[Congressional Record Volume 141, Number 203 (Monday, December 18, 1995)]
[Senate]
[Pages S18805-S18806]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




             THE BUDGET AND OUR COUNTRY'S FINANCIAL MARKETS

  Mr. MACK. Mr. President, this past Friday I made some pretty strong 
comments with respect to President Clinton's--maybe it was Mr. 
Panetta's--proposal which we saw. There was great anticipation, if the 
President will recall, that last Friday there was going to be a new, 
serious proposal to balance the budget that President Clinton was going 
to bring to the table.
  I felt, and I think expressed in pretty strong language, that it was 
a phony attempt. In fact, I thought it was an insult to the Congress, 
frankly, that the President would come forward with that proposal.
  But something significant has happened since Friday. We may in fact 
have a new player in this budget debate. We may in fact have a new 
player to the debate which over the last 30 days or so has been between 
the White House, the President, on one hand and the Congress on the 
other. The third party who I think has now come to the debate is the 
financial markets of our country.
  For those who have not been observing what has occurred today in the 

[[Page S18806]]
  stock markets and the bond markets, you may be surprised to learn that 
the stock market fell just over 100 points today. And interest rates 
begin to climb, the long-term bond went from just over 6 percent to 
about 6.2 percent. This is the first shot across the bow that the 
financial markets have fired, which I think are really directed at the 
President. The markets have had the opportunity over the weekend to 
analyze the President's proposal. And they have concluded that there 
really is no truth to the President's statement that he wants to 
balance the budget.
  It has been 1 month or it will be 1 month tomorrow since the 
President signed the statute saying that ``I will commit myself to 
balancing the budget over 7 years using real numbers.'' I concluded 
last Friday that he absolutely failed to do that; that, in fact, his 
proposal was an insult. There was absolutely no value to what he did 
last week except political.
  Mr. President, I would claim that the markets have in fact reacted 
the same way. They analyzed the President's proposal over the weekend 
and they also concluded that it is a phony proposal. It will not get us 
to a balanced budget. In fact, it really pretty much leaves us where 
the Congressional Budget Office said we were prior to this last 
proposal put forward by the President; and that is, in the seventh year 
there would be a deficit of $116 billion. I believe this is the fourth 
plan that the President has put forward, maybe the third. There have 
been so many different ideas the President has come up with to avoid 
offering a balanced budget proposal that I have forgotten which one 
this is. The President has just completely attempted to stay away from 
balancing the budget. He says he wants to do it, but when you look at 
the actions of the President of the United States he has failed.
  So, Mr. President, again I think one thing that my colleagues in the 
Senate on the other side of the aisle ought to understand is that there 
is a new player now. And that is the financial markets of this country. 
And that should be no surprise.
  On November 8, 1994, the day of the last election for the U.S. House 
of Representatives, the day the Republicans took control of both the 
House and the Senate, was the specific day that interest rates in this 
Nation peaked, at a little bit over 8 percent. Since November 8, 1994, 
those interest rates have been steadily coming down, down to the point 
of just barely above 6 percent.
  We had some analysts from the Wall Street area come down to 
Washington several weeks ago when we got into a debate about just how 
strongly the Congress should position itself with respect to the debt 
ceiling and other means of leverage to try and get the President to 
move to a balanced budget. And during that discussion I remember one of 
the analysts commenting that if there is a failure to balance the 
budget, if no agreement is reached, the markets will crash.
  I also recognize that my friend, the Speaker of the House, made 
reference to that point, and was chastised, I believe, for using harsh 
rhetoric. Some said the Speaker of the House should not use that kind 
of language.
  I must say to you that when I heard the analyst make this comment 
with respect a crash, I think most of us have this tendency to think of 
what occurred in 1929 as being the definition of a market crash. So I 
asked them what did they mean, to them what would be a crash in the 
market? Their response was that interest rates would go back up, about 
2 points, and we would probably see the stock market fall somewhere 
between 200 and 300 points, if I recall.
  The interesting thing, again, is that in 1 day we have seen a decline 
of 100 points in the stock market. And I believe that that has occurred 
because of the President's failure to come forward with a balanced 
budget alternative and the markets are beginning to get nervous about 
whether we will make it or not.
  Moreover, I also think the President's failure to submit a serious 
budget may affect the Federal Reserve Board. The Federal Reserve Board 
will be making the decision tomorrow about what to do about interest 
rates. I suspect that they were extremely disappointed in the 
President's proposal as well, and the markets are concluding that since 
the President is not serious about balancing the budget that it would 
be a mistake for them tomorrow to lower interest rates any further. 
That is a decision they will have to make, but I think that is a fair 
scenario to place on the table.
  So, again, the reaction that we have seen in the last day with 
respect to the President's proposal has already had an effect on the 
stock market and the bond market, and I am suggesting another impact 
very well could be on the decision by the Federal Reserve tomorrow.
  I talked to those financial experts about the benefits of balancing 
the budget. I talked to them about the importance of bringing down 
interest rates, and during those same meetings, they told us the 
interest rate probably could come down even further; that if we were to 
come to an agreement over balancing the budget, we could see long-term 
interest rates in this country decline to the 5\1/4\ range.
  I must say to you, Mr. President, having been a former banker, I can 
remember making those first loans on a single piece of paper--but that 
is another story of what has happened to our country as a result of the 
bureaucracy and the redtape which has been created. It was on a single 
piece of paper, and the interest rate was at 6 percent. I must say to 
you that over the years I had lost hope that we would see long-term 
interest rates return to a level of below 6 percent. But, frankly, I 
believe that this is within our grasp today.
  If the President were serious about coming forward and giving us at 
least his alternative--we are not telling him he has to agree with 
ours, but at least put his alternative on the table telling us how he 
would balance the budget in 7 years with CBO numbers--then we could sit 
down and negotiate. If he would do that and we could reach an 
agreement, and I believe that we would see long-term interest rates 
come down to the 5\1/2\ and 5\1/4\ range.
  What does that mean? To the families of America, to those young 
families who are trying to get a start, let me tell you something, 
there is a big, big difference in obtaining a mortgage at 5\1/4\ 
percent versus 8\1/4\ percent. It not only will affect the mortgage 
payments that they will make, it will affect the cost of the automobile 
loan, it will affect and reduce the cost of a student loan. There are 
lots of things that the average American is going to feel as a result 
of what happens with interest rates.
  The shot today which the markets have fired is basically one that 
said, if you don't come to an agreement, the reduction of interest 
rates you have seen in this last year are going to disappear and the 
rates are going to go back up and America's future will not be as 
bright.
  The other day on the floor of the Senate, I said, and I am going to 
repeat it again today, that the President ought to come forward with 
his alternative. He made the commitment to do that almost 30 days ago. 
It was in legislation that he signed. It was negotiated by 
representatives from his White House. I am going to say it once again, 
but I am going to read it to make sure I am very clear: This President 
has proven once again that his commitment to principle is nonexistent. 
He gave his word. He broke his word. It is a habit he does not seem 
able to break.
  Mr. President, I yield the floor.
  Mr. GRASSLEY addressed the Chair.
  The PRESIDING OFFICER. The Senator from Iowa.

                          ____________________