Says we must meet two “urgent” goals: reducing our debt, and meeting our financial obligations, and Cut, Cap, and Balance “is a good way to meet [those] two goals”
Posted on July 21, 2011
“Do we really want to inject this level of uncertainty into the turbulence we have today and into the financial markets when we know we could avoid it? I think not.”
– Lamar Alexander
WASHINGTON – In a speech delivered today on the floor of the United States Senate (video HERE), U.S. Senator Lamar Alexander (R-Tenn.) said the nation runs the risk of pricier borrowing and global uncertainty “if we play around with this idea of the United States of America—the most creditworthy country in the world—selectively paying its bills, going from being the most creditworthy country to being a country that pays its bills out of a cigar box,” alluding to a friend in Tennessee who stores his bills in a cigar box and pays each one, arbitrarily, as the money comes in.
“There is every reason in the world to regard the debt ceiling decision we have to make as an opportunity to take a significant step to reduce the debt,” Alexander said. “We can do that while still honoring our financial obligations, and we should. Cut, Cap, and Balance is a good way to meet [those] two urgent goals.”
A full transcript of Senator Alexander’s speech follows:
Mr. ALEXANDER. Mr. President, I congratulate the senator from Texas for her remarks, for her leadership, for her willingness to be involved in and support a variety of ways for us to meet the two goals we have before us, one of which is to make a significant step to reduce our federal debt, to stop Washington from spending money it doesn't have; second, to do so in a way that honors the financial obligations of the United States of America, the most creditworthy country in the world.
The Cut, Cap, and Balance Act, which has passed the House and has 37 cosponsors in the Senate – I am proud to be one of them – I think is a superior piece of legislation. I hope when we vote on it, it gets a majority of votes in the Senate and becomes law. Before I speak about the Cut, Cap, and Balance Act, I would like to speak for a moment about those two goals that are before us as we consider our debt, consider our financial obligations, and consider all of them up against what is said to be a point on August 2nd, when the debt ceiling needs to be increased.
As I think about those two goals – reducing our debt, honoring our obligations – I think about a friend of mine in Tennessee who pays his bills out of a cigar box. This is how it works: A bill comes in to my friend and he puts the bill in a cigar box. Then another bill comes in and he puts that bill in a cigar box. Then the next week maybe some money will come in. So my friend will reach down to his cigar box and he will pull a bill out and he will pay that bill. Then, when a little more money comes in the next week, he will reach down and pull out another bill and pay that bill. My friend pays his bills out of a cigar box. Now what happens to my friend if he wants to go down to the local bank and says he would like to borrow some money in order to pay all the bills he has in his cigar box?
I think what the banker is going to say is, “I am sorry, my friend, but we are reluctant to loan money to you or, if we do, we are going to charge you more for it because we don't know whom you are going to pay.” You might reach into your cigar box and pay the whiskey store instead of the bank. You might pay the grocery store instead of the principal on your loan. You might pay the service station before you pay us. So because you selectively pay your bills out of your cigar box, you are not a good risk. We are going to charge you more to borrow money or we are not going to loan you money at all.”
That is the risk we take if we play around with this idea of the United States of America – the most creditworthy country in the world – selectively paying its bills, going from being the most creditworthy country to being a country that pays its bills out of a cigar box. There are three obvious reasons why we should not do that. Reason No. 1 is, it is going to cost us more. Today, the United States of America can borrow money for 10 years at about 3 percent. We are so creditworthy – people trust us so much to pay our obligations – that they will give us money for a short period of time at no interest. It is a tremendous advantage to us. The United States has the most risk-free credit in the world, and I might add the most risk-free credit in an increasingly turbulent world.
What if we decided after August 2nd, when we are told sometime in that month we will begin to not have enough money to pay all our bills, what if we decided not to raise our debt ceiling and that we would pay our bills out of a cigar box? We might say, “OK. We don't have enough money, so we will pay China before we pay grandma her Social Security.” Oh, better not do that. In fact, I saw a fellow in Portland, Tennessee, on Monday and he said, “What is this about my Social Security not being paid?” I said, “I think it will be paid. It might be two or three days, but the telephone calls would come in and Congress will fix it and it will get paid.”
He said, “It better not be five minutes.”
So we might want to pay all of our Social Security benefits, but the President might say or the Secretary of Treasury might say, “Well, we will pay grandma her Social Security, but we won't pay the wife of the soldier at Fort Campbell who is in Afghanistan on his third tour.”
That is not such a good idea. So maybe we won't pay the veteran's benefit. We will pay the wife. That doesn't sound so good, either.
What about those 12 million, 15 million students who are headed off to college in the next few weeks with a student grant or a student loan from the government? Should we pay just those going to public colleges and let the private colleges take care of their own – just the for-profits, not the nonprofits?
We see what could happen if we have a country that – especially a country such as the United States -- instead of paying all of its obligations on time, whether it is to China or Japan or to grandma or to the veteran, begins to selectively pay those bills when we have the money. I think I know what would happen. Instead of being able to borrow money for 10 years at 3 percent, we might have to pay a little more for it. Let's say it just went from 3 percent to 4 percent. What would that mean to us? It would mean, according to the Congressional Budget Office, the taxpayers would have to pay $1.3 trillion more in interest over 10 years. So if it goes up two percentage points to 5 percent, it is twice that. That is what happens when we pay our bills out of the cigar box.
It is not just the taxpayers. My son said to me the other day, “Dad, my mortgage loan resets in October. If you all don't work this out, it means my interest rate might go up.”
Let's say he has a $100,000 house loan, and it goes up 1 percent. That gets to be some money for him. So if it is a credit card loan, if it is a home loan – whatever loan it is, it would begin to go up. Paying our bills out of a cigar box would raise our costs.
There is a second obvious reason not to do this. In 2008, we were smacked in the face with a world economic crisis. We didn't expect it. Most of us didn't cause it, but we had to deal with it. Here in the Congress, we had to do some very unpopular things: We had to bail out banks, even some industries. The American people hated that, even though most of the money has been paid back. We don't know what we averted – probably a much worse problem – but we are still suffering from what happened in 2008. But we didn't do that deliberately.
In this case, if we were to deliberately go from being the most creditworthy country in the world to a country that paid its bills out of a cigar box, we would be deliberately injecting uncertainty into a turbulent world.
Look at Europe, with the eurozone trembling over the debt in Portugal and the debt in Greece, with sovereign nations perhaps having to bail out European banks.
Look at Japan, the third largest economy, in a 10-year recession, with a third of its powerplants closed after the tsunami, sweating through the summer, with an inability to sell their goods.
Look at China. China is a big success story, but it may be growing too fast. Its inflation is up, and it has a lot of unreported debt at the provincial level.
Look at our markets. We make trades in milliseconds, and twice in the last year we had sudden drops in the market which we couldn't explain for months. Do we really want to inject this level of uncertainty into the turbulence we have today and into the financial markets when we know we could avoid it? I think not.
Then there is a third reason, and this is a purely partisan reason. Maybe it is not even appropriate to talk about it on the Senate floor, but let's talk about it for a moment anyway.
The President has done a pretty good job of blaming his predecessors for problems, but lately people have said, “Mr. President, we don't blame you for the problems you inherited, but we do hold you responsible for the decisions you have made to make it worse. You have made it worse with the health care mandates and higher individual health care policies. You have made it worse with the financial regulations bill. You have made it worse by not sending over the trade bills. You have made it worse with the high cost of energy. You have made it worse with your National Labor Relations Board appointments and undermining right-to-work laws. You have made it worse by doubling and tripling the debt.”
People are listening to that. They agree with that. But what would happen if the Republican Party or the Democratic Party or any group of people have the primary responsibility for turning this country from a country that is the most creditworthy country in the world into one that pays its bills out of a cigar box? The President will say – instead of us saying, “Mr. President, you made it worse,” he will say, “You made it worse.”
There is every reason in the world to regard the debt ceiling decision we have to make as an opportunity to take a significant step to reduce the debt. We can do that while still honoring our financial obligations, and we should. And today we are talking about one of those ways to do it.
Republicans have offered – with Democratic cosponsorship in a number of cases – at least five major ideas for taking a significant step toward stopping Washington from spending money it doesn't have. There are five ways to do that:
First, there is the Corker proposal, which is bipartisan and over 10 years would bring our spending, which is the real problem, from its present level – about 25 percent of our total output in the country – to about 20 percent, which is the historical level.
Second, there is the balanced budget amendment, which is the most obvious solution for a nation that is spending more than it takes in. Families do it, states do it – balance their budgets, live within their means – and the federal government can do it. Over time, we can get back to the point where we were not many years ago, where we spend about the same amount of money we take in. As governor, I know that for 8 years we did that. As a result, we have almost no debt in the state of Tennessee, and as a result of that, we can use our gas tax money, for example, to pay for roads instead of interest on the debt.
Then there is a third idea that has bipartisan support; that is, the Gang of Six, which came out this week. The President said it was a gang of seven. He thought I was in it. I would have to say with respect, Mr. President, I am a law-abiding citizen. I am not a member of any gangs. But I support what they do because I think it is a serious, bipartisan effort to help stop Washington from spending money it doesn't have.
Then there is fourth proposal which has bipartisan support that Republicans as well as Democrats have initiated. Senator Isakson from Georgia has taken the lead on it. It is the two-year budget proposal which would allow us time every other year to focus our efforts on eliminating rules and eliminating regulations instead of adding so many.
So there are four ideas we have suggested – in some cases with bipartisan support – where we can take a significant step to reduce our debt while still honoring our financial obligations.
Today, we are talking especially about Cut, Cap, and Balance, our fifth idea. The legislation that passed the House of Representatives with 234 votes this week has come to the Senate floor. We are going to be voting on it in the next day or two. It has 37 cosponsors, and I am one of them. I especially commend Senator Lee for his work on putting this bill together and doing it in a way that would attract the largest amount of support.
This is a very reasonable proposal. The cut part is to say that for the first year, we would spend a little less than we did last year. Now, that is a reasonable proposal. The state of Tennessee, where I was once governor – the current governor is presiding over a state that is spending $1 1/2 billion less than it spent last year. Now, they don't like to do that. There are some unfortunate consequences from it. But they still balanced their budget, they are still getting along, and they are hoping for the day when the economy recovers and they will have more revenues coming in without raising taxes.
So step one is to cut what we are spending today in next year's budget. Then we cap, according to the economic output of the country over the next 10 years, the amount we spend over those 10 years. Then the third step is to balance the budget – the most obvious solution of all – over time, to say we are not going to spend more money than we have coming in. This is our proposal to begin to control spending in a government that borrows 40 cents out of every dollar it spends, a government the economists tell us is costing our nation 1 million jobs because of the high level of debt. This is an urgent problem. It urgently needs a solution.
In conclusion, almost all of us here in the Senate are good at making speeches. That is one way we get here. But we have not become as good at the rest of our job, which is to get a result. The American people expect us to do that. They have to do that in their everyday lives. So they respect our principles, they respect our speeches, but they know our principles sometimes conflict, and in the end, we have to have a result. We have to have a result here. We have to find a way, first, to significantly reduce the debt and, second, to do it in a way that honors the financial obligations of the United States.
I have suggested five ways we can do that, including cut, cap, and balance. In order to do that, it means each of us is probably going to have to accept as a part of the solution an idea that is not our first choice. But why should we be exempt from that requirement? That is what we have to do in a marriage. That is what we have to do in a family. That is what we have to do in a business. That is what we had to do in creating the Constitution years ago. This Senate wouldn't exist if it weren't because of a grand compromise. Otherwise, how could we justify two Senators from Wyoming and the same number of Senators from California, which is so much larger?
To get a result, after we make our speeches, we need to be willing to accept some ideas that are not our first choice. That is why I am a cosponsor of several different kinds of ideas – Cut, Cap, and Balance, the Corker proposal, the Gang of Six proposal. That is why I support the Isakson-Shaheen effort on the two-year budget. That is the kind of attitude we need in the next couple of weeks.
Cut, Cap, and Balance is a good way to meet our two urgent goals: take a significant step to reduce our debt and do it in a way that honors our financial obligations.
We are perfectly capable as a country of fiscally disciplining ourselves. We are capable of reducing our debt and of stopping spending money we don't have and, at the same time, avoiding turning the most creditworthy nation in the world into a country that pays its bills out of a cigar box.
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