[Congressional Record Volume 141, Number 170 (Tuesday, October 31, 1995)]
[House]
[Pages H11561-H11563]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                              {time}  1830
        MESSAGE TO SPEAKER GINGRICH: AGREE TO RAISE DEBT CEILING

  The SPEAKER pro tempore (Ms. Pryce). Under a previous order of the 
House, the gentleman from Florida [Mr. Gibbons] is recognized for 5 
minutes.
  Mr. GIBBONS. Mr. Speaker, my remarks are addressed to Speaker 
Gingrich, and I hope he is listening, or some of his staff is 
listening, because this is a very serious subject.
  Tomorrow, Mr. Speaker, you are going down and visit with the 
President of the United States in the Oval Office and talk about the 
debt ceiling. I know, Mr. Speaker, you made some off-the-cuff remarks a 
couple of months ago saying that you did not care if the Government 
went into default for a couple of months. At least that is the way I 
remember it being reported.
  I know that those were casual remarks and some that you gave without 
thinking through the situation, but there is a very serious problem.
  Now, it is not a political problem, Mr. Speaker, because let me make 
it very clear. Every Republican Member of the House and the Senate has 
voted to increase the debt ceiling on perhaps as many as three times 
this year and they have agreed to increase the ceiling to $5.500 
trillion, so the amount is not in question. The only thing in question 
is when you are going to take the final step and take the effective 
date.
  Now, I do not know what motivates you, Mr. Speaker, but this could be 
a very expensive matter, and I hope you will not take it offensively if 
I say that 

[[Page H11562]]

you could blemish the credit of the United States, a credit that 
stretches back over 200 years.
  We have never defaulted on our debt and we are right at default and 
tomorrow, tomorrow is a crucial day in the lead time that is necessary 
in order to extend this debt and prevent a default.
  Now, that is not only important for the U.S. Government, but it is 
important for everybody that lives in the United States, because it 
means if we increase the uneasiness about the debt and we actually 
default, there will be a premium added to the cost of money that we 
borrow.
  Not only will there be premium to that money, but there will be a 
premium to all other borrowing in the United States because the 
obligation, the debt of the United States always attracts the lowest 
interest rate and everybody's goes up from there. So if the debt of the 
United States is sold for more than a reasonable going price because of 
the uncertainty, then everybody else's debt goes up; the whole economy 
is destabilized; unemployment can increase. So, this is a very serious 
matter.

  Now, as you have been told as recently as today and five or six times 
since June, November 15 is the drop-dead. On November 15, the U.S. 
Government has got to put out a debt that will raise $125 billion. Let 
me repeat that again: $125 billion. Now, this market is over 200 years 
old and it is accustomed to operating in certain ways and there are 
certain rules and regulations that have been imposed upon it.
  Those rules begin to toll tomorrow morning at 8 o'clock when the 
Treasury opens for business. If the rules are followed tomorrow 
morning, the Treasury must notify the market that they will be offering 
for purchase debt obligations of the United States in the amount of 
around $125 billion.
  Now, it will take the rest of the week, all of the 24 hours in the 
day, to sell that debt. The market responds very rapidly, but nobody 
keeps $125 billion cash in their accounts. The market must operate and 
go out there and the more orderly that it is done, the lower and the 
better the interest rate is.
  If there is confusion in the market, then the shark folks demand 
higher interest and that higher interest will ripple through the 
economy instantaneously.
  So, Mr. Speaker, tomorrow is a very important day, and it will take 
the market until the end of the week to sell that debt. If the 
Government cannot sell the debt on next Monday, or if it has been 
hurried because of your actions. Mr. Speaker, in not letting us vote on 
this question, then it is going to cost us all money, every borrower in 
the United States. It is going to cost more money, no matter if it is 
for a car, a home, or anything else.
  Mr. Speaker, let us not be reckless. Let us go ahead and let the 
House vote on setting the effective date. The amount of money has 
already been agreed to, and trying to use this as some kind of leverage 
in a bargaining process has never worked in 200 years. It will not work 
now. It will only cost us money.
  Mr. Speaker, I submit for the Record at this point a letter from the 
Secretary of the Treasury dated today directed to Speaker Gingrich and 
others.


                                   Department of the Treasury,

                                 Washington, DC, October 31, 1995.
     Hon. Newt Gingrich,
     Speaker of the House, House of Representatives, Washington, 
         DC.
       Dear Mr. Speaker: In anticipation of our meeting tomorrow I 
     want to provide information that you should have as 
     background for your consideration of our request for a prompt 
     increase in the debt limit.
       First, I have set forth in an appendix both our current 
     projections and a history of our projections over the past 
     several months.
       Second, I want to make clear that if Congress fails to act 
     by Wednesday, November 1, it will disrupt our normal auction 
     process and could force Treasury to take additional actions 
     that involve the interests of federal retirees, commercial 
     banks, and purchasers of savings bonds.
       As you know from my letter of October 24, and as we 
     discussed in detail with your staff yesterday, the Treasury 
     Department's normal quarterly refunding auctions are 
     scheduled to be announced tomorrow, November 1. The auctions 
     themselves are scheduled to be held during the week of 
     November 6, and settlement is scheduled for November 15 and 
     16.
       There may well be significant costs of disrupting our usual 
     Treasury auction schedule. If there has been no increase in 
     the debt limit by tomorrow morning, our announcement must put 
     prospective bidders on notice that the auctions might have to 
     be delayed or even cancelled. After such a contingent 
     announcement, ``when issued'' trading in the securities to be 
     auctioned cannot occur. Dealers may be less able to pre-
     market securities, and their risk of participation in the 
     auction may thus be increased, raising the costs of the 
     borrowing.
       Should Congress fail to take action to raise the debt 
     ceiling by November 6, we will be required once again to 
     depart from our best financial management practices by 
     canceling the scheduled auctions, and may be forced to take 
     further steps to ensure that outstanding debt remains within 
     the limit and that we have cash available to pay the 
     Government's obligations.
       As I have indicated in my previous letters, there are a 
     limited number of actions we may be forced to take many of 
     which have legal and practical implications. One such example 
     would include Treasury's action to stop reinvesting the so-
     called G-Fund (the Federal Employees Retirement System's 
     Government Securities Investment Fund). Securities held in 
     the G-Fund mature and are reinvested on a daily basis, and 
     the governing law provides for an automatic restoration of 
     any lost interest when reinvestment resumes. Because of the 
     inherent volatility of financing flows, such action may be 
     required even prior to the week of November 6th. Furthermore, 
     it will be necessary to call back Treasury cash balances held 
     in our depositary banks. This action will inconvenience those 
     commercial banks with whom the Federal government does 
     business.
       Also, should Congress fail to act, Treasury may be forced 
     to suspend the issuance of Savings Bonds--an action that 
     would not only require us to send notices to the 80,000 
     issuing agents, but also would disrupt millions of Americans' 
     use of a safe and convenient investment for their savings.
       While these actions can provide some very limited relief, 
     at the cost of creating significant dislocations and 
     anxieties, it should be clearly understood that they will not 
     be sufficient to substitute fully for the funding that we 
     would ordinarily raise through the regular mid-November 
     refinancings and that should be announced tomorrow. Stated 
     another way, these temporary actions will not satisfy the 
     continuing need for cash to fund the obligations and 
     operations of the Government after November 14. Absent 
     extraordinary steps, Congress must increase the debt limit in 
     order to enable us to raise the funds necessary to pay 
     obligations maturing November 15 and 16.
       Finally, you should know that there are various other 
     measures Treasury has been reviewing to avoid default should 
     Congress not increase the debt limit by November 15, 
     including actions involving the Civil Service Retirement 
     Fund, but all such measures present uncertainties involving 
     serious legal and practical issues and have significant costs 
     and other adverse consequences.
       Furthermore, the U.S. government's need for financing will 
     not end on November 15 and 16. The financing calendar we 
     distributed last week, and discussed in detail with your 
     staff yesterday, showed four auctions in the last two weeks 
     of November, and additional cash management bills may be 
     needed. Successful completion of those auctions is critical 
     to raising cash to make vital benefit payments on December 1 
     and during the week of December 4. As we have mentioned 
     before, the months of October, November and the first half of 
     December traditionally have very large seasonal cash deficits 
     due to the absence of any large tax payment dates.
       You and other members of the leadership have raised the 
     prospect that Congress might enact a temporary debt limit 
     increase, and we have expressed our total availability to 
     work toward that end. Last Friday, at the President's 
     direction, I proposed that the debt limit be increased by $85 
     billion, to $4.985 trillion. I would hope to discuss this 
     proposal, and any other approaches you might have, at our 
     meeting tomorrow.
           Sincerely,
                                                  Robert E. Rubin.

 Appendix--History of Treasury Debt Limit Projections as of October 31

       In a series of communications starting in July we informed 
     the Congressional leadership of our projection that we would 
     reach the debt limit in October. On October 17, we projected 
     that unless we took some special actions, we would go over 
     the limit on October 31. We then took these actions (reducing 
     a bill auction and suspending sales of State and Local 
     Government Series Securities) which enabled us to avoid that 
     result. We also projected on October 17 that, as a 
     consequence of those actions and assuming routine debt and 
     cash management practices, we would reach the limit and 
     exhaust our cash balance in the first few days of November. 
     While daily forecasts vary, our projection today shows that 
     both the debt limit capacity and cash balances remain within 
     very thin margins of error during the week of November 6.
       When Treasury staff, led by Under Secretary Hawke, met with 
     your staff yesterday, we described our projections noted 
     above and we also described how changes in government 
     operations and budget decisions can alter these forecasts. 
     For example, since October 24, the lack of legislative 
     progress on certain appropriations bills has shifted some 
     expenditures from late October to late November in our 
     forecasts.
       That shift has improved the forecasts only slightly. During 
     the week of November 6, projected room under the debt limit 
     varies 

[[Page H11563]]

     but never exceeds $2 billion, and, absent special actions, 
     cash balances will be below our prudent minimum of $5 billion 
     on all but one day of that week. These forecasted thin 
     margins of error show that it will be virtually impossible to 
     have both sufficient debt capacity and cash balances to 
     maintain Treasury's prudent financing and investment 
     practices. I have been informed that the independent 
     projections made by the Federal Reserve are consistent with 
     Treasury's, and I know of no informed source that contradicts 
     these projections. Let me caution again that daily forecasts 
     vary.

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