago, and debt 
was literally the number-one issue on which I ran. 
Unsustainable fiscal policy in Washington, D.C., was spinning 
us into oblivion. It is immoral to mortgage our children's and 
our grandchildren's futures. So, I guess the first question I 
have for both of you is, what would happen if we had a 200-
percent debt-to-GDP ratio, Mr. Driessen?
    Mr. Driessen. I think that is something we can say with 
more certainty, which is shown in the projections, that you are 
spending more and more, devoting more and more of a portion of 
your present budget to interest spending, so essentially, 
paying off past----
    Mr. Timmons. Would it be bad? Would it be adverse to the 
U.S. economy? Would it be adverse to the American people?
    Mr. Driessen. This is something where the field of 
economics is pretty unhelpful in terms of identifying the exact 
number for you, but the risk of a debt crisis at that level is 
certainly higher than it is at 100 percent.
    Mr. Timmons. When Greece went into austerity measures, what 
were they at, 180 percent?
    Mr. Driessen. Yes, they were relatively low. The 
alternative is that Japan is currently at 260 or so, and that 
is certainly a country that we are looking at demographics, 
kind of their structure of interest.
    Mr. Timmons. So historically, we have only seen the amount 
of debt that we have right now as of what, World War II?
    Mr. Driessen. After World War II, that is correct.
    Mr. Timmons. And why did we create that much debt? Because 
we fought a world war. We sent hundreds of thousands of 
soldiers all over the world to save the world from communism 
and chaos, so that was the justification then. What is our 
justification now? We don't really have one. We have created a 
system that is unsustainable. The largest drivers are off-
limits. We just had a debt ceiling fight, and we only discussed 
11 percent of the budget. We did discuss healthcare, where we 
have the highest obesity rates, and the worst outcomes of any 
developed countries, and we spend 3 times the amount per 
capita.
    We have a healthcare problem. We have a workforce problem. 
We have millions and millions of people in this country 
illegally, and they would love to have a job, but we have a 
broken immigration system. We have an unsecured southern border 
and we refuse to address that, and then we have Social 
Security. So if we do not take steps to save Social Security, 
we will become insolvent in what, 7 to 10 years? Is that the 
projection?
    Mr. Arkin. Yes. I think for Social Security, it is 2033.
    Mr. Timmons. Every year that passes, does it get harder to 
fix?
    Mr. Arkin. Yes. The longer we wait, the more severe the 
changes will need to be in order to stay solvent.
    Mr. Timmons. So, the three major drivers of our debt--
healthcare, immigration, and Social Security--were preemptively 
removed from discussion by our leaders, and I think that is 
unacceptable. At the last minute before our vote last week, we 
heard some talk about a commission on debt. Hopefully, that 
will come to fruition. But at the end of the day, it is immoral 
to spend our children's and our grandchildren's money. And at 
this point, we are spending our great, great grandchildren's 
money, and we need to find a way to get the political courage 
to save Social Security so we can have a healthier population 
to work and pay taxes.
    And to address immigration, we are not going to tax our way 
out, and we are not going to cut spending. We need to grow the 
economy, and we need to resolve the challenges that our current 
entitlement programs are facing, because if we don't, they are 
going to fail. They are going to fail, and our solutions get 
harder and harder every year that we do nothing.
    So, I just hope that we can find some courage in this great 
Congress to address the real challenges that we are facing on 
spending, and to get our country on a more sustainable path so 
we can continue to be the beacon in the world and lead in the 
global community because we have done so much good over the 
last 100 years, and we have more to offer. And if we do not get 
our fiscal house in order, that will come to an end. Mr. 
Chairman, I yield back.
    Chairman Barr. The gentleman yields back. The gentleman 
from California, Mr. Sherman, is recognized for 5 minutes.
    Mr. Sherman. Mr. Chairman, at the outset, I would point out 
that it is a rule of the committee that before we mark up a 
bill, we consider it at a hearing. It makes a mockery of that 
rule if we list bills as getting a hearing here today when 
those bills have virtually nothing to do with today's hearing. 
A few of the bills listed today change how much retailers will 
pay credit card processors for processing credit cards. One of 
the bills would diminish the authority of the Consumer 
Financial Protection Bureau (CFPB). I would hope that we would 
not view those bills as having had their required hearing in 
this committee when we have witnesses here who are focused on 
the Federal fiscal situation.
    We did not dodge a bullet, we just avoided a fatal wound. 
As Mr. Arkin has pointed out, interest rates are higher than 
they would have been otherwise, but the bigger issue is that 
America is competing with the rest of the world for capital 
that we need to build our businesses and do our research, and 
from London or Paris or Tokyo, we have made America look like a 
Bozo clown car chaos calamity. Who would invest in this?
    Furthermore, the U.S. dollar plays this critical role in 
the world. China is trying to displace it, and how do we make 
the argument that the U.S. dollar should be the linchpin of 
every economy in the world when we come close to pulling the 
linchpin out? And that role in the world is so critical. Our 
sanctions policies have been effective, when they have been 
effective, only because of that role. I remember when we told 
other countries how much oil they could purchase from Iran and 
they agreed to it.
    But the wealth of American families would be dramatically 
undercut if we were not playing this role in the world. We 
spend money like Democrats, we tax like Republicans, we have a 
debt that would make Argentina blush, and, as Mr. Arkin points 
out, we are headed for levels that even we cannot sustain. I 
think the Republicans took the wrong hostage. We have reached a 
deal on spending levels. We should have reached that deal in 
the context of talking about spending for a fiscal year that 
begins October 1st. Instead, in an effort to get our spending 
deal, we threatened the poorest people of this world with a 
worldwide recession, people who are making it on $1 a day, and 
we put them in a position where they might have to make it on 2 
meals a day, and death rates might have to rise in the whole 
country because we can't get our act together. That is the 
wrong hostage to take.
    The chairman says that the banking problems faced by three 
banks are the result of the Fed mishandling things. Fed Chair 
Jerome Powell was first appointed by President Trump, and re-
appointed to a higher level by President Biden. Five-percent 
interest rates is not something that banks should be unable to 
deal with. Under President Reagan, they dealt with 16 percent, 
and, in fact, most banks have dealt with this. The three worst-
run banks didn't. Keep in mind that Silicon Valley Bank had 
hedges against rising interest rates. They sold the hedges, 
made money by selling their insurance policy, recognized 
profits, and paid bonuses on those profits to their directors, 
and especially, their management.
    Mr. Arkin, I realize it is tough to look at, in effect, 
counterfactuals. But our interest rates are going to be higher 
over the next year or two or several years because we came so 
close to shooting ourselves in the head. Fitch has on us on a 
downgrade watchlist. Is there any way to determine or even 
quantify how much higher interest rates are going to be for the 
next couple of years?
    Mr. Arkin. I don't know whether there is an impact, an 
immediate impact on interest rates from the impasse. In 
general, interest rates are expected to increase in the future, 
certainly from where they were a few years ago.
    Mr. Sherman. And is there any other country other than 
Denmark--I will ask you to respond in writing for the record. 
We have this debt limit process.
    Chairman Barr. The gentleman's time has expired. The 
gentleman from Wisconsin, Mr. Fitzgerald, is now recognized.
    Mr. Fitzgerald. Thank you, Mr. Chairman. I just want to 
comment that I think Mr. Sherman maybe missed the point. A lot 
of the bills that we are looking at today kind of feed into the 
overall discussion I think is happening, so I think I would 
disagree with that.
    Finally, in the financial crisis in 2008, we saw several 
western countries, especially Greece, which really was stark. I 
remember talking to a friend of mine who had been traveling and 
had been to Greece, and actually experienced the idea of having 
to go to an ATM to get some type of currency, and it was shut 
down. It was unavailable. So we kind of think of this, I think, 
in an abstract that a lot of the issues that we are facing 
right now couldn't happen here. It is just not believable, but 
I think it is, and I think it is real, and I think that is what 
this committee is trying to focus on.
    The common problem was the leverage. It was transferred 
from individuals and institutions basically to the government. 
And obviously, the United States is in a different position 
because we have the dollar as a global reserve currency as has 
been brought up many times today. The CBO estimates that U.S. 
Federal debt could return 95 percent of GDP by 2053, so 
different dates than what we were talking about earlier with 
Social Security.
    But, Mr. Arkin, how long do you think we can maintain or, 
God forbid, keep adding to this level of debt before we 
experience a debt crisis like some of the smaller European 
countries have already faced?
    Mr. Arkin. Yes. I think we talked about this a little bit 
earlier, but it is a bit of an unknown. I think the thing that 
we focus on is the risks involved with that ratio going up and 
up and up, but what that number is, is really not known. And 
that is why I think we are trying to emphasize the importance 
of having a long-term plan now that will look out 30 years in 
the future, and what kind of revenue, what kind of spending 
policy would put us on a more sustainable fiscal path.
    Mr. Fitzgerald. And my second comment, I guess, would be, 
if you remember, when President Clinton was here and we had the 
increased revenue, you can argue that some of it was created by 
the dot-com and other high-tech industries that just exploded 
in the 1990s. But at that point, there was kind of this idea 
that there was an ebb and flow related to the debt. What would 
you say are the signs now that we have kind of moved away from 
that and we can't rely, as Members of Congress, on the idea 
that suddenly there is going to be this complete shift in the 
economy that is going to bail us out at some point?
    Mr. Arkin. Yes. I think if you look historically, average 
debt-to-GDP over time was more in the 40- to 50-percent range 
for many, many decades. It is really the last 20-plus years or 
so where that has changed, where it has just gone on an upward 
trajectory.
    Mr. Driessen. Yes. The only thing I would add is, in the 
1990s, when you looked at old age and retirement programs, you 
had kind of the boomers who were entirely working, right, this 
historically-large population that was feeding into some of 
those trust funds and a smaller generation taking out. And 
another thing that has happened in recent decades has been 
healthcare costs that have grown faster than the economy at 
large. It is the thing that we are kind of trying to figure out 
as to continue or not, and that wasn't quite as pronounced at 
that time. So, I agree that the economic boom at that time was 
also contributing to the declining debt-to-GDP, but those kind 
of old age and retirement programs were in a different phase 
you could think of as opposed to now.
    Mr. Fitzgerald. Right. My final comment would be, there 
have been a number of articles written about the, ``red tide,'' 
which is simply that the debt is going to continue to grow, 
obviously, under the generation that currently is moving 
through our population. Medicaid is still the ultimate driver 
of that debt. There is a lot of focus on Social Security, but 
it is still Medicaid, and the growth there as related to the 
costs associated with that continues to just bloom. I think 
oftentimes, Social Security and Medicaid get along together in 
this discussion, but that is not really accurate, is it?
    Mr. Arkin. Yes. I think that the biggest driver looking 
into the future are Federal healthcare programs in terms of 
increases in spending. You do have the aging of the population 
that affects Social Security and Medicare, but as Mr. Driessen 
mentioned, it is kind of this excess cost of healthcare above 
the rate of inflation that really drives things in the future.
    Mr. Driessen. And also, interest costs. When you get 2 and 
3 decades out, it is really the interest costs, something we 
don't really control very well. That is more set by kind of 
international economic outcomes.
    Mr. Fitzgerald. Thank you. And thank you, Mr. Chairman. I 
yield back.
    Chairman Barr. The gentleman yields back. The gentleman 
from Texas, Mr. Green, is now recognized for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman. And I thank the 
witnesses for appearing.
    Mr. Chairman, as we look for new ways to extort 
capitulation, to avoid negotiation, and to protect the wealthy 
from paying their fair share of taxes, let me share a few 
thoughts. My first thought is that I associate myself with the 
remarks of Ms. Velazquez. I think that she made some salient 
points.
    I would like to introduce in the record an article styled, 
``Fifty Years of Tax Cuts for the Rich Fail to Trickle Down, 
Economic Study Says.'' Tax cuts for the wealthy have long drawn 
support from conservative lawmakers and economists who argue 
that such measures will trickle down and eventually boost jobs 
and incomes for everyone else, but a new study from the London 
School of Economics says 50 years of such tax cuts have only 
helped one group: the rich.
    And a second article, ``Trickle Down Tax Cuts Make the Rich 
Richer, But Are of No Value to the Overall Economy.'' President 
Trump sold his 2017 tax cuts as rocket fuel for the economy, 
arguing that freeing up money for the wealthy would allow them 
to hire more workers, pay better wages, and invest more. The 
tax savings, in other words, would trickle down from the rich 
to everyone else, but just as many economists predicted, 
slashing individual corporate and estate tax rates was mostly a 
windfall for big corporations and wealthy Americans. The Tax 
Cuts and Jobs Act did not pay for itself, failed to stimulate 
long-term growth, and did not lead to sustainable business 
investments. This, by the way, is from The Washington Post. The 
previous article was from CBS.
    Chairman Barr. Without objection, it is so ordered.
    Mr. Green. Thank you. Mr. Chairman, there seems to be a 
belief among many of my colleagues on the other side that the 
rich need more and are required to do more, and the poor can do 
more with less. We continually find my colleagues finding ways 
to cut taxes for the very wealthy, that only benefit the very 
wealthy. In our lifetime, we are likely to see the first 
trillionaire, people who are capable of having their own 
rockets to traverse great distances in space. Poor people need 
Medicaid. Working people need Social Security. As long as I can 
cast a vote, I will be casting a vote to protect Medicaid, 
Medicare, and Social Security. People who work for a living 
deserve the opportunity to have good healthcare and a 
retirement. This is all important, friends, because if the 
wealthy fail to pay their fair share of taxes, this decreases 
the amount of revenue that we have to pay our debts. We have to 
require more from those who have much.
    And I would add this: cutting the IRS agents, as it was 
said, cutting the taxes that were collected so that we could 
pay for persons to examine the wealth of people and catch those 
who are cheating, who are wealthy, eliminating those agents was 
not a good idea. Why are we going out of our way to make sure 
that the wealthy can cheat? Why do we go out of our way to make 
sure that the wealthy can pay less than their fair share of 
taxes? And to those who would say they pay more, they may pay 
more in some percentage, but they are making a lot more as a 
percentage of the wealth. It is time to cause the wealthy to 
pay their fair share of taxes so that we can pay our debts. I 
yield back.
    Chairman Barr. The gentleman's time has expired. The 
gentleman from Florida, Mr. Posey, is now recognized.
    Mr. Posey. I can't help but respond with what I have 
learned about socialism, communism, and Marxism over the years. 
It seems like they want every single thing you have, except 
your job. There seems to be a lot of confusion about what a 
default actually is, so strictly speaking, can you distinguish 
anything between a default on the debt as opposed to merely not 
having sufficient cash flow to sustain expenditures at the 
level authorized in the Appropriations Acts?
    Mr. Driessen. Yes. I think you are referencing kind of what 
it would mean if we actually hit the debt limit, and default 
meaning not being able to pay existing securities that we have, 
versus being unable to meet existing spending obligations. 
There is a distinction. I think that could matter for 
particular Federal programs, and only add that I think the 
economic effects of hitting the debt limit and paying existing 
principal and interest on securities, but not being able to 
make other contractually-obligated spending requirements, 
probably would have some pretty large economic effects as best 
we can tell.
    Mr. Posey. Any other comments?
    Mr. Arkin. Yes, I would agree with that as well. There are 
distinctions, but rating agencies and others, in terms of what 
we have seen, would think that there is going to be an economic 
effect to it either way, even if there is a distinction between 
paying debt and maturing securities versus other Federal 
expenditures.
    Mr. Posey. How much is the interest on that debt now 
costing taxpayers, what percent of total Federal expenditures 
is that, and how is it being projected to grow over the next 5 
years?
    Mr. Driessen. I think it is something like $700 billion 
this year, or about 10 percent of spending, maybe 2\1/2\ 
percent of GDP.
    Mr. Arkin. Yes. I think the end of 2022 was about 8 percent 
of total Federal spending. The last 20 years or so it has been 
1\1/2\ percent of GDP. It has gone up a little bit. But based 
on our projections, by 30 years from now, it is more like 8.5 
percent of GDP, and then you go out 75 years and it is quite a 
bit more in the 20 years, I believe 23 percent or something 
like that. And that is really a consequence of continuing to 
issue debt at a rate faster than the economy grows.
    Mr. Posey. Okay. If the Federal Reserve had been buying the 
Federal debt and increasing their money supply, wouldn't the 
interest rates have had to rise on their own to sell the debt 
to the public, and wouldn't that have helped prevent our record 
inflation?
    Mr. Driessen. Yes. I am not sure that I could come at that 
definitively one way or the other, just because the Federal 
Reserve is such a large actor, and it would have other indirect 
economic effects, I think, outside of that direct effect.
    Mr. Arkin. Yes. Likewise, I don't have a comment on that.
    Mr. Posey. Some people believe that in an instance when the 
Treasury couldn't borrow more money, they should be able to 
prioritize to use the cash and reserves that they have to pay 
the most important items, and even curtail some expenses. 
Treasury Secretary Yellen disagrees and says that she wouldn't 
do that. If most people were in that situation and couldn't 
increase debt, they would have to choose whom to pay and stop 
incurring some expenses. Any idea why you think the government 
could do that?
    Mr. Driessen. Yes. There is a distinction, I think, between 
making payments on existing securities principal and interest 
and kind of making choices with existing spending programs. And 
from kind of a legal standpoint, I think the Treasury's mandate 
to minimize Federal borrowing costs--there might be some 
support for prioritizing principal and interest on existing 
securities. That is what we understand they were at least 
strongly considering in 2011 when we got really close.
    And from a practical standpoint, they actually make those 
payments in a different system than they make all other Federal 
spending program payments. When you look at prioritizing 
current spending programs, that has been a matter of some 
debate for decades as to whether or not there is legal 
justification for Treasury to prioritize some payments over 
others under current law. And I think there is also this 
practical component where they are not sure if they could do 
it. I can't really speak to Treasury's capabilities in that 
way.
    Mr. Posey. Do you agree?
    Mr. Arkin. Yes, I would agree with that.
    Mr. Posey. Some economists say that financing our recent 
deficits by selling debt to the public would have contributed 
to crowding out our private sector investment, thus reducing 
the stimulus of bills like the American Rescue Plan. Do you 
agree with that?
    Mr. Arkin. I think that is one of the things you read in 
the economic literature about increasing debt as it can crowd 
out spending in the private sector.
    Chairman Barr. The gentleman's time has expired. The 
gentlewoman from Ohio, Mrs. Beatty, is now recognized.
    Mrs. Beatty. Thank you, Mr. Chairman and Mr. Ranking 
Member, and thank you to the witnesses for being here today.
    First, let me just say, I would like to echo my colleagues' 
sentiments about the irony of this hearing being held this 
week, a week after our economy nearly imploded, when Ranking 
Member Waters and other members of this committee have been 
asking for a hearing on the impacts of a debt default for 
months. It is also very interesting that many of my colleagues 
are talking like this is the first time we have experienced 
that. Certainly, we know that the debt ceiling was raised 78 
times from 1960 to 2021, including 18 times under President 
Reagan, 8 times under President Clinton, and 7 times under 
President George W. Bush. And when I came to Congress in 2013, 
we also raised it. We had the No Budget, No Pay Act. We also 
know in the last Administration, without any fanfare from 
Republicans or Democrats, under the last President, we raised 
the debt ceiling 3 times.
    So here we are today, maybe putting politics over people. 
We have a colleague on the other side who said that he ran on 
this and Social Security. Well, he had a chance last week when 
he voted against it, and Social Security was a major part that 
we were fighting for, Social Security and Medicare and 
Medicaid, and even, to some degree, healthcare, when he talked 
about that.
    So, it is very interesting to me that we are sitting in a 
committee hearing where we are talking about this and we have 
Republicans in charge, and yet, thank goodness for Democratic 
Leader Jeffries, that it was the Democrats and not the Speaker 
and his colleagues who were able to save the debt. So, I want 
to be on record as certainly applauding that we were able to 
uphold our debt.
    Let me move on, since I am on the National Security 
Subcommittee, and we are holding a hearing tomorrow entitled, 
``Dollar Dominance: Preserving the U.S. Dollar's Status as the 
Global Reserve Currency.'' Mr. Arkin, since we are bringing you 
in here to talk about the debt and to talk about Treasury, 
let's just go through and play this game. If we were to default 
on our obligations, what would be the impact of the U.S. 
dollar's status as the global reserve currency?
    Mr. Arkin. It is not something that we have looked at in 
depth, but it is something where if other countries look to 
start holding other currencies rather than the dollar, that 
could have an effect on the dollar's supremacy in foreign 
markets.
    Mrs. Beatty. We are talking about China and the strength of 
the U.S. dollar, but we were going to default just last week. 
So, what would that do with our relationship to other 
countries, and how would or would that not put China in a 
better position?
    Mr. Arkin. Certainly, the expectation is that it would have 
had a very negative impact on the economy, which would put us 
in a worse----
    Mrs. Beatty. And in your opinion, would that have affected 
healthcare, as my colleague said? We care so much about 
healthcare. Would it have affected housing? Would it have 
affected small businesses? Would it have affected many of us 
sitting right here?
    Mr. Arkin. Yes. It could have certainly spilled over into 
the broader economy. Certainly, activities that rely on 
financing that are tied to Treasuries, mortgage markets and 
other types of lending would likely have been affected.
    Mrs. Beatty. Okay. Thank you. Mr. Driessen, would you like 
to add anything to that?
    Mr. Driessen. Yes. I think there is a lot of uncertainty as 
to what the total level of that sort of effect would be if we 
lost our kind of status as the preferred reserve currency. And 
one estimate that I have seen is, it saves us something like a 
quarter of a percentage point on interest rates, and CBO 
estimates that would be something like $50 billion per year and 
$500 billion over 10 years. So if we lost that status, we would 
just pay more in interest costs, and we would have less to 
spend on all sorts of other debts.
    Mrs. Beatty. To both of you, do you think it was a good 
thing that we did negotiate and come to a deal where Democrats 
were able to deliver on the votes and we were able to not 
default on our debt? Was that a good thing that we didn't 
default? Yes or no?
    Mr. Driessen. Not defaulting was probably good for our 
economy, yes.
    Mr. Arkin. I agree.
    Mrs. Beatty. Thank you. I yield back.
    Chairman Barr. The gentlelady's time has expired. The 
gentlelady from California, Mrs. Kim, is now recognized.
    Mrs. Kim. Thank you, Mr. Chairman. For nearly 100 days, 
President Biden refused to sit down with Speaker McCarthy to 
negotiate the debt ceiling agreement and get our fiscal house 
in order, and since 1985, the 8 largest deficit reduction laws 
were attached to debt limit legislation. So, any attempts to 
portray the debt ceiling negotiation as a Republican effort to 
hold our economy hostage do not responsibly provide the public 
with the historical precedent. The reason the historic 
bipartisan agreement was reached showcases that Congress can 
act, and the President, to implement deficit-reduction 
policies.
    In February, the CBO estimated that annual net interest 
costs would total $640 billion in 2023, and more than double 
over the coming decade to $1.4 trillion in 2033. So, it would 
be irresponsible for us not to address the unsustainable debt 
and do good for our grandchildren and their children. I agree 
with Representative Beatty about her comments regarding reserve 
currency. The U.S. dollar enjoys a reserve currency advantage 
over competing foreign currencies, which provides benefits to 
the United States in several ways, including trade, finance, 
and in financing our unsustainable debt. Fiscal uncertainties 
or debt limit impasses threaten investor confidence in the 
dollar as a reserve currency.
    And I want to ask both witnesses, if the U.S. continues 
with spending growth outstripping economic growth and the 
resulting unsustainable debt trajectory, which cannot be solved 
with higher taxes, is there a risk that the United States could 
lose its reserve currency status?
    Mr. Driessen. I think there is a long-term risk. I think 
that we are talking about how the debt is on an unsustainable 
path. I should also point out that organizations look at the 
short- and medium-term risk of the Federal debt, and they find 
that to be pretty low, but structurally, we are on kind of a 
rising path, and at some point there could be an effect on that 
reserve currency status.
    Mr. Arkin. Yes. I would certainly frame it in terms of a 
risk, and suddenly, that would have a downside if that were to 
happen in the future.
    Mrs. Kim. The Treasury general account is nearly empty, and 
it needs to be replenished. According to an Axios report, the 
government will likely need to issue as much as $1 trillion in 
Treasury bills over the next 6 months to return the balance to 
historical norms. Can you tell us how Treasury will manage that 
sudden influx of Treasuries into the market, and do you know 
how Treasury is assessing the possible risks of the sudden wave 
of Treasuries flooding the market?
    Mr. Arkin. It is not something we have looked into, but I 
have read similar things. And in particular, a lot of that debt 
may be in short-term notes, which has some impact, but I don't 
have a complete answer.
    Mr. Driessen. That is right. I think it is fair to assume 
that as in their capacity, Treasury was planning for this 
scenario, an agreement right around when the debt limit would 
bind and would need to kind of plan for auctioning more 
securities than they otherwise would, but I don't know the 
exact details on that plan.
    Mrs. Kim. What do you think should be done?
    Mr. Arkin. I'm sorry. Can you say that again?
    Mrs. Kim. I am just asking you, I know we are hearing the 
same thing, but you said there is no plan on that sudden influx 
of Treasury. So I am asking you, how do you think Treasury 
should respond to that?
    Mr. Arkin. Treasury does tend to carry a cash balance that 
is in the hundreds of millions of dollars to manage some of the 
uncertainty that comes from day-to-day or week-to-week payments 
and inflows of revenue and expenditures. So, they do have it, 
having the cash balance come down to the $30-million range and 
the need to build that up fairly quickly isn't an unexpected 
reaction.
    Mr. Driessen. Yes. And I would add that the recently-
enacted law now moves the next debt limit episode 2 years up. 
So the cash balance, in addition to the extraordinary measures, 
is what kind of fuels that extraordinary measures length of 
time, and that might also be something that they consider when 
they consider the cash balance.
    Mrs. Kim. Lastly, I know a lot has been discussed about the 
X-date, so why is it so hard for Treasury to forecast and 
pinpoint that X-date, and what makes it so hard for Treasury to 
provide that X-date to Congress?
    Mr. Driessen. Yes. In the medium picture, a lot of it is 
revenues, not knowing exactly when people will pay for and file 
their taxes and how much they will pay.
    Chairman Barr. Unfortunately, the gentlelady's time has 
expired. We would love a more fulsome answer in writing for the 
record, if possible.
    The gentleman from California, Mr. Vargas, is now 
recognized for 5 minutes.
    Mr. Vargas. Mr. Chairman, thank you very much. First, I 
want to thank you for holding this hearing. I think it is a 
very important hearing. And I want to thank the witnesses here 
today, and of course, the ranking member.
    A colleague of mine said that Republicans have constantly 
banged on the debt limit. That is actually not true. I am going 
to challenge that premise. I didn't hear a peep during the 
Presidency of Donald Trump. There were three or four 
Republicans who said something, but the rest weren't fighting 
the debt limit. I didn't hear anything. I was here. Crickets. 
They only fight it when the Democrats are in charge or suddenly 
become deficit hawks. They certainly didn't do it when 
President Trump was here.
    I think that what we just had was an artificially-created 
crisis because of this debt limit, but there were some 
positives to it, just to be frank. And I thank Republicans for 
making our President look strong, bipartisan-wise. I think that 
was one of the outcomes, so certainly, there was something 
positive for America there, and we thank them for that. It was 
very much appreciated. Thank you very much.
    Also, World War II was brought up more than a few times, 
and just to correct the record, World War II was not to fight 
communism. They were on our side that time. Remember, ``Uncle 
Joe'' and the Soviet Union were actually fighting the Nazis and 
fascism, just for the record, because someone said we were 
fighting communism. No, they were on our side that time. I 
don't like them now. I am not a communist, myself, or a 
socialist, but just for the record, I think we got those things 
wrong. Since we were talking about World War II, President 
Eisenhower became President. What was the highest marginal tax 
rate during his Presidency? Do you know?
    Mr. Arkin. No, I don't know offhand. It was higher 
substantially than it is today.
    Mr. Vargas. How high? Take a guess. You don't know? How 
about you? Can you help him?
    Mr. Driessen. I want to say in the 90s, but I am not sure.
    Mr. Vargas. It was 91 percent. So I ask you, was he a 
communist trying to take everything away from everybody except 
for their job? I am asking the question.
    Mr. Arkin. My knowledge of President Eisenhower is 
relatively limited. I don't know the answer to that question.
    Mr. Vargas. I don't think he was a communist. He worked 
well with the communists at the time, with Stalin and, of 
course, the Soviets who were attacking the Nazis, but he was no 
communist. Of course, he wasn't. Now, I do want to ask this. In 
November of 1999, a prospective candidate for the Reform Party 
Presidential nomination made a proposal to tax people in trust 
with wealth over $10 million, 14.25 percent, to wipe out the 
national debt. Do you know who that candidate was?
    Mr. Arkin. I do not.
    Mr. Driessen. No, but I can----
    Mr. Vargas. It's shocking that you don't know because he 
became President as a Republican: Donald Trump. Donald Trump's 
plan to wipe out the deficit back then which was, I think, was 
$5.7 to $6 trillion or something right around that area, was to 
tax wealthy people in trust to wipe out the debt in one fell 
swoop. So out of curiosity, is he a communist? He tried to take 
everything away from wealthy people except for their job.
    Mr. Driessen. I am also not an expert on it.
    Mr. Vargas. What is that?
    Mr. Driessen. I am also not an expert on that.
    Mr. Vargas. I would hope not. Thank you very much. I do 
want to get now to that X-date. I was very curious about that, 
too, because it changes, and sometimes it changes pretty 
dramatically. The first thing that I caught was that big number 
that you said, suspension of the reinvestment in the 
government, now the fun part is over. The reinvestment of the 
Government Securities Investment Fund (G-Fund) of $294 billion 
into the Federal Employees' Retirement System (FERS) is 
actually quite a chunk of money.
    Mr. Driessen. That is right, yes.
    Mr. Vargas. That is one of the things that gets confused. 
You were talking about taxes, but also these payments. That is 
a big payment, if you can delay that. That is quite a lot of 
money.
    Mr. Driessen. I think it was less about the size of the 
extraordinary measures themselves, and it was more about the 
changes, kind of from day-to-day, we would be bringing to 
spending.
    Mr. Vargas. Okay. I just have 20 seconds left, so I will 
yield back, and thank the chairman.
    Chairman Barr. The gentleman yields back. The gentleman 
from Tennessee, Mr. Rose, is now recognized.
    Mr. Rose. Thank you, Chairman Barr and Ranking Member 
Foster, for holding the hearing, and thanks to our witnesses 
for being here with us today.
    Mr. Driessen, Treasury securities are backed by the full 
faith and credit of the U.S. Government. Investment 
professionals use Treasury yields as the risk-free rate or the 
rate of return offered by an investment that carries no risk. 
Treasury Bills (T-Bills) are considered zero-risk investments, 
thanks to Treasury, and market liquidity, and the 
creditworthiness of the United States. However, as we saw with 
the recent bank failures, T-Bills become less attractive to 
investors when interest rates rise. So my question is, should 
we still be assigning zero risk to T-Bills?
    Mr. Driessen. I think that is for the market to decide and 
not for us to decide, although I will agree that is one of the 
risks to binding debt.
    Mr. Rose. And during the recent debt limit episode, some 
officials contended that if the debt limit were to constrain 
the government's ability to meet its obligations, that would be 
an unprecedented blemish on the nation's credit and that the 
U.S. has never defaulted. But isn't it true that the U.S. has 
actually defaulted at least 3 times: the War of 1812; the 1933 
suspension of the gold standard; and in 1979, when Treasury 
failed to make timely payments to some small investors.
    Mr. Driessen. Yes. There are some questions at various 
points in time as to whether or not the Federal Government has 
defaulted. I think probably an accurate thing to say is we have 
never failed to raise the debt limit when the debt limit has 
been close to binding.
    Mr. Rose. Thank you.
    Mr. Driessen. That is correct.
    Mr. Rose. Sure. And is it fair, in your mind, to 
characterize it as increasing if that were to happen? I don't 
mean to be overly-provocative, but to characterize that as 
default when, in fact, the United States would continue to have 
the capacity to prioritize payments and to pay creditors, if 
you will, to those holding U.S. credit obligations, do you 
think that term is accurate?
    Mr. Driessen. I think it is true that from a legal 
perspective, ``default,'' means something quite precise, and an 
option that could be available to Treasury in unbinding that 
limit is to avoid that precise, ``default,'' definition. There 
could be large economic consequences with a binding debt limit, 
with or without that being met.
    Mr. Rose. And in fact, if we failed to extend the debt 
ceiling, and I am just interested in your perspective on this, 
but wouldn't that look more like what would happen if the 
average American didn't have enough money to do everything they 
plan to do, but they had enough money to pay all of their 
really important bills, and maybe what they had to do was quit 
spending as much? Wouldn't or couldn't that, in fact, be the 
scenario that would, at least in the short term, play out?
    Mr. Driessen. I always get in trouble with my colleagues if 
I compare the Federal Government to an individual bank account. 
That said, I think that some of the spending that would be on 
the books is contractually obligated. We have decided to do 
that. And if we don't meet those contracts, that could be 
another name for default, but it would be viewed as something 
similar, perhaps by the markets as well.
    Mr. Rose. And while I am at it, I want to pursue the 
question as it relates to Social Security payments that 
ostensibly come out of the trust fund. I realize that the 
reserves in the trust fund obviously have incoming receipts on 
a regular basis, but we also have interest payments and 
principal payments that are recurring, that are coming to the 
trust fund. Wouldn't those payments be secure to the extent 
that current tax revenues would support payments, and to the 
extent that the government was actually able to continue making 
interest payments and principal payments to the trust fund?
    Mr. Driessen. I think it is relatively uncertain just 
because we haven't done it before. There is an understanding 
that it is possible that those will be affected along with all 
of their payments.
    Mr. Rose. And when there is a sudden influx of money into 
the economy, such as when the government prints more money or 
creates money through open market operations or through 
quantitative easing, in your view, does that generally cause 
inflation?
    Mr. Driessen. I wouldn't want to hasten to comment on that. 
Thanks.
    Mr. Rose. Okay. Thank you.
    Mr. Arkin, could the Treasury be more transparent or should 
they be more transparent in sharing information about debt, 
cash balances, forecasts on how long extraordinary measures 
would help keep debt below the limit forecasts of near-term 
receipts, and revenues and cash, or forecasts about the X-date? 
Do you think more transparency would be positive?
    Mr. Arkin. I think Treasury generally has the 
responsibility to share information with Congress. I think with 
the X-date, with extraordinary measures, they kind of balance 
that in terms of the information that is provided for the 
market, given that it is a very sensitive topic.
    Mr. Rose. And maybe for the record, wouldn't it be helpful 
if we all understood how they calculate the X-date? Thank you. 
I yield back.
    Chairman Barr. The gentleman yields back. The gentleman's 
time has expired. The gentleman from Illinois, Mr. Casten, is 
now recognized.
    Mr. Casten. Thank you, Mr. Chairman. I just want to clarify 
a couple of points that Mr. Sherman made. Were either of you, 
in preparation for this hearing, asked to testify about 
increasing the exemption threshold for mid-sized banks?
    Mr. Arkin. No.
    Mr. Driessen. No.
    Mr. Casten. Were either of you asked to testify about 
changing the mechanism by which the Federal Reserve is funded?
    Mr. Arkin. No.
    Mr. Driessen. No.
    Mr. Casten. Were either of you asked to testify about 
whether the FDIC should be funded with par value securities 
instead of cash-shifting liquidity and interest rate risk onto 
the FDIC away from banks?
    Mr. Arkin. No.
    Mr. Driessen. No.
    Mr. Casten. Okay. This hearing is ostensibly about concerns 
about the opacity of the Treasury, and in the interest of 
transparency, let the record show that three of the bills 
noticed for this hearing have absolutely nothing to do with 
what the witnesses were brought here to testify on. If we care 
about transparency, if we care about a fulsome debate, let us 
insist on the same transparency in this body that we seem to be 
concerned about at the Treasury.
    Let me now move to the areas that I gather you were asked 
to testify on, and I appreciate all of your expertise and your 
time here today and your patience with us. It is really hard to 
explain to the American people all of the things the Federal 
Government does, and sometimes, I think it is easier to think 
in metaphor. So if you will forgive me for asking a question in 
areas where you have no expertise, but it is vastly simpler.
    Let's imagine you were running a small business, a simple 
business that doesn't make things; you just buy things that 
other people make. You hold it in inventory, and you sell it in 
a commission-based model, for example, a car dealership. 
Suppose furthermore, that you were a deeply unethical person, 
and so you maxed out your working capital revolver and said, I 
am just going to burn down this business. I am going to default 
on my loan and just strip the cash out of the business. Would 
you find it easy to predict when you will run out of cash?
    Mr. Arkin. I think it is a tricky comparison because a 
small business like that is not quite as complex.
    Mr. Casten. I am not trying to be cute about this, but you 
have extraordinary measures, right? You could sell down your 
inventory. As you sell down your inventory, you have less stuff 
on the lot. You have some salaries that are fixed, some rent 
that is fixed, but your commissions are going to depend on what 
you sell, right? Would it be complicated to try to think 
through, and think, when am I going to run out of cash, as I am 
being deeply unethical and running this business into the 
ground?
    Mr. Arkin. I think from the Treasury standpoint at least, 
the expenditure side is a little easier to predict, as the 
revenue side is more uncertain. It is not quite the same thing 
as selling things. Money comes in unevenly. The expectation 
this time in terms of payments to around the April 15th filing 
deadline were a little lower than expected, so that costs----
    Mr. Casten. In the same way that if you have some high-
margin cars on the lot and some low-margin cars on the lot, and 
your salesforce is sitting there saying, this guy is running 
the business down, how hard do I want to work here, it might be 
hard to project those revenues, wouldn't it?
    Mr. Arkin. Yes, in general, I think that is the thing that 
the Treasury is most challenged by or is one of the challenges 
that they face when they try to predict those things.
    Mr. Casten. And I am not trying to belabor that point, 
because I don't want to suggest that the U.S. is a car 
dealership. We do more important things than that. But it would 
be legitimately hard to calculate that because I have a small 
number of fixed costs. I have a high number of variable costs. 
I would submit to you that for most businesses, the top line is 
the hardest thing to predict, and even in that case, it is 
hard. And in that example that I just gave, it is a completely 
self-inflicted wound that is created by an unethical owner who 
decided to strip cash out of the business and default on his 
loans.
    There is a legitimate problem when your revenues fall under 
your expenses. There is a completely imaginary problem created 
by the debt limit. It is possible to turn imaginary problems 
into real problems by choosing not to pay, by forcing folks 
like you to go through all this analysis of, how do you run the 
business if you are choosing to do a deeply unethical thing and 
default on the obligations you have already stepped into?
    My Republican colleagues have proven that they have the 
capability to turn imaginary problems into real problems. 
Congratulations. I have too much respect for you all as public 
servants. I have too much respect for the majority of the 
people in this country who work for the government, who want to 
do public service, to say anything to you right now except that 
I am sorry you had to come here today. And I am sorry that you 
had to go through the stresses of last week with Treasury. We 
should not have done that to you, and I hope that everybody 
acts like adults next time and focuses on the real problems so 
that we can now get back to, I don't know, putting on gas 
stoves. I yield back.
    Chairman Barr. The gentleman's time has expired. The 
gentleman from Florida, Mr. Donalds, is now recognized.
    Mr. Donalds. Thank you, Mr. Chairman. And to the witnesses, 
thanks for being here. I have no idea what that analogy or 
symbol or whatever even was; it doesn't make any sense at all, 
so I am clueless on that.
    A couple of days have already come up in this hearing about 
taxes. Listen, the top 20 percent pay 70 percent of all Federal 
income taxes in this country. Actually, under the Tax Cuts and 
Jobs Act, middle-income Americans are paying less in Federal 
income taxes. That is the data. Those are the facts. My 
colleagues on the other side of the aisle love saying how the 
Tax Cuts and Jobs Act cost us $2 trillion. Well, that is a lie, 
because even last year, $900 billion came in on top of CBO's 
estimates of tax receipts from the Tax Cuts and Jobs Act. So, I 
think it is time that we start putting to rest the ridiculous 
political arguments that typically come from the other side of 
the aisle.
    I do want to focus in on the concept of actual national 
defaults. This is an important one. We are spending far more 
money than we have. We are $32 trillion in debt. Most people 
know the major high point data pieces, but when it comes to the 
debt ceiling, it is actually nebulous for the American people 
what, ``default,'' actually means. The press loves saying it, 
Members on Capitol Hill love saying it, but what are we 
actually talking about? And you two can tag team, it is up to 
you, I don't really care who answers, but I think it is 
important that we get down to brass tacks.
    If we cross the debt ceiling now, then on January 1, 2025, 
if we come to that date and there is no authorization from 
Congress to raise the debt ceiling, what does that actually 
mean? Does that mean that our economy cascades? Does that mean 
that we have no ability to borrow additional money to pay for 
the other obligations or the other spending priorities that 
Congress has authorized? Does that mean that interest on the 
debt is no longer paid?
    Mr. Driessen. I think to determine what it would actually 
look like still rests with Treasury, but if you are constrained 
by the debt limit, you are going to engage in spending that is 
contractually obligated to the extent that money is coming in 
on a day-to-day basis.
    Mr. Donalds. Okay. I want to freeze you now. This is 
important. So, if you pass the debt limit without raising the 
statutory cap on how much money you can borrow, then Treasury 
is constrained to only spending money on the things that the 
Federal Government is contractually obligated to pay, as long 
as they have dollars to pay it. Is that correct?
    Mr. Driessen. That is right. They only have the money that 
is coming in to make payments.
    Mr. Donalds. Okay. Second, does Treasury have the ability 
to make interest and/or principal payments on existing debt 
obligations as long as they have the cash to do so?
    Mr. Driessen. We think that they do, and we think they were 
considering that in 2011, based on public records.
    Mr. Donalds. Okay. Third question, a follow-up. If there is 
a tranche of Treasury bonds underneath the statutory cap, does 
Treasury have the ability to refinance said bonds in the bond 
market even though Congress has not elevated the statutory cap?
    Mr. Driessen. We believe Treasury can roll over existing 
debt.
    Mr. Donalds. So, Treasury can roll over existing debt, they 
can make payments on existing debt, and they can make payments 
on other contractually-obligated operations as long as they 
have the cash to do so. And those are the broad three 
parameters of what, ``default,'' is in the United States? Is 
that correct?
    Mr. Driessen. Yes, I think that is right.
    Mr. Donalds. Okay. This is important. I am not trying to 
play politics. I am trying to understand exactly what we are 
talking about because we are going to come to the debt ceiling 
again, and it is important for the American people to 
understand exactly what happens and what doesn't happen if 
Congress does not, for whatever the reasons are, raise the debt 
ceiling. I used to work in finance, and if a company that I was 
financing cut operations because they could no longer fund 
those operations, but they continued to make the payments on 
the money that I loaned them, is that a default on their debt 
obligations?
    Mr. Driessen. I couldn't answer that. I will only say that 
we may not be able to make all payments under----
    Mr. Donalds. Let me answer it for you, as a former banker. 
If the company had to cease other operations but they still 
paid me my loan payments, that is not a default on their debt. 
Now, I do recognize that if Congress does not have the ability 
to raise or the government doesn't have the ability to continue 
to borrow money to fund all of the operations of the 
government, that there are some contracts that would not be 
paid in that time period of not raising the debt ceiling. Here 
is my final question to you: How is that different from a 
shutdown scenario when the Federal Government doesn't pass 
budget appropriations?
    Mr. Arkin. Do you want me to answer or----
    Chairman Barr. The gentleman's time has expired. Can the 
witness answer for the record, please?
    Mr. Arkin. Yes, we can get that for you.
    Chairman Barr. Okay. Thank you.
    The gentleman from Tennessee, Mr. Ogles, is now recognized, 
and he has the prerogative to ask that same question for his 
colleague from Florida.
    Mr. Ogles. I yield, too, so you can answer the question. 
We're on a clock.
    Mr. Arkin. I think they are slightly different, and the 
shutdown means there has been a lapse in appropriations. There 
are certain things Federal agencies can do, and there are 
certain things that they can't do because they don't have the 
authorization without running into the Antideficiency Act. That 
is a little different from the scenario of what would happen if 
Treasury didn't have the funds to make the payments, whether it 
is to bond holders, interest and principal, or to contracts to 
other obligations the Treasury has, so they are slightly 
different.
    Mr. Driessen. And I would also say with the shutdown, 
Congress, and policymakers in general are controlling exactly 
what is being funded and what is not with a constraint with a 
debt limit. I think it is uncertain, and that is probably in 
the hands of Treasury and just subject to kind of the flow of 
the Federal budget.
    Mr. Ogles. And I think to close on my colleague's point, 
the language used and the rhetoric used by Treasury to 
intimidate American citizens into believing that we were in 
more dire circumstances than we were is unacceptable.
    Mr. Chairman, the rhetoric from the other side in this 
hearing has been unacceptable. According to the nonpartisan Tax 
Policy Center, as a result of the Tax Cuts and Jobs Act, 
households in the top 20 percent of income earnings will pay 87 
percent of the Federal income tax collected, which is an 
increase from 84 percent. By contrast, those in the lower 60 
percent of income earners will pay 4.3 percent. That, sir, is a 
decrease, so you are talking about 87 percent versus 4.3 
percent. We know who is paying their fair share and who is not, 
and so the rhetoric from the other side is unacceptable, Mr. 
Chairman.
    It should also be noted that liberal Democrats in blue 
States have tried to push for the SALT deduction to benefit 
their rich friends, so we are being responsible when it comes 
to who is paying what, for what. I also will take issue with 
the other side in response to earlier comments that three of 
the bills weren't germane to this hearing. The things that we 
were discussing weren't relevant, and yet three of the bills go 
directly to the problem of lack of information from the Federal 
agencies about Federal debt management, especially around 
adverse contingencies, such as the debt limit impasse. Three 
other bills relate to effects we have seen from rapidly-rising 
interest rates, which contributed to the bank failures, and to 
the debt limit impasse, and injected uncertainties into debt 
securities. So I would argue, Mr. Chairman, that what has been 
brought up in committee by our side are important topics that 
have to be discussed.
    Now, Mr. Arkin, you have testified that deficits are 
fueling unsustainable debt levels, and I am running tight on 
time, so I just want to point out that according to data from 
the Office of Management and Budget and the St. Louis Fed, 
Federal revenue reached 19.23 percent of GDP in 2022. How does 
that compare to historic levels? Any idea, quickly?
    Mr. Arkin. Yes, that is a bit higher than it has been over 
the past 50 years, where it has been closer to 70.5 percent.
    Mr. Ogles. A bit higher.
    Mr. Arkin. Yes.
    Mr. Ogles. Only 3 times in American history have Federal 
tax receipts been higher than in 2022, in 1944 and 1945 at the 
peak of World War II, and in 2000 during the dot-com boom. So 
we have peak revenue, and we still ran a $1.4-trillion deficit. 
Mr. Chairman, we don't have a revenue problem. We have a 
spending problem, like the $1.2 trillion in green energy 
subsidies that were crammed down America's throats just a few 
months ago. So if we are going to get serious about fixing the 
economy, about curbing inflation, we have to start talking 
about spending. We have to become energy-independent and stop 
giving deductions to rich Democrats in blue States. Mr. 
Chairman, I yield back.
    Chairman Barr. The gentleman yields back. The gentleman 
from South Carolina, Mr. Norman, is recognized for 5 minutes.
    Mr. Norman. Thank you, Mr. Chairman. I just want to follow 
up with this discussion we have had on the X-date, when we were 
actually going to reach the debt limit. I think in reading some 
of this material, the mantra that you all operate under is to 
issue debt in a responsible manner, provide transparency, and 
to auction the debt in a meaningful way. Regarding 
transparency, Secretary Yellen moved the date that the country 
was running out of money 3 times. It was June 1st, then June 
5th, and then I think it could have been some time, from what 
we heard, in July. Why, months ahead, was there not some 
indication or some basis of her picking these dates?
    If you go to a mechanic and he says your car is going to 
blow up, I think he would owe you an explanation why. Is it the 
gauges? Is it the sound on something this important? Why was 
this not done in the interest of transparency for the American 
people? And either one of you, Mr. Driessen or Mr. Arkin, can 
answer that.
    Mr. Driessen. Yes. I can't speak to the transparency 
question directly. I will say, if you look at last year's kind 
of ebb and flow of Federal budgeting, early to mid-June is 
right on a kind of a threshold of when we run deficits in early 
June to surpluses in the remainder of June. And then, you get 
that $143-billion one-time extraordinary measure that I 
mentioned in my opening remarks. Even in the weeks leading up, 
you have heard testimony from other folks that early June was a 
possibility, but also July and August were possibilities.
    Mr. Norman. Yes. When there is something that important, 
particularly since we had a President who just wouldn't meet, 
he played it out to the last day, I think for leverage, and it 
worked pretty well. It was a horrible bill that was the 
giveaway that we passed in this bill. Why wouldn't Secretary 
Yellen approve her extraordinary measures? She has the ability 
to move funds from one agency to the next. Why wasn't that done 
for transparency to the American people? I don't think that 
ever happened.
    Mr. Driessen. Yes. I can't speak to internal discussions at 
Treasury. They look to minimize borrowing costs and maximize 
transparency, but Congress can certainly ask for----
    Mr. Norman. We did. We sent letters. We didn't get a 
response.
    Mr. Driessen. And then, there are also legal options----
    Mr. Norman. I think what was extraordinary was that you 
have a State like California with 51 counties, and you had 
delays in when the tax revenue was due. We never got an 
explanation. I think three or four letters were sent, but we 
never got any type of response. That is a dereliction of duty. 
That is not fair.
    Mr. Driessen. I can say there was a delay in certain States 
where disasters were hit to permissible delays in filing is one 
possible explanation as to why revenues were a bit lower in 
April than we thought.
    Mr. Arkin. Yes, I would agree with that, but we don't have 
a sense of explanation from Treasury in terms of the 
transparency issue or how they communicate that.
    Mr. Norman. As you know, we are going to reach the debt 
limit again, and hopefully, there will be a Secretary of the 
Treasury who will take transparency seriously and will let the 
American people know in no uncertain terms if this is a real 
date. I have never bought those dates to begin with, but be 
that as it may, it was a constant drumbeat by the media: we're 
going to run out of money; bond payments aren't going to be 
made; Social Security payments aren't going to be made; medical 
payments or veteran payments aren't going to be made. That was 
a steady drumbeat, which is so unfair to the American people. 
It should have been done months ahead of time. And I realize 
this probably is not in your purview, but in your roles, it 
sure would be helpful to urge press conferences to just let 
people know, regardless of whether you are Democrat or 
Republican. I think you wrote that.
    Mr. Chairman, thanks for holding this hearing, and I yield 
back.
    Mr. Loudermilk. [presiding]. The gentleman yields back. I 
would like to thank our witnesses for their testimony today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    And with that, this hearing is adjourned.
    [Whereupon, at 12:00 p.m., the hearing was adjourned.]

                            A P P E N D I X



                              June 6, 2023

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