prepared for delivery
WASHINGTON - I
want to join all Americans in saying our thoughts and prayers are with those
who were affected by yesterday’s tragedy at the Washington Navy Yard.
To those who lost a loved one, I
offer my deepest condolences. And extend my gratitude to the local authorities,
federal law enforcement, and medical teams who responded so quickly and
skillfully to the events that unfolded yesterday.
Now, I would like to start by
talking about current economic conditions and challenges. I would also
like to speak about what is at stake for our economy over the next few weeks.
As we meet here this morning, it is
important to remember that five years ago this month, our financial system was
in the throes of a devastating crisis.
The crisis exposed fundamental weaknesses
in our economy that had been building for some time, and it helped trigger the
worst recession since the Great Depression. In the months before
President Obama was sworn into office, we were shedding more than 800,000 jobs
a month and our economy was shrinking at an 8.3 percent annual rate.
The President moved immediately to
stop the recession, and he began to lay a foundation for long-term economic
growth. He took action to repair our aging roads, bridges, and highways.
To invest in education so that more young people could graduate high school and
go to college. To fix a health care system that was not working. To
reshape the financial system so it does a better job of protecting consumers
and investors. To lock in lower taxes for 98 percent of all
Americans. And to make it easier for entrepreneurs and businesses to
innovate, grow, and hire.
Since 2009, our economy has been
expanding. Private employers have added 7 and a half million jobs over
the past 42 months, and businesses added more than 2 million jobs over the last
year. Manufacturing is expanding while the housing market continues to
improve, posting gains in sales, prices, and residential
Because of the policies we have put
in place, our deficit has fallen faster than at any point since the
demobilization after World War II, and should continue to decline relative to
GDP over the 10-year budget forecast. And because of the resiliency of our
people, our businesses, and our economy, we are in a much stronger position
today than many imagined just a few years ago.
But we are not where we want to be
yet. Too many Americans cannot find work. Growth is not fast
enough. And the very definition of what it means to be middle class is
being undercut by trends in our economy that must be addressed.
These trends—like the increase in
income inequality and the decline in upward mobility—did not happen
overnight. And it is going to require work and focus to reverse
But we cannot do that—we cannot
focus on what is important—if some in Washington continue to create uncertainty
about whether our political system can meet its basic responsibilities and
avoid creating self-inflicted wounds to our economy.
I know from my talks with business
leaders that this is a concern for many of you. That is why it is important for
Congress to work with the President to replace the senseless across-the-board
spending cuts known as sequestration with balanced policies that reduce the
deficit and strengthen our economy.
And that is why it is also
important that Congress move as soon as possible to raise the debt ceiling and
eliminate any uncertainty about America’s ability to pay its bills.
As many of you know, we will soon
be unable to finance the government if Congress fails to raise the debt
Raising the debt limit is
Congress’s responsibility because Congress, and Congress alone, is empowered to
set the maximum amount the government can borrow to meet its financial
It is important to note—as I have
done before—that the debt limit has nothing to do with new spending. It
has to do with spending that Congress has already approved and bills that have
already been incurred. Failing to raise the debt limit would not make
these bills disappear. We reached the debt ceiling in May. Since
that time, Treasury has used what are called extraordinary measures to avoid
defaulting on our obligations.
I notified Congress in August that
these extraordinary measures would be exhausted by the middle of October. If
Congress fails to act and those measures are exhausted, we will have to use
what cash balances we have on hand to fund the operations of a nearly $4
trillion government. At that point, meeting our nation’s financial obligations—including
Social Security and Medicare benefits, payments to our military and veterans,
and contracts with private suppliers—will be put at risk.
Some in Congress seem to think they
can keep us from failing to pay our nation’s bills by simply raising the debt
ceiling right before the moment our cash balance is depleted. This is misguided
for several reasons. For one, it is not possible for the U.S. Treasury to
know with precision when that moment will be because outgoing payments and incoming
receipts vary significantly each day. Operating on a small cash balance
creates the real danger that on a day that we anticipate having a positive cash
balance we will actually have a negative one.
At the same time, we are relying on
investors from all over the world to continue to hold U.S. bonds. Every
Thursday, we roll-over approximately $100 billion in U.S. bills. If U.S.
bond holders decided that they wanted to be repaid rather than continuing to
roll-over their investments, we could unexpectedly dissipate our entire cash
The point is, trying to time a debt
limit increase to the last minute could be very dangerous.
Make no mistake: If Congress
does not act and the U.S. suddenly cannot pay its bills, the repercussions
could be serious. The impact on families and businesses could be
significant. Investors losing confidence in the full faith and credit of
the United States could cause damage to our economy.
Failure to raise the debt limit –
or even an extended debate on the merits of doing so like we experienced in
2011 – is a self-inflicted wound that can do harm to our economy right at a
moment when the recovery is strengthening.
No credible economist or business
leader thinks that defaulting on the full faith and credit of the United States
is good for job creation or economic growth. They understand that
Congress choosing not to pay the government’s bills is unacceptable, and could
hurt our economy. Consider the words of another Treasury Secretary, James
A. Baker III, who served under President Reagan.
Faced with a threat to our nation’s
credit, Secretary Baker told Congress: “A failure to pay what is already due
will cause certain and serious harm to our credit, financial markets and our
Of course, failing to meet our
financial obligations should be an unthinkable event. Never in our
history has the United States defaulted on our debt obligations. Congress
has always lived up to its responsibility to protect the nation’s credit.
Those in Congress who think default
is an option claim that it is possible to protect our economy by simply paying
only the interest on our debts, while stopping or delaying payments on a number
of our other legal commitments. There is no way of knowing the irrevocable
damage such an approach would have on our economy and financial markets.
As administrations of both political parties have previously determined: these
“prioritization” proposals are unworkable. They represent an
irresponsible retreat from a core American value: Since 1789, regardless of
party, Presidents and Congress have always honored all of our
We cannot afford for Congress to
gamble with the full faith and credit of the United States of America. At
the same time, we should never be put in a position where we have to pick which
commitments our nation should meet. How can the United States choose
whether to send Social Security checks to seniors or pay benefits to our
veterans? How can the United States choose whether to provide children
with food assistance or meet our obligations to Medicare providers?
Now, as a matter of fact, up until
very recently, Congress typically raised the debt ceiling on a routine
basis. The debt ceiling was raised 18 times under President Reagan who
had a Democratic House of Representatives during his entire eight-year
term. It was raised six times under President Clinton who had a
Republican House of Representatives for six years of his eight-year term.
And it was raised seven times under President George W. Bush who had a
Democratic House of Representatives for the last two years of his eight-year
term. During that period, many of the debt limit increases were passed
as stand-alone bills. There were, though, a handful of times when a
debt limit increase was embedded in Congressional legislation dealing with
broader fiscal challenges. But the threat of default was not a bargaining
chip in the negotiations.
That all changed two years ago when
the issue of raising the debt ceiling turned into a high stakes political
drama. We saw for the first time a debate take place over whether the
United States should voluntarily default on its obligations. Some
actually argued that default was a viable outcome. There were in fact
members of Congress willing to default on our full faith and credit rather than
reach a good faith compromise.
America does not want to relive
what happened in 2011. That drawn-out debt ceiling dispute and
brinksmanship led to business uncertainty, a drop in consumer confidence, and
the first ever downgrade of the nation’s AAA credit rating. The resulting
drop in financial markets undercut economic growth for months. Anxiety spread
across the country and around the world as Congress delayed action until the
very last moment.
I want to repeat what the President
has already made clear: He will not negotiate over the debt ceiling—he will not
accept measures that would tie a debt limit increase to defunding or delaying
the Affordable Care Act, which was passed by Congress, and upheld by the
The time to make policy is before,
not after, we have made commitments. This is a stand that Democratic and
Republican Presidents must take to make clear that under no circumstances will
the United States fail to pay our bills.
Now, the President is willing to
negotiate over the future direction of fiscal policy. That is why he
proposed a budget that reflects the difficult choices he believes we need to
make as a country. Within that budget, the President included reforms to
entitlement programs and the tax system that would spur economic growth and cut
our deficit. And he has made it absolutely clear that he is ready to sit
down with Republicans and Democrats to find common
Elected leaders have a
responsibility to make our economy stronger, not to create manufactured crises
that inflict damage. The very last thing we need now is a fight
over whether we raise the debt ceiling. Not when we face serious
challenges both domestically and internationally that require our full
attention. And not when we know the kind of damage a financial and economic
crisis can cause.
The truth is, Congress can get this
done. The time to do it is now.