From the U.S. Government Accountability Office, www.gao.gov

Transcript for: Debt Limit Alternative Approaches

Description: Audio Interview by GAO staff with Susan Irving, Director,
Strategic Issues

Related GAO Work: GAO-15-476: Debt Limit: Market Response to Recent
Impasses Underscores Need to Consider Alternative Approaches

Released: July 2015


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[ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and
information from the U.S. Government Accountability Office. It's July
2015. The debt limit caps the amount of money that the Department of the
Treasury can borrow to meet the nation's financial obligations. Delays
in raising the statutory debt limit can have broad implications for the
entire financial system. A team led by Susan Irving, a director in GAOs
Strategic Issues team, recently reviewed the effects of delays in
raising the debt limit as well as options for minimizing future
disruptions. GAO’s Jacques Arsenault sat down with Sue to discuss what
they found.

[ Jacques Arsenault: ] Can you talk about what the debt limit is and why
it's been in the news so much over the last few years?

[ Susan Irving: ] The debt limit is an often misunderstood concept, but
it sets a limit on the amount of money Treasury can borrow in order to
meet the obligations already implemented and enacted in law. It does not
control how much spending we do. That's done by Congress and the
President. It doesn't control how much revenues we raise. That's done by
laws and the economy. So it doesn't control the amount of debt, but it
controls whether we can pay the bills. It's been in the news a lot, I
think, and partly because it's misunderstood. So people who are
concerned about how much we're spending or how much taxes or how much
the gap is between spending and revenues, but also in the last number of
years, there's been much closer to what I'll call brinksmanship. That is
Treasury has a certain number of actions it can take around the debt
limit to prevent us from defaulting. But we have come a lot closer to
the edge of where people think, oh, my God, will Treasury in fact be
able to honor the commitments that are backed by the full faith and
credit of the United States. So that tends to get news. We get people
calculating when are we going to run out. The brinksmanship itself has
caused some damage.

[ Jacques Arsenault: ] So then, what were some of the impacts of the
recent debt limit impasses?

[ Susan Irving: ] Well, what you saw happening in 2011, which we issued
a report on and on the most recent report in 2013 is the market’s
reacting very negatively. This is things like you have the safest
security in the world, something backed by the full faith and credit of
the United States and for the first time, you have people, institutions,
worrying about whether those will be honored.

[ Jacques Arsenault: ] Now, one of the things that your report did was
look at some alternative approaches to minimize future disruptions. Can
you talk about them, and did they seem particularly promising?

[ Susan Irving: ] Well, I think the most important thing in the
alternatives we looked at is we limited the ones we looked at closely to
those that would do two things. They would have Congress and the
President make a decision about the debt limit near or linked to the
decisions about spending and revenues, because those are the decisions
that lead to debt. We also wanted to minimize any disruption in the
Treasury markets because it is not good for the United States to have
treasuries doubted. So, we looked at ones where, at the time you pass a
budget resolution, which is a statement about priorities, we looked at
ones where Congress might say to the Treasury, you have the right to
borrow the money necessary to implement the decisions enacted by
Congress and the President. You must report to us regularly on how that
was done and what you borrowed. That last one is patterned after what
some other developed countries do. But really, any of them would move us
closer to where we need to be.

[ Jacques Arsenault: ] Now, your report raised some considerations for
Congress. Can you talk about what those were?

[ Susan Irving: ] What we tried to do for each of the options that we
floated, was talk about the decisions Congress should make to make
themselves comfortable with it. So for instance, on the one I mentioned
where you delegate the authority to the Treasury to borrow such sums as
are necessary to implement the laws enacted by Congress and the
President, you would want to think about what kind of reports do you
want from Treasury? What kind of oversight? In other countries, the
equivalent of the Treasury has to issue periodic reports on the profile
of their borrowing, on the different kinds of securities they issue. One
of them we did is patterned after something that was done several times,
which is, Congress suspends the debt limit to a certain point and then
it is automatically raised-- well, what kind of time limits do you want
to do that-- to put around that? How long does Congress have to think
about it? Can the number to which it's raised be changed? So part of
what we were trying to do is recognizing the authority of the Congress
but also that needs of the United States as a country and to have faith
in its debt. To find ways to assure congressional oversight and
recognize the joint responsibility of Congress and the Administration on
spending and revenues, but at the same time, make clearer and make it
more understandable in public that its revenue and spending decisions
that lead to debt and also all the full faith and credit of the United
States is one of our greatest assets.

[ Jacques Arsenault: ] Finally, what would you say is the bottom line of
this report?

[ Susan Irving: ] The bottom line is that adopting a different approach
to the debt limit would allow the President and Congress to really focus
on the policies needed to deal with the current economy and our
long-term fiscal outlook without in any way damaging the role the
Treasury securities play in the financial market or endangering or
lessening the confidence everybody has in the full faith and credit of
the United States.

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