[Congressional Record Volume 165, Number 35 (Tuesday, February 26, 2019)]
[Senate]
[Pages S1485-S1487]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                              FEDERAL DEBT

  Mr. PAUL. Madam President, as I stand before you, we are facing a 
financial calamity that could make the last financial crisis look like 
the good old days. I have become aware of a committee of respected 
financial industry experts that has developed a Debt Default Clock, 
which conceptualizes the risk associated with a potential Federal debt 
crisis that leads to the insolvency of the government. The Debt Default 
Clock is the same concept as the famous Doomsday Clock, only in this 
case illustrating how close we are to fiscal meltdown.
  The Debt Default Clock has 12 factors that are used to measure the 
risk associated with the burgeoning Federal debt. The Clock currently 
stands at 4 minutes to midnight, which means that insolvency of the 
Federal Government is close at hand, and we have little time to act. 
Although the 12 criteria were developed on the basis of defining the 
circumstances leading to government insolvency and default, they were 
also created with the idea of identifying metrics that can be measured, 
watched, and compared over time to identify the time remaining before 
the sequence of insolvency and default. Eight of these factors are 
already in negative territory, and the others are moving in that 
direction.
  In 2010, I ran for the Senate out of concern that our out-of-control 
debt might finally take us off the cliff. It is frustration with 
rampant, deficit-financed spending that sparked the Tea Party; yet the 
situation continues to get worse. So I urge my colleagues to find out 
more about the Debt Default Clock and the role of Congress, the 
administration, and the States as to how each of the factors might be 
mitigated if the political will exists to do so before calamity hits us 
square in the face.
  Accordingly, I respectfully request that the following information 
related to the Debt Default Clock be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

Four Minutes to Midnight: The Revised ``Federal Government Debt Default 
                                Clock''

                   [From the Default Clock Committee]

       Beyond the troubling debt-ceiling standoffs we witness 
     every few years, looms a far more dire threat: a true U.S. 
     government default, which economists warn could lead to a 
     collapse of confidence in the American economy, a run on the 
     dollar, and perhaps even a global economic meltdown.
       How close are we to such a catastrophic federal default?
       To answer this question, a group of private-sector 
     economists and fiscal policy experts has formed a citizens' 
     committee, called the Debt Default Clock Review Committee, to 
     maintain an objective, fact-based federal government Debt 
     Default Clock. The Clock is designed to help the public to 
     see and track the nearness of the danger. On September 10, 
     2018, the Review Committee announced significant revisions in 
     the design of the Clock from its original version to make it 
     more accurate. This announcement is found at: https://
debtdefaultclock.us/wp-content/uploads/press-release-02a.pdf.
       For the Committee's purposes, ``default'' is defined simply 
     as a failure by the U.S. Treasury to make a scheduled 
     interest payment on just one direct U.S. Government 
     obligation such as a Treasury note or bond. ``Insolvency'' is 
     defined as the point beyond which default becomes a virtual 
     certainty.
       Since 2013, Congress has gotten into the habit of 
     temporarily suspending the government's statutory debt 
     ceiling, for a year or two at a go, during which time the 
     Treasury may incur unlimited amounts of debt. This practice 
     is dangerous. Repealing the debt ceiling does not repeal the 
     threat of a default. Indeed, to think that it would or could 
     is akin to thinking we can be assured of perpetually sunny 
     days if we simply destroy the barometer! Congress seems to be 
     telling itself: ``If I just increase the credit limit on my 
     credit card, I will never have to pay it off!''
       The debt ceiling is our most important fiscal barometer, 
     and we hope our new Debt Default Clock will help the public 
     to read that important gauge more easily, by showing us in a 
     clear and simple way how close we are to midnight. Its 
     purpose is to spur fiscal policy makers to change course 
     before it's too late.


                            the twelve tests

       The Clock continuously measures twelve of the most relevant 
     budget factors, or tests, each of which is framed as a simple 
     yes-no question. At any given moment, the status of ten of 
     the twelve factors collectively determines the number of 
     minutes from midnight the Clock stands at any point in time. 
     The number of minutes, of course, changes as time passes and 
     new data is received. Each factor assesses, not just where 
     things currently stand, but also where things are projected 
     to move over the course of the next ten years. Each of the 
     twelve tests is objective. None is arbitrary or influenced by 
     opinion.
       Here are the twelve factors:
        1. Do federal outlays exceed 17.5 percent of gross 
     domestic product (GDP)?
        2. Is there a U.S. dollar-denominated debt ceiling in law 
     presently, and will the projected federal debt stay below 
     that ceiling during the ten-year budget period?
        3. Does the debt held by the public exceed 70 percent of 
     GDP, and does the gross federal debt exceed 100 percent of 
     GDP?
        4. Do gross federal interest payments exceed 15 percent of 
     federal revenues?
        5. Do gross federal interest payments, on a sustained 
     basis, exceed 70 percent of the money the federal government 
     brings in through the issuance of new debt?
        6. Does the debt held by the public exceed 80 percent of 
     the gross debt?
        7. Does the debt held by foreigners exceed 50 percent of 
     the debt held by the public?
        8. Will short-term maturities and floating rate 
     obligations of the Treasury decline from the current level of 
     73.1 percent of all marketable Treasury debt?
        9. Are federal revenues below 17.5 percent of GDP?
        10. Does the rate of real U.S. economic growth, as 
     measured in GDP, exceed 3 percent annually?
        11. Has Congress enacted a law prohibiting the Treasury 
     from resorting to ``extraordinary measures'' in the future?
        12. Is Congress scaling back programmatic ``mandatory 
     spending'' and eventually phasing it out?
       While economists and financial experts will readily 
     appreciate the relevance of each of these factors, we realize 
     that the lay reader may find them confusing. For everyone's 
     benefit, the following is a detailed, plain-English 
     explanation of each factor, together with all of its 
     underlying data and assumptions.


                         warning: default ahead

       The United States will reach insolvency--the point of no 
     return--when the federal government fails at least ten of the 
     twelve tests set according to the questions listed above. As 
     of right now, the federal government is currently failing in 
     seven of them. These are Factors 1, 2, 3, 8, 10, 11 and 12, 
     but one (Factor 9) is projected to right itself before the 
     end of the current ten-year budget period. The design of the 
     Clock permits the Review Committee to discount up to two 
     factors at any one time. The Committee is currently 
     discounting Factor 9 in accordance with the design. The 
     federal government is passing the remaining four tests now, 
     but are projected to fail in all of them sometime during the 
     10-year budget period.
       As of today, the Federal Government Default Clock stands at 
     just four minutes from midnight. If the federal government 
     remains on its currently projected fiscal trajectory, the 
     more politically difficult and economically painful its 
     choices will become as time passes.
       The Default Clock is ticking.

       Databases Behind Ten of the Factors of Debt Default Clock

       (Note: graphs for each of the factors are shown at https://
 DebtDefaultClock.us)


       factor #1: do federal outlays exceed 17.5 percent of gdp?

       The data associated with Factor #1 in the initial Debt 
     Default Clock showed that federal outlays were already well 
     above 17.5 percent of GDP, and peaked in the final year of 
     the budget period (2027) at 23.1 percent of GDP. The updated 
     version shows that in the final year of the current budget 
     period (2028) outlays will rise to 23.3 percent of GDP. Thus, 
     Factor #1 remains set at buying zero minutes from midnight. 
     The data bases for this factor are as follows: (1) 
     Congressional Budget Office, ``Budget and Economic Data,'' 
     under the headings ``Historical Budget Data/ Revenues, 
     Outlays, Deficits, Surpluses, and Debt Held by the Public 
     Since 1967 to 2017,'' April 2018; and (2) ``10-Year Budget 
     Projections/CBO's Baseline Budget Projections, by Category,'' 
     April 2018.


factor #2: is there a dollar-denominated debt ceiling in place, and if 
 so, does the debt subject to limit stay under the ceiling during the 
                             budget period?

       Currently, there is no dollar-denominated debt ceiling in 
     place because the debt ceiling

[[Page S1486]]

     law has been suspended. Thus, Factor #2 also buys zero 
     minutes from midnight. Accordingly, there are no data bases 
     and graph associated with Factor #2 at this point. They will 
     appear when a dollar-denominated debt ceiling is put back 
     into place.


 factor #3: does the debt held by the public exceed 70 percent of gdp, 
           and does the gross debt exceed 100 percent of gdp?

       Under the initial Default Clock setting, the gross debt 
     peaked in the final year of the budget period (2027) at just 
     under 110 percent of GDP. The initial version did not include 
     data on the debt held by the public. The current version 
     shows that the gross debt will again peak in the final year 
     of the budget period (2028) at over 113 percent of GDP. The 
     debt held by the public is also projected to peak in 2028 at 
     over 96 percent of GDP. Since both the debt held by the 
     public and the gross debt exceeded 70 and 100 percent of GDP 
     respectively in 2012, and are projected to grow, Factor #3 
     will continue to buy zero minutes from midnight. The data 
     bases for Factor #3 are as follows: (1) Office of Management 
     and Budget, ``Historical Tables,'' Table 7.1, February 2018; 
     (2) Congressional Budget Office, ``Budget and Economic 
     Data,'' under the headings ``10-Year Budget Projections/
     Federal Debt Projected in CBOs Baseline,'' Table 5, April 
     2018; and (3) Congressional Budget Office, ``Budget and 
     Economic Data,'' under the headings ``10-Year Economic 
     Projections/April 2018 Baseline Projection--Data Release 
     (Fiscal Year).''


   factor #4: will gross interest costs exceed 15 percent of federal 
                               revenues?

       In the initial Default Clock assessment, gross federal 
     interest costs were projected to exceed 15 percent of federal 
     revenues in 2020. The revised assessment shows the threshold 
     will be exceeded this year. This is shown in the accompanying 
     graph. While the actual data is not yet available, the gross 
     interest costs may already be above 15 percent of revenues, 
     and are all but certain to remain above this threshold during 
     the budget period. For the time being, Factor #4 continues to 
     buy one minute from midnight. It remains likely, however, 
     that Factor #4 will buy no minutes away from midnight at the 
     time of the next assessment. If so, this will force the Clock 
     to three minutes from midnight if all the other factors 
     remain stable relative to their thresholds. The data bases 
     for this Factor are as follows: (1) Department of the 
     Treasury, ``Interest Expense on the Debt Outstanding,'' at 
     here (accessed April 12, 2018); (2) Congressional Budget 
     Office, ``Budget and Economic Data,'' under the headings 
     ``Historical Budget Data/Historical Budget Data/ Revenues, 
     Outlays, Deficits, Surpluses, and Debt Held by the Public 
     Since 1967,'' April 2018, here; and (3) Congressional Budget 
     Office, ``Budget and Economic Data,'' under the headings 
     ``10-Year Budget Projections/CBO's Baseline Budget 
     Projections by Category'' and ``Spending Projections by 
     Budget Account'' (specifically Line 1682, ``Interest on 
     Treasury Debt Securities (gross)''), April 2018, also here. 
     The formula for Factor #4 is: gross interest costs  
     federal revenues = percent of federal revenues going to cover 
     gross interest costs.


 factor #5: do gross federal interest payments, on a sustained basis, 
exceed 70 percent of the money the federal government brings in through 
                       the issuance of new debt?

       The original version of the Default Clock estimated that 
     the level of gross interest costs would exceed 70 percent of 
     the money brought in by the issuance of new debt (in net 
     terms) in 2023. The updated version shows the cross-over 
     point should be reached in the same year. Thus, Factor #5 
     continues to buy one minute from midnight. The data bases for 
     this factor are: (1) Office of Management and Budget, 
     ``Historical Tables,'' Table 7.1, February 2018, at https://
www.whitehouse.gov/omb/historical-tables/; (2) 
     Congressional Budget Office, ``Budget and Economic Data,'' 
     under the headings ``10-Year Budget Projections/Federal 
     Debt Projected in CBOs Baseline,'' Table 5, April 2018; 
     (3) Department of the Treasury, ``Interest Expense on the 
     Debt Outstanding,'' (accessed April 12, 2018); and (4) 
     Congressional Budget Office, ``Budget and Economic Data,'' 
     under the headings ``10-Year Budget Projections/CBO's 
     Baseline Budget Projections by Category'' and ``Spending 
     Projections by Budget Account'' (specifically Line 1682, 
     ``Interest on Treasury Debt Securities (gross)''), April 
     2018.


 Factor #6: Does the debt held by the public exceed 80 percent of the 
                              gross debt?

       The original version of the Default Clock estimated that 
     the debt held by the public would exceed 80 percent of the 
     gross debt starting in 2025. This same year is the estimated 
     cross-over point for Factor #6 under the updated Default 
     Clock. Once again, this Factor will buy one minute from 
     midnight. The data bases for this factor are: 1) Office of 
     Management and Budget, ``Historical Tables,'' Table 7.1, 
     February 2018, here; and 2) Congressional Budget Office, 
     ``Budget and Economic Data,'' under the headings ``Historical 
     Budget Data/Revenues, Outlays, Deficits, Surpluses, and Debt 
     Held by the Public Since 1967'' and ``10-Year Budget 
     Projections/CBO's Baseline Budget Projections, by Category,'' 
     April 2018, here.


 Factor #7: Does the debt held by foreigners exceed 50 percent of the 
                        debt held by the public?

       The original version of the Default Clock showed that the 
     share of the debt held by the public owned by foreigners 
     would exceed 50 percent in 2021. The updated version of the 
     Clock shows this Factor's cross-over date remains 2021. Thus, 
     Factor #8 continues to buy one minute from midnight. The data 
     bases for this Factor are: 1) here, under the heading 
     ``Ownership of Federal Securities;'' 2) here (accessed on 
     April 13, 2018); and 3) here, February 2018.


Factor #8: Will short-term maturities and floating rate obligations of 
  the Treasury decline from the current level of 73.1 percent of all 
                       marketable Treasury debt?

       The Monthly Statement of the Public Debt of The United 
     States (the ``Monthly Statement'') describes six types of 
     securities comprising the marketable Treasury debt 
     outstanding. They are Treasury Bills (``Bills''), Treasury 
     Notes (``Notes''), Treasury Bonds (``Bonds''), Treasury 
     Inflation-Protected Securities (``TIPS''), Treasury Floating 
     Rate Notes (``FRN's'') and Federal Financing Bank (``FFB'') 
     securities. The Monthly Statements, including attached Excel 
     spreadsheets, are available at https://
www.treasurydirect.gov/govt/reports/pd/mspd/mspd.htm.
       Treasury Bills are short-term obligations with a maturity 
     of less than one year. Treasury Notes are issued with 
     maturities of between one and ten years. Treasury Bonds are 
     issued with maturities in excess of ten years. For purposes 
     of the Debt Default Clock on any given date, all Bills and 
     previously issued Notes and Bonds maturing within five years 
     of that date, along with all TIPS and FRN's, which are 
     adjustable rate securities subject to periodic adjustments in 
     their interest rates, are categorized as short-term 
     maturities and floating rate obligations (``STMFROs''). The 
     Monthly Statement does not provide the maturity dates for FFB 
     securities, but generally describes them as long term. Thus, 
     they are not included in STMFROs and set aside here.
       As of September 30, 2018, all the STMFROs constituted 73.1 
     percent of all the marketable Treasury debt outstanding, as 
     measured in dollars. This structure of the marketable debt 
     jeopardizes the financial position of the Treasury by leaving 
     it vulnerable to increases in both the inflation rate and 
     interest rates. Specifically, Treasury interest costs would 
     rise very quickly with higher inflation and interest rates 
     because of the current structure of the debt. It is the view 
     of the Debt Default Clock Review Committee that the portion 
     of all Treasury marketable securities made up by the STMFROs, 
     as measured in dollars, should be reduced to 50 percent of 
     the total. Factor #8 of the Debt Default Clock will move the 
     minute hand one minute away from midnight for every five 
     percentage points reduced from the 71.3 percent of marketable 
     securities that constitute the STMFROs at the end of fiscal 
     year 2018. Currently, Factor #8 buys zero minutes from 
     midnight. The formula for arriving at this percentage at any 
     particular time is as follows: the value of the STMFROs 
      the total value of all marketable securities 
     outstanding = percent of all marketable securities in 
     STMFROs.


       Factor #9: Are federal revenues below 17.5 percent of GDP?

       The data bases for this Factor are found at: Congressional 
     Budget Office, ``The Budget and Economic Outlook: 2018 to 
     2028,'' April 9, 2018, pp. 67 and 145, here. There is no 
     formula for the projected data under this factor because CBO 
     provides the amounts directly.
       Federal revenues were at 17.3 percent of GDP in 2017. CBO 
     projects they will fall to 16.5 percent in 2019, but grow to 
     the 17.5 percent of GDP in 2025 and exceed 18 percent of GDP 
     before the end of the budget period. Given that Factor #9 is 
     the only factor among the 12 that moves in the right 
     direction over the course of the budget period, this factor 
     is currently discounted by the Review Committee.


Factor #10: Does real rate of U.S. economic growth, as measured in GDP, 
                   meet or exceed 3 percent annually?

       The data bases for Factor #10 are found at: 1) Bureau of 
     Economic Analysis (BEA), Department of Commerce, here, Table 
     5 under ``Tables Only,'' under the heading ``Gross Domestic 
     Product'' (historical data); 2) Congressional Budget Office, 
     ``The Budget and Economic Outlook: 2018 to 2028,'' April 9, 
     2018, p. 140, here (projected data). There is no formula for 
     either the historical or projected data on Factor #10 because 
     BEA and CBO provide the data directly.
       GDP grew at the rate of 2.3 percent in real terms in 2017. 
     CBO projects will reach a rate of 3 percent in 2019, but will 
     fall below 3 percent in each of the remaining years of the 
     ten-year budget period. Therefore, Factor #10 currently buys 
     no minutes from midnight.


 Factor #11: Has Congress enacted a law prohibiting the Treasury from 
         resorting to ``extraordinary measures'' in the future?

       This is a purely qualitative factor. It adjusts the minute 
     hand on the Debt Default Clock on the basis of the 
     legislative actions or the lack thereof taken by Congress in 
     the applicable legislative period. Specifically, if either 
     house of Congress has passed such a bill during the current 
     Congress, it will buy one minute away from midnight. If such 
     a law is enacted and remains on the books at the time of the 
     applicable review by the Review Committee, it will buy two 
     minutes from midnight. Therefore, there are neither

[[Page S1487]]

     data bases, nor formulas, nor graphs associated with Factor 
     #11. Since current law permits the Treasury to undertake 
     extraordinary measures, Factor #11 buys no minutes from 
     midnight at this time.


     Factor #12: Is Congress scaling back programmatic ``mandatory 
               spending'' and eventually phasing it out?

       Mandatory programmatic spending, which sets aside net 
     interest payments, does not require the annual appropriation 
     of money by Congress. Effectively, these spending programs 
     are on autopilot. According to CBO, programmatic mandatory 
     spending was more than $2.5 trillion in 2017. It projects 
     this spending to grow to more than $4.5 trillion in 2028.
       Congress needs to rein in these programs by moving them 
     back into the appropriated accounts of the budget. By 
     starting to take such steps, Congress should be able to 
     reduce this category of spending dramatically. In fact, it 
     should phase it out altogether. Under the Debt Default Clock, 
     if Congress returns enough of this spending to the 
     appropriated category so that by the end of the ten-year 
     budget period the mandatory category is less than what it was 
     in 2017, it will buy one minute away from midnight. If the 
     mandatory category is projected to be phased out altogether 
     by the end of the budget period, it will buy two minutes from 
     midnight. Therefore, Factor #12 currently buys no minutes 
     from midnight.
       The data bases for Factor #12 are found at: the 
     Congressional Budget Office, ``The Budget and Economic 
     Outlook: 2018 to 2028,'' April 9, 2018, pp. 44 and 148, here. 
     The formula for calculating whether mandatory spending is 
     increasing or decreasing during the projected budget period 
     under Factor #12 is: mandatory outlays (less offsetting 
     receipts)--$2.5 trillion (mandatory spending in 2017) = 
     dollar level increase (decrease) in mandatory spending. If 
     mandatory spending is projected by CBO to be at zero dollars 
     before the end of the budget period, it will be considered to 
     have been phased out.

                          ____________________