Billion a year. That means about raising the debt limit, we wont be able to pay bills worth about 700 billion. That means Social Security recipients, defense contractors, that means bondholders, a lot of different people. It will affect everybody there very significantly if we dont raise the debt limit. Host what would it mean for the u. S. Federal government, our Credit Rating if that doesnt happen . Guest not speaking for the Rating Agency, but i suspect it would mean a lower rating. You can remember back in 2011, we had another scare with regard to the debt limit. We ultimately raise the debt limit before we breached it, but Standard Poors downgraded the u. S. Debt at that point in time because of the dysfunction over the debt limit signaled. Its very likely will see other downgrades if we breached it. Host why do we continue to keep having this debate . Are we not raising it far enough . Guest actually it has been suspended. Its not a matter of raising the debt limit enough. Its a very anachronistic law that doesnt make any sense. The the intense was a good one. Intent was a good one. The process was that if congress had to vote to raise the debt limit, they would make some tough choices around the nations fiscal situation. Cut spending, raise tax revenues. But thats not how it worked out. A lot of uncertainty created a lot of angst and at the end of the day, Congress Votes anyway to raise the debt limit. Its a really bad law. It would really be a good idea to get rid of it. Host you mentioned that angst. One of the headlines from business insider, you also mentioned at the end of the day they always raise it. Is it really much of a crisis if they always end up raising the debt ceiling . Guest no, if you actually do raise it. It does have a cost. Already in the lead up to this debt limit increase, which needs to be done according to the treasury secretary by the end of september, we are seeing the impacts in Financial Markets. They had to pay much higher Interest Rates for investors to get those investors to buy those treasury bills. There is a probability out there, doesnt raise the debt limit and these investors dont get the money on time. That is a cost. We as taxpayers are now paying a higher interest to investors than we wouldve had to otherwise just simply because of developments right now. It is not cataclysmic. It would be if we breached it. Just going down this path is costly to taxpayers. Host we invite viewers to join in. Mark zandis chief economist at moodys analytics. He is here for the next 30 minutes or so. We will take your questions and comments. Republicans at 2027488001, democrats at 2027488000, independents at 2027488002. What signals are you reading for congress, how concerned are you right now . Guest because we have seen this script before and weve seen how it ended, the ministers multiply get together before the end of september, raising the debt limit or suspending the debt limits. I would be shocked if they didnt do it simply because it would be cataclysmic to the economy and Financial Markets. Having said that, there is obviously a lot of dysfunction in washington. There hasnt been a major piece of policy that has gotten through the legislative process certainly not with Economic Policy. There is a probability that we messed up here. I am concerned about it. With each passing day, more. When Congress Gets back in session, nothing will get done, when they come back in a couple of weeks, pretty quickly we will get a sense of whats going on. How significant this disruption could be in terms of the debt limit process. The other big thing that has to happen with legislation that has to be signed is funding for the government. The budget year is over. If there isnt a piece of legislation to sign, the government will shut down. We will get a pretty good sense of things in Early September and see how it goes then. Host derek is up first from lakeland, minnesota. One for independents. Go ahead. Caller good morning cspan. Ive got to wonder why you keep having mr. Zandi on your program. Im surprised he didnt go to jail. If you know the history of him and you know the crisis of what happened with the housing market, he was in a Rating Agency that was rating the bonds for Mortgage Backed securities and they were rated awfully high for a worthless piece of paper that a lot of people got stuck with and i dont understand why you keep having him on here. He should have been in jail. Host lets give them a chance to explain what moodys analytics is and what he does there. Guest im not part of the Rating Agency. I belong to moodys analytics, which is the research arm of the Moodys Corporation which is independent division of the Moodys Corporation. I had nothing to do with the Rating Agency. I have my own Consulting Firm that was built from nothing and have over a hundred employees and i sold it to Moodys Corporation right before the crisis hit so i had absolutely nothing to do with the ratings process or the mortgage securities. I was an independent economist and i sold my company to moodys. Post for viewers who want to check out moodys analytics. Guest you can go to moodys analytics, economy. Com. I bought that url back at y2k in the middle of the internet boom so we own it. Economy. Com. You can go there and take a look as well. Host david is up next in new jersey, line for democrats. Caller good morning. I had a question about what the treasury has been doing for most of the current calendar year with regard to the National Debt using extraordinary measures to freeze the National Debt for the last seven months. How are they doing that and what is going to happen when they do raise the National Debt since we know the deficit will be around 700 billion this year . Will they issue 700 billion worth of commercial treasury bills in the next couple of months . Will that raise Interest Rates . If you are still going on cnbc, can you speak to joe kernan and Rick Santelli and tell them what extremists they are . I hear them all the time and nobody fights back against those guys. Its just amazing. Guest a good question, both good questions. Right now what the treasury is doing is drawing down its cash. It came into the year, in march, the debt limit extension ended and the treasury started using the cash it had and other resources to make its payments to all the folks that get payments from the government. But the point is that by the end of september and according to the treasury secretary, i believe it by september 29, they run out of those financing options. They have no cash left. If thats the case then they have no choice but to spend what comes in in tax revenue because we have a deficit. Somebody is not going to get paid on time. That is breaching of the down limit. If we also really called to sit in between and they pass a piece of legislation to raise or suspend again, the treasury will start issuing bonds in a normal way to finance itself and it should not have any significant impact. Its not like we get a flood of bond issuance and have an impact on Interest Rates. That is a great question. With cnbc, they are smart guys, both of them. You have to respect them. They have different perspectives than you do and as you can tell probably made. But you have to respect them because they are very smart and articulate, they presented perspective. You have to recognize they are tv personalities and that means they have to worry about ratings and so the result is they take extreme positions. I think probably more extreme than they would have in their personal views. Just to make sure its entertaining and keep viewership. I will do my best. I will chat with them and see what i can do, but no promises. Host douglas, republicans, go ahead. Caller good morning. I have two simple questions. The first one, is it true or not . Its my understanding that where the money comes into the federal government is not just one big pot at the end of the month, but it moves out over the course of the month. So if we had the will, we could continue to pay the debt payments and Social Security and military and medicare without those shutting down. My second question is kind of philosophical. How do we break the cycle of debt . Where is this going to end . I heard within 10 years its possible the interest on the debt could be 800 billion a year. That is just money down a rat hole to me. Who is going to be out there working to pay it off . Guest great questions. The government in this year for example will cut checks that amount to seven hundred billion dollars more than the government will take in in tax revenue. That means if we dont raise the debt limit and the government cant issued bonds to cover that then that is whats not going to get paid to somebody at some point in time. There is some debate about whether the government could prioritize who gets paid and when they get paid. For example, paid bondholders first, once they get paid then they pay Social Security recipients and so on. That gets pretty complicated from a technical perspective. Actually cutting the checks on time. Also from a political perspective. Say you are a bond investor and the government decides to pay you first, but do you really believe that can continue when Social Security recipients arent getting paid on time or when military contractors arent getting paid on time or people that get housing vouchers arent getting their vouchers on time . Politically people and start to question whether that is viable and that would have economic implications. Prioritizing prioritizing payments i think is not a very good strategy. It wont work and they will wind up with Financial Market in turmoil. I dont think that is the solution. To the philosophical question about the cycle of debt. Good point. I will say one thing to consider, the level of debt isnt really the issue because the economy also is growing. The economy has grown significantly over the last decade, 50 years, hundred years. The amount of debt has to be thought of in the context of this bigger economy, which has the bigger ability to pay all the debts. Frankly, using that for certain things is not a bad idea. The same way youre are going to invest in a bridge. You will use that bridge over a 50 or 75 year period so theres nothing wrong with paying interest because you will use it over time. Having said that, if you look at the arithmetic, if there is no change in Economic Policy at some point, deficits will increase, the debt load will increase and relative to the size of the economy and it will become a significant problem. I dont mean to belittle the issue. We have to address it. One final point. The only way we are really going to address our longterm fiscal problems, get those deficits and the debt limit more manageable the long run is to figure out how to slow the growth in health care costs, because the biggest budget item adding to our fiscal problems is with medicare and medicaid. That is the only solution but that is pretty tough to do in the current context given all the backandforth over health care. That makes it pretty difficult to address this in a reasonable way at the current time. Host usdebtclock. Org keeps tabs on the debt. Currently 19. 97 trillion, it comes out about 61,000 per u. S. Citizen. Who owns most of our National Debt . Guest it is distributed across the globe to investors everywhere. Most of it is owned by u. S. Domestic investors. We own it in insurance companies, pension funds, mutual funds, we own it that way. Global investors also own a big share of treasury debt. The biggest investors overseas would include the japanese. In about 1 trillion is owned by the japanese. I believe the secondlargest owner are the chinese, with close to 1 trillion, as well. Market, the market for Treasury Bonds is the biggest in the world. The most important in the world and investors everywhere in the world want those bonds. If they arent those able to make payments in a timely way. If we screw that up, we will kill the goose that laid the golden egg. That is really important to our wellfunctioning economy. thomas is in cincinnati, ohio. Line for democrats. Goahead. Caller yes, the president confidence in any lead. Ilities to he said that he would shut down wall. Vernment to build a how does that make investors feel . Guest you know, i dont think investors are listening too hard because they dont take it seriously at this point. To say you are going to shut the induceent down to congress and taxpayers to pay for the wall between mexico and the United States doesnt seem like a winning strategy. I dont know that investors are really paying much attention to that at this point. Certainly, if the president sticks to his guns and actually does engage in that kind of activity, investors will take notice pretty quickly. In particular, as he shuts the government down. Will loseull he that battle because i dont think americans are interested in shutting the government down to come up with the money to pay for a wall between mexico and the u. S. I dont think it is a popular position. Sam is an independent. Good morning. Caller i present a hypothetical situation. Let us say there is no debt limit. Let us say a hypothetical can congress legally require this tomorrow . Think you for taking my call. Guest if congress and the president have a piece of legislation that results in a know, deficit so, you they have legislation increasing Government Spending but they will figure out a way to pay more and through cuts in spending then the government will have to issue debt bonds to pay for it. There is no other way to do it. I dont see any way around it. They will have to issue the bonds to pay for it. , are is one solution proposal i will throw out, to a to address this without getting rid of it. For every piece of legislation that congress and the president that results in increased spending or lower tax revenue, the president and congress has sign anned an agreeable be financed by some source of revenue or other spending cuts. Whenever they find is legislation that affects tax and spending, they find legislation a piece ofn legislation saying how it will be financed. If they do that, we would what we have around the treasury debt limit. It may result in physical discipline because it would be thinking at that point in time how iron going to pay for this. And if i dont i will have to issue bonds. Host as opposed to how to they view some of it now in a pass it . Glitches going to the general to will it just go into the general piggy bank . Gue yes. What iry tot pay for it am arguing is, with each piece tolegislation, force them make the hard decision at that point in time. If you will have a piece of legislation and if it will result in a bigger deficit, you have to sign saying, ok, i am good with the bigger deficits. Host nelson is a democrat. Caller this for taking my call. The deficit and the debt ceiling. Oh well. In 2002 when Vice President dick cheney made the statement that the deficit doesnt matter. It really seems republicans are not concerned about the debt or debt ceiling. Ago, throughays the a statement that there is zero chance we wont raise the debt ceiling. With Vice President cheney correct . Am i correct when i say the republicans dont care about the debt unless there is a democrat in the white house . Gue i rememberst Vice President cheney saying that, and he is wrong . Deficit and debt do matter. It is not existential to the economy and, but it is corrosive on the economy. Higher deficit and debt results in higher Interest Rates. Those higher Interest Rates in less business investment, less compete Consumer Spending and the long run. No, he is not right. Downloadits in the matter a lot. And the debt load matter a lot. I know well intentioned lawmakers on both in both parties. A role inlays everything, but there are many republicans who believe there are deficits that do matter and they are working hard to make sure our situation is put on sounder ground. I think that is bipartisan in h thinking about deficits and debts. Host Mitch Mcconnell had a s zeroent that there i chance we will not raise the debt ceiling. We will get the job done and can junction in conjunction with the secretary. Steve mnuchin said we will get the debt ceiling past. This is not a republican or democrat issue. We need to be able to pay our debts. Are these the right things you are hearing from this administration . Do you believe this administration is on the same president . Guest i agree with the points of senator mcconnell and senator manchin. Steve mnuchin. Mnuchin secretary sh said Something Like were ready spent the money so we should raise the debt limit to pay for it. We have to pay for it and that is what the debt limit is about. I entirely agree. Whether the president is on the same page, i dont know. Presumably, but i really dont know. I havent heard him say anything about the debt limit. Maybe he has and i missed it, sure. Am not my guess is he is a businessman and he doesnt want to mess up Financial Markets. I think you will know figure out a way to sign a piece of legislation to avoid breaching the debt limit. See. Ll have to host rocky is in pennsylvania, like for democrats. Caller regarding the war in afghanistan, what does that contribute to the National Debt . Second question. If we went bankrupt, what would be the effects of that . The cost of afghanistan, i dont know the precise numbers, im sorry. Cost ofestimates of the the conflict in both afghanistan andiraq since after 9 11 the cost is quite significant. Well over a trillion dollars. In debt20 trillion outstanding is related to those wars at least. At this point is probably larger than that. I dont know the cost of afghanistan specifically. You can find that information at the congressional budget office. Cnnmoney saying the current estimate pegs the conflict in afghanistan, total cost somewhere around 841 billion. Guest there you go. Quite significant. In terms of bankrupt. In this case it would mean that the federal government does not pay bondholders. People who bought Treasury Bonds expect to get paid principal and interest. If the federal government doesnt pay them on time, that is default and you might consider that bankruptcy. It is not technical bankruptcy where you go to a court and creditors fight it out with the debtor and so forth. In a sense, lets call that bankruptcy. If we did that, that would be incredibly costly and stupid. One of the Major Economic advantages of the u. S. , it has been an advantage since Alexander Hamilton was treasury secretary and decided to pay a hundred percent on the dollar for the revolutionary war debt because we pay our debts. It means we enjoy the lowest Interest Rates in the world. We can borrow money and do anything. Space,huttles to go into have hightech investments. Defend ourselves and troops. We can do ourselves because we are the lowest cost in the world because we pay our debt on time. We if we decide not to do that, if we fail to do that, becauseestors will say you not paying me or on time, we wont borrowing the future unless its with a much higher interest rate. If thats the case it will much more costly to do anything and it takes away one of the key economic advantages our country has over every other country on the planet. We just dont want to do that. Host some context of that number. Thats the current cost from the center for strategic and international studies. The cnnmoney article also noticing noting the cost of wars, project pegging it a 2 trillion. That number including future cost obligations as well. A couple of different studies out there. Time for one or two more calls. Brian in michigan, independent. Caller from what i understand, about aas a kid it was half trillion dollars in debt and i spent a lot of time. I wondered this will be used as leverage in the future . Foreign a big push with powers between the situation on this side of the world where we basically end up with a union, north and south america. We used to call the new world bush and nowther we are calling it the global initiative. Is that going to be used is leverage in the future so as to we enter in Something Like that we actually whiteout wipeout it is unbelievable. We keep putting things on the , couldcard so to speak this be used in the future to get us into some sort of European Union type thing . Guest i dont think so. I take a different perspective. As long as we are prudent and responsible and we figure out a way to ensure our situations on solid ground. The fact that the rest of the world many investors overseas own our bonds mean we are tethered at the hip and their interest are lined with hours. If we dont, they wont succeed. I dont think itll result in a leverage in a way that results in a situation we are uncomfortable with. Im not worried about that. Host washington journal continues. Host iain murray, vice Competitive Enterprise Institute, i apologize, joins us to discuss a new report that that organization has done focusing reorganizing the executive branch. First, remind us what the Competitive Enterprise Institute is. Guest Competitive Enterprise Institute is essentially the the u. S. Hink tank in focused primarily on regulatory affairs. Defense, health care, we look at regulations. Regulations are really, we burden on thegest american
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