tv Washington Journal Christopher Russo CSPAN October 13, 2021 11:34pm-12:29am EDT
the banks of new york and chicago.o. the house acted yesterday to raise the debt ceiling ahead of a potential default. why do we have a debt ceiling in the first place and why do we keep creeping towards these potential default cliffs? >> first, thanks for having me on. i'm excited to be on c-span. the debt limit began pretty recently in the country's history relatively speaking. it was created in 1917 as a way for the u.s. treasury to more easily fund the first world war. upto until that point, congress usually authorized each individual treasury debt and for example issuing for the panama canal but with the advent of world war i and increase in government spending the debt limit on the one hand gave treasury more ability to better manage the cash and debt but on
the other hand constrained the treasury to make sure that they were not issuing too much debt relative to the amount of spending that congress had authorized. it evolved over time and it has been used kind of as a backwards looking constraint on spending or at least has been attempted to be used in that way and also for other w political purposes. as a consequence of that in the last eight decades plus, we have had these every few years will they or won't they default episodes where it takes a lot of political pressure to get the debt limit raised so they do not default on their obligations. >> raised by $480 billion and expected to buy the right treasury departments two or three months or so until we have another debt limit vote or debt limit default cliffs that will be approaching. is it worth still having a debt limit if we continue to have these issues?
>> i believe that at this point, the debt limit poses a danger to the economy and the financial system that is no longer worthwhile. the congress authorizes the spending attacks thehe treasury does. for better or worse, congress' budget made up a deficit and that said i would also stress that we do face long-term fiscal and balances, a run-up in the debt level that is unsustainable and for basically all of human history suggests it isn't going to work out well for us. i suppose congress tackle these together hopefully to find the middle ground in washington that can actually get a solution through. and that would be peering a permanent suspicion in the debt limit so we don't have these every few years along with long-term reforms to the budget to stop the rise and growth as well as reforms to better grow the size of the economy.
house democrats and senate democrats with plenty of criticism about the debt limit. nancy pelosi yesterday on a proposal to give the treasury department the authority to lift the debt limit. >> there's all kinds of suggestions members had. one way is endorsed a while back by mitch mcconnell, but who knows. it was to the manifestation of it now. it puts the responsibility on the secretary of the treasury to make the determination. that decision could be overruled
by the congress. it v would take 60 votes under e present but nonetheless, congress would have to overrule that. have some appeal to both sides of the aisle because of the consequences to people of not lifting it. but why what is -- i mean, many democrats at the extent of jeopardizing it, this is the first time. >> the congresswoman pelosi is talking about it makes a lot of sense.
on the one hand, you authorize treasury to take the steps it needs to take to finance and on the other hand, to get the political support that it would need on both parties by having the fixes. making the claim and invoking the amendment without endorsing or oppose any specific proposal, can you just talk about those issues in general and why they come up as a way to get around the debt limit? >> some of the creative people when we are faced with a crisis like this and people go back and look at acts passed by congress about making commemorative coins and they take the parts of the constitution to figure out some
runaround what i see is a necessary but hard thing to do on the compromise we see these being thrown out as a complete catastrophe. on this i agree with the treasury secretary and chairman powell andtr a whole range of middle-of-the-road sensible people on the issue. we are talking about the debt limit. phone lines are open for you to join the conversation. (202)748-8001. 748-8000, independence 748-8002. i folks are calling in. as of this moment,
phenomenal system. i don't mean to say tomorrow there's going to be a crisis but if you look at the projected level of debt to gdp over time, that will grow out of control. there was a time the federal reserve was worried there would be to view outstanding. they wouldn't be able to do the regular actions and now we are at the point after the global financial crisis and after nearing the end of the recession that we are at 100% of debt to gdp plus trillions of more other liabilities that are not counted in that number but are implicit backstops to the system. ani don't want to throw a particular number out there but
the sustainable number whether it's 100% of gdp, 110, 120, that maximum will get breached if we continue to grow the debt unsustainably. bank deposits, you and i and the audience. it is a claim on dollars we can go to the bank at any time and say we want our money and they have to give it to us now plus
some interest. this is important enough to back. in sometimes it works out phenomenally because they are backed by the full faith and credit of the u.s. government. we don't need to run to the bank every time that we are spoofed about the markets another example is mortgage-backed securities as a significant problem in the 2008 financial crisis. fannie mae and freddie mac were on the conservatorship and there's a complicit understanding in the market of the mortgages went bad it's made arguably explicit in the last ten years so these are the types
of things and there's others as well but ultimately the point is the government sees a private debt and liability and say they say this is too big to fail we are going to backstop it and those are not counted in the actual numbers for the treasury debt. william on the first line for democrats. good morning. >> it's just a shame politicians do everything in the world to try to keep it away. i am 86-years-old. i've always voted democrat except one time. all we have is brooks, the
lobbyists and then a government, it is a given. i feel so sorry for my great grandkids and the political system. >> who was the one republican you votedti for in your lifetim? thank you much. >> too much federal politics around the debt. >> i sympathize with his concerns but i hope that the issue we are facing here is important enough that can be described as nonpartisan not
necessarily a small government or big government. there are pros and cons of both but what i do argue is unsustainable whether you have a small or large government. you are next. >> thank you for taking my call. i agree with reference to the bipartisan voting on the infrastructure bill. the republicans were totally against it and when the previous
president trump was in office and wanted to develop an infrastructure bill to improve real roads and bridges, the republicans were allth for it. my personal concern would be if president biden would do something to reduce or eliminate these tariffs imposed by the trump administration because that increase was passed on to us as taxpayers to fix the debt limit i think we should have structuralct reforms to grow the
size of the economy and again a greater level of economic growth on the perspective of the debt. there's things like the reform of the medical system it would be great if we have more providers of medicine to the lower cost which is a big concern forow everything but the are laws in the book that prevent hospitals from starting without the approval of other hospitals in the state. the gentle man brought up the issue of infrastructure that is essential and i also wonder whether there are constraints right now on individuals and businesses that prevent them and zoning regulations that prevent them from improving their properties from building
extensions in some cases and to raise the united housing stock in the country that lowers the cost another big concern so there's a lot of important stuff that can be done. on our text messaging service a default scenario saying if the debt ceiling wasn't raised now or in a month would there be enough to pay the interest on the existing debt what exactly comes in and what is the total daily expense that needs to be covered? let me first address the fact that it is funded what happens with social security as an example we all pay payroll taxes
and we go to work and get our paycheck. that money is earmarked but not in the way that you would expect. instead it's anything and everything the government spends money on. it just goes in the same checking accounts as everything else. so the way that operated from a financial perspective is the treasury gives the social security trust fund and i owe you and says we took in this much in taxes and paid this amount in revenue and as a consequence it's left over for
future benefits but in this sense it is going to go bankrupt in the next decade or so and likewise medicare is due to go bankrupt a few years from now so what would happen if the debt limit is not raised or treasury must start prioritizing payments. as best i can tell from reading the public documents, treasury would choose to pay and it would use the remaining inflow of cash to pay whatever obligations the u.s. government could. now there are a whole sweep of obligations in the past several years there's been talk about whether they could prioritize payments instead of paying everything for the national defense we can play the numbers
here but that seems plausible for a time at least but i don't know whether it is technologically possible there's some knowledge used to run the financial system. i'm not confident that can be done. this is not an easy system to work with. >> switching gears a little bit, explain what tapering is. >> it is the process of the massive asset practice. the largest in its history with the start of the pandemic the balance sheet has doubled in size and it's now at about $8.5 trillion up from about over $4 trillion before the pandemic
and these help promote a rapid recovery putting millions of people back to work and continue to buy $120 billion of u.s. treasury securities and agency mortgage-backed securities every month. tapering with the process beginning to reduce those purchases and ultimately bringing them down to zero. a.em >> and whenn they do that, what is the w schedule and how much s that subject changed by something like this debt ceiling issue for two months from now? >> that's an excellent question. let me defer you to the comments that have been made at a high level back in october, officials announced that o they were considering the possibility of the process and that could occur
as soon november. more as a general matter they will continue to react to the job market and other factors that affect financial stability so there is no clear guidance when they would begin the process last surveys these are the banks operating for example the securities. those banks thought that they could take between say half a year and a year and it might begin within the next few months. >> do you have an opinion on the rate that the fed should be
prepared to respond to future crises? >> i think when it comes to tapering simpler is better so if we want to get down to the next year simply take off the 12th of the current so $10 billion in reductions of purchases each month. even when they stop purchasing assets that just means it stops growing not that it's beginning to reduce. it would take a period of time say two or three years at which they would holdhi the size of te balance sheet constant and then slowly and methodical to drain the size of the fed balance
sheet. >> nelson is in pembroke pines florida. i would like to point out that virtually all civilizations that have declined the past have as one ofas the basis for the decle was there national debt starting with lowering the amount of silver. our national debt already exceeds by quite a bit. it's growing at a rate of between one to $2 million a minute. the only thing that gives us laws as to how much money we'ree
that is an excellent question. there's a few important things first let me say that as a student of economic history i have two examples where we've had a country with over 100% of debt to gdp. first was the united states following world war ii. that was a period in which we had tremendous structural reforms as well as a policy for the first decade after world war ii and which they were doing monetary policies to help them finance the debt not to react to changes in employment or inflation. so god willing we wouldn't have a repeat of the 1940s in which we had ten or 20% inflation in some circumstances. so how do we get ourselves out
of this quagmire we seem to find ourselves in? a country that had over 100% of debt to gdp and that of course was the united kingdom following theow napoleonic war with tremendous military force. they were able to grow their way out of that debt and they were doing that following the industrial revolution which was the beginning of a worldwide trend of positive growth. also aer way to raise the levelf growth and as a third component to be worth more.
that's not to say we can't run any taxes. i don't believe either but nonetheless, it doesn'tes help f taxess are higher than ever and there are certain programs that need to be fixed to bring the level of spending back onto a sustainable path. >> i'm 80-years-old so i'm old enough to remember eisenhower and the great military complex. i'm also old enough to remember how ronald reagan would give the trickle-down theory and all of these things combined between ronald reagan and the christmas
gift they give to the taxpayers that i think most people know you cannot increase your spending and come out with more money in the end. i do not care how you increase the amount of people when you do not super the people at the bottom and/or have money to spend you do not have an economy that is really working.
we need asy system that works fr all americans and put americans to work. in the past 16 or 18 months doing that in part by having a strong response and its policies by promoting aggregate demand. for the supply-side economics i'm not a supply-side. i may supply and demand economist. i can support things like responses by the federal reserve to a substantial downturn to promote the recovery but also the long term recognize we need structural reforms ins congress tong improve the long-run growth and employment prospects. the gentle man was eluding to
the idea that if taxes are sufficiently high, you could reduce taxes and bring more revenue for more economic activity. they will debate back and forth sort of the validity of that. i'm generally skeptical that in general it would bring more revenue but i will say that there are some special circumstances in which that does hold. one pernicious one that i think we have a special obligation to help but in many circumstances tax recipients over every dollar earned if they choose to go out and work because they will lose more than a dollar of benefits so ways of modifying the system while not imposing over 100% tax rates on them could be a way of helping to bring more people
into the labor force which is good economically and socially. >> talking about the poorest americans a lot of discussion on capitol hill about inflation and especially its impact for americans and republicans in particular concerned about inflation during the biden administration. late last month talking about this issue of the rise of inflation. i asked you to tell me what you thought it would be at the end of this year and you told me to percent. do you still stand by that prediction? >> it's going above 2%, just the experience so farr this year makes that clearly but i think we arere seeing monthly inflatin rates taper off. >> what do you think it will be
at the end off the year if not 2%?%. >> probably closer to 4%. that's already the case based on what's happenedd this year. >> on inflation concerns. >> i will sympathize. to give the perspective of someone that is thinking about these issues there's always upside risksde and downside ris. tightening the policy to fast and raising interest rates too quickly, lowering the purchases too quickly that would kick us back down into a double dip recession and that would be harmful for the job market even if not taking us back down to recession for the monetary support could lead to a weaker job recovery and we have that in the global financial crisis.
the upside risk is if we keep the interest rates too low for too long or asset purchases going too high for too long we could have inflation begin to spiral higher and higher. the balance risk has been tilted to the downside for that first outcome of the job recovery but as time has gone on and we've seen the recovery continue, the risks are now more balanced. we have to ask ourselves as economists and i think the policymakers of the fed are considering whether the inflation we see today is driven fundamentally by the monetary policy or the supply chain disruptions that would be because in my view to reduce the level of support to bring inflation back down closer to
the 2% target. but in my view and the view of many other economists and otherwise, it's due to supply change that will be resolved by the market over time and if we react to those supply change disruptions to the overgrowth and supply of money credit that would compound the situation so the conventional wisdom and monetary policy if you have a temporary supply chain disruption don't change monetary policies. good morning. my question is very simple. first i would likefi to know if it's possible to put a cap on the salaries working as servants of the public.
they take jobs on working for us and deserve a good salary but at times like this, they should realize that enough is enough. or regardless of their income we could let the rich start paying their fair share of taxes because they don't pay taxes at all. that is my three questions that i'm putting to you. >> there's a lot of interesting stuff. i don't think i have much comment on all three. i will just say that when we think about structural reforms like the one i was talking about, fixing the structure of the tax and benefit system so we are not taxing people particularly the worst off in these high rates implicitly there will be a lot of debate about what the actual numbers are that should fill in the legislation. should the capital gains tax be
10%, 20%, 30%, my suggestion here is we should figure out the tax structure itself, figure out what we want to be spending money on and back out on what would be necessary for the revenue. there's a lot we can do to fix the tax system without even changing the distribution of who pays taxes were arguably if the gentle man wants to where the political compromise acquired raising taxes on certain individuals or certain aspects ofof the american people. but we can do that while making the tax system more compatible which is a fancy way of saying compatible with people wanting to make a living for themselves instead of being penalized by the government. >> gary on the republican line, good morning. a.
>> good morning. mr. russo i want to add to your social security comment when lbj was president, he saw how much money was coming into the treasury at that time so he put it into the general fund that allowed them to suspend that money. if you took from his era to this day social security and medicare would be owed $11.8 trillion and that went to war's end wars andg and you are correct i don't think many people realize but here they want to spend so much remoney. we are at 28 trillion now and nobody even thinks about putting money back into social security so yes it's medicare and about five years it's going to run out and they think social security
by 2030 is going to be pretty well depleted. so my whole thing is now they want to eliminate. if they raised interest rates we couldn't even handle that payment. it would w eat up everything tht comes into the government and that's all i wanted to add. >> i appreciate the comments and sympathize with his concerns. i wasn't aware of the origins of how they are used. that's quite interesting but he's right as i described when we had the taxes for the programs for the treasury general account that's the checking account treasury holds to make its payments and receive
receipts. i was in charge of forecasting that on a daily basis for officials. there were reforms we could make on a more solid footing going forward. i think we will need to do that in the next few years. but i hope we will find the political will in washington to dowi it. people at home who also sympathize with those views that the solution to the nation's fiscal problem doesn't come from these two-year fights or every two year fights of which we play will they or won't they be sold. it's lead to their rating in 2011 where we were downgraded for the first time by the smp and if we were to have a self-inflicted wound and push ourselves to a financial crisis into this section and worse, that would be terrible for the enfiscal outlook. even more so. so again i try to emphasize that
these are both fundamentally important issues. we need to fix the debt limit itself and this will they or won't they default but also the unsustainable rise of the debt that has driven primarily by mandatory increases in certain kinds of spendingg every year. if we can fix these two things together and grow the economy that is a win-win that made even in 2021 congress can get behind. >> in alabama this is rob, good morning. >> good morning. i just have a couple of little things that i've noticed on the program. one was the statement that social security would be bankrupt in ten years. social security has been bankrupt since the johnson administration. all the money was taken from the truste fund and put into the general fundfu that has been usd mostly for social programs. lbj did this to show that he could fund the great society.
they said that they were borrowing money from the social security trust fund. they were not borrowing anything. when you take it without any intention of paying it back ever, that isn't borrowing, that is stealing. second, on both sides republican and democrat, when a politician tells you we don't raise the debt ceiling and both sides have done it, if we don't raise the debt ceiling we will default, that is a lie. we had enough money coming into service the debt. it has to be serviced first before anything else is taken out. now t until we stop servicing te debt, we do not default. so that isn't true. >> i appreciate the passion on this issue and i try to say in my writing and when i speak that
as the gentleman says it could be possible that the treasury prioritizes existing principal and interest on the national debt with incoming revenue but that said the government has otherhe obligations. spending has already mandated beyond even just social security, medicare, national defense and a variety of other things that we just wouldn't have enough money coming into play. so then the question at least for me as an economist's how would the worldview a circumstancerc in which the congress is authorizing these programs whether you like them or don't like them and treasury has to be bound by debt limits that prevent it from making the payments which it is obligated to make by the congress i don't think the financial f system, te world financial system or the broad u.s. economy would do that very favorably and again the notion of prioritizing payments,
i'm not a lawyer. i can't speak to what's legal or not legal or what the treasury mechanically could or could not do given this system but it isn't clearcl to me that that ia bulletproof response or solution. when we get down to the weeds about this, in a hypothetical situation which the treasury has to do these extraordinary measures and i don't mean the extraordinary measures in the sense of the things they do before we hit the debt limit or try to manage the debt limit. i mean, the things we just described, prioritize payments. when we get to that position where they have to then go and intervene the financial markets to stop the financialar disruptn that comes as a result of that, it isn't clear to me that we are in a good situation. it would have to be a pretty poor situation. i then offer to the gentleman's point thinking about the political reality that we are in. i wonder if we got to that situation, would congress be willing to continue to pay all the national debt or would there
be a bondholder on the world some might say in china or other countries in which congress might not want the treasury to make those payments? that could be a terrible idea. but we are taking a gamble in many dimensions by being willing to go beyond the data that we need to raise the debt limit without doing so and in my view it is dangerous. >> we are a bit past our time, but there's a couple of calls that have been waiting to chat with you if you don't mind we will get them in. the sunflower state this is rick inll atchison. >> good morning. this is just a follow-up to a statement you made about social security and medicare possibly going bankrupt in the future and so on however, the fix for one is much easier than the fix for the other one and so you didn't make that distinction. you did say later that there are
fixes for both of them. so maybe if you just talked about the fixes that you see for both of them that we cleared up. >> i appreciate the gentleman's question. let me just be honest when we talk about the social security and medicare it's off my expertise so i don't want to go too far. it should be pretty easy for most americans to understand. take social security for example. people have been living much longer since the program was founded. that means larger and larger benefits over time. so if the benefits of social security are increasing over time and tax revenues are not epkeeping up, there's two things you can do. you can try to scale benefits back in a sort of methodical way over time that's not going to leave anybody impoverished that the same time it tweaks around the edges to bring the level of benefits down from a more sustainable and in addition to
that you can raise payroll taxes or choose to fund social security not just from the payroll taxes but through other taxes the treasury issues. medicare as the gentleman has been eluding to is more difficult because the growth in the medical spending over time is tremendously large. a friend of mine was joking that if they continue they will have 100% of gdp being spent but that won't extrapolate over time let's hope. but the cost of medical spending needs to be brought down and put medicare on a more sustainable path because when you get to high numbers of medical spending it isnd possible you could raise taxes to bring that to a level. the question becomes and this is more difficult as the caller was eluding to, how do you do that and we've done a lot of work on this and i would refer you to some of that work.
but on the whole, it would i think in my view and there's involve having a more competitive system for providing medical care in the same way markets bring down the cost of everything else consumers spend money on it might be able to bring down the cost of medicine as well. >> james in san diego, republican. good morning. >> good morning mr. russo. two calls ago you made a correct statement and incorrect statement. number one, politicians are the ones that correct the debt. the president, senate and house of representatives come to congress and make the debt and then we all have to live with it. number two, yes there is a matter on what payments are going to be made by the federal government as we approach this limit of how much money we are going toto take in as the federl government and how much we are going to spend so please answer those questions. you can answer yes or no to either of them. >> i apologize. i'm not sure about the second
question. >> but of course the house of representatives, the senate and the president, the taxes and spending. ultimately congress has the power of the purse and the power of the credit card so of course the compromise that would be necessary to get for congress would likely require the president but a veto could be overwritten if there is a broad compromise and political support in congress, so there are these issues that need to be worked out by actual legislators and staffers on the hill but at a high level i think some sort of compromise here with broad-based support would be necessary. on the second question, i apologize i'm not quite sure with the second one was. a. >> we are about ten minutes over and appreciate you sticking around for a few extra calls but we will have you on again down the road.