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tv   [untitled]    May 3, 2012 1:30pm-2:00pm EDT

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all. they're re-enforcing. we need to make sure we sustain a very fragile recovery at the same time put a place a plan to deal with the long-term deficit and drivers of the deficit. we can do both. but some of our colleagues have pushed for more austerity now, which would only hurt the economy and then refuse unfortunately to take the balanced approach to long-term deficit reduction. >> i thoroughly agree with that. the biggest drag on the economy right now is continued layoffs at the state and local level. you hear on the bloomberg radio governments -- government employment is going down. that's not the federal government, it's the sate and local governments laying off teachers and firefighters and whoever. we need some counteraction to
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that immediately to keep this recovery going. but it should be in the context of a legislated long run solution to the sustainability of the budget. to stabilizing the debt and that has been my theme for a long time. i think we should been focussing on how these two things are not ant thetical. they need to be done at the same time and we need to do them now. >> i think the state and localities are starting to take some action. for example, pension costs are an important component and they're making some revisions to their pension programs and long range costs. i think from a national level there needs to be a continual monitoring of health care costs as the new reform legislations implement the impact of the
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state level and national level. health care costs and changing democrats are the two main drivers at the national level and state level as well. i think that's really important. there need to be a sensitivity i think particularly in tax reform issues and the implications for the state and local tax systems particularly state level. >> another gao report this was a year ago found that there was -- there were 81 opportunities to reduce potential government duplication, achieve cost savings or enhance revenue and an update on that showed another 51 areas where programs may be able to achieve greater efficiencies. little has been done, not much has happened since the february 2011 report. why? and with such concern about the deficit and the gao wrote for this, why is it so hard to wring inefficiencies out of the government? dr. rivlin, you have a lot of experience in this. you want to take that first? >> it's just hard because there may be duplications in programs,
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there certainly are. but every program has a constituency that it is serving and believes it shouldn't be cut and a subcommittee that is protecting it. so it's very difficult to do a grand design that says these things should be consolidated. it also doesn't save much money. so the motivation to do these difficult tinkering things in defense or domestic spending and there's waste in both is limited because you go through enormous effort and political cost and you haven't saved much. >> i would say there should be an added incentive for a lot of the federal agencies to make some of the changes that the gao's proposed. as part of the budget control act we did put spending caps on discretionary spending which is
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close to a trillion dollars over ten years. so that will build greater pressure to achieve those savings. these are important recommendations. some of the big drivers in the long-term report the health care costs. i still think where there are savings to be made we should of course make them. i think the pressure will build because on the discretionary side of the budget, under the president's plan it will be reduced to a lower per cent of gdp since any time since the eisenhower administration by the end of that ten-year period. >> i'm really worried that we're squeezing down government too much. it's true that it will be hard to do the consolidation and reduction to right, even if you do that, there are lots of
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things we need our government to do that will be done worse if we're squeezing everybody and saying don't modernize the air traffic control system, what? we ought to be modernizing that. we ought to be investing in a whole lot of things that make your government run better for the future. >> a couple things are important to note. after the 81 areas that you mentioned, about 40 or so of them dealt with overlap and duplication. the rest were class savings and revenue enhancement opportunities that have great consequences for if implemented tens of billions of dollars in savings. and there's been partially action taken on about 60 of the areas. 17 haven't had any action. most of it is dealing with the tax gap issue. i've seen some encouraging signs. the administration has required all the agencies to address and
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their budget submissions all the 81 areas who identified in the report congress is beginning to take action, one notable example of reauthorization of surface transportation program we pointed out 100 different programs have gone -- developed over the years. hopefully that dialogue that will continue and yield some good results. >> we've been talking and there's a lot of talk in washington about a grand bargain that was hoped for spending and taxes that maybe it would occur last year. there was an opportunity maybe there was a little optimism, not a lot that the supercommittee was going to be able to find a grand bargain. obviously that hasn't happened. what would it take? what would it take to be able to reform taxes to have a tax code overhaul and at the same time not have major effects on the
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deficit? >> what will it take to have the grand bargain? well, it's going to take adopting the kind of framework that has been proposed by the bipartisan commission. a pathway has been laid out that says you've got to get here through this convince of increased revenue and some tough cuts including some reforms and modernization of the health programs. and as we started out the conversation with the action forcing events that we're going to see at the end of this year, i do think that has the potential for bringing the parties together. look, you had a lot of political gridlock. i think it's pretty clear when you have an overwhelming majority from one party that's actually signed a pledge the grover norquist pledge that says
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they won't allow one penny to go to debt reduction, we've got a challenge. at the end of this year by law all those tax cuts could expire. just to give you a sense simpson bowles sugged about $2 trillion of that $5 trillion go to deficit reduction. you see reforms in a number of areas where you could achieve deficit reduction. as your question implied, we need to be very careful in the process we don't hurt the fragile recovery. i brie with dr. rivlin that investments that the government makes in the economy do help strengthen our economy.
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>> the history of the last couple of years is a history of opportunities missed. a piece has already been done. we should be clear. there are always three, maybe four pieces. that was many the budget control act that capped spending and saves as the congressman said early a trillion over ten years. we don't need to go back to that and find decision cession their spending more. we need to solve the other two pieces and the final piece which is how do you keep the economy going while you phase in these long run deficit reduction
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measures? >> one last question. you talked about the balanced approach. a version of simpson bowles made it to the house floor 38 votes in all. what encouragement should the audience take away from that? >> as those of us who have really devilled into simpson bowles know, and as i mention in a usa today editorial in response to that, there is a huge difference between what was proposed on the house and simpson bowles. it goes to this argument we're having on baseline issues which is an arcane but very important
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debate. because the proposal on the floor of the house was about $1 trillion in revenue short of what simpson bowles proposed. they essentially ignored that trillion dollars of revenue. which totally challenges the balance of cuts to revenues. i support the framework. i support the ratio and the accounting methodology of
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simpson bowls. yobt messily agree with every recommendation. if we disagree with a particular recommendation on revenue or cuts we have an obligation to come up with an alternative. i support the framework there be and the proposal on the house just was $1 trillion in revenue below simpson bowles. that's a pretty big difference. >> thank you all for participating in the panel. great discussion. thank you very much. we're going to move on to our next panel. again, thank you very much. live tonight on our website book journalist and former news anchor dan rather recounts his broadcasting career and his dismissal from cbs news after 44 years. we'll have that live at 7:00 p.m. eastern. with congress on break this week, we're featuring some to have programs from american history tv seen every weekend
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here on v pan 3. tonight lectures in history. join students in the classroom to hear lectures on campuses around the country. at 8:00 eastern university of michigan history professor kevin gains plays and exams the music of the civil rights and black power movements. at 9:30 former defense secretary donald rumsfeld talks about the bush doctrine and the war on terror. he's at the citadel military college fl charleston, south carolina. and at 11:30, urban america in the 20th century. a course on the social, political and cultural die namics of u.s. cities after world war ii. american history tv in primetime starts at 8:00 p.m. eastern all this week on c-span3. this weekend on book tv, and afterwards, seth jones documents the war against al qaeda since 9/11 in hunting in the shadows. he's interviewed by ap intelligence reporter kimberly dozier. also this weekend your questions
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and comments for tom brokaw in death penalty. book tv every weekend on c-span2. spend a weekend in oklahoma city with book tv and american eastern check in on literary life with book tv on c-span2 including the governor's must read political books. oklahoma university president on his letter to america. also rare books from gal lie low, from the history of science collection at ou. sunday at 5:00 p.m. eastern, oklahoma history at american history tv on c-span3. tour the oklahoma city bombing memorial with the co-designer. plus a look into african-american life in 1920s oklahoma and native american artifacts from the special collections at the oklahoma history center. once a month the c-span local vehicles explore the city of
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city life in america. representatives from the three major coverage major credit agencies testified before a british parliamentary committee on the implications of bank ratings and credit scores. members asked witnesses about the recent downgrades of the u.s. and other euro zone countries. >> thank you very much coming to see us this morning it's the second hearing we've held on the risk and rating agencies.
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can i begin, mr. kramer, with the decisions that have been taken on the u.s. downgrade? does this -- it made a $2 million mistake in assessing the size of the u.s. budget deficit reduction plan? >> good morning. the u.s. downgrade in august last year was based on three main factors. the first one was the high level of debt. >> you're -- >> the answer is no. >> you don't accept? >> i don't accept that. >> i was about to accept what happened? >> what don't you accept of what was sent out by the assistant secretary for economic policy in
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2011. what is it that you don't accept? >> okay. the $2 trillion. >> i'm not asking you if it was right to downgrade or not to downgrade. i'm just asking you about this doctors 1 trillion alleged error. >> the discussion was about which of the scenarios which were published by the congressional budget office which is an institution should be underlying the analysis. originally the s&p team was of the assumption and following the alternative scenario of the cbo, alternative fiscal scenario which in terms of expenditure trajectory did foresee a growth in spending in line broadly with nominal gdp. following discussions with the treasury as they are habit chal in interactive relationships with the issuer s&p agreed with
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the treasury that the baseline scenario of the cbo would be the appropriate scenario to use. now this is an entirely normal process of interaction and discussion about a future policy measures taken by a sovereign government. the -- the $2 trillion alleged error -- the $2 trillion is the following number. the $2 trillion is the difference in the net debt ratio in 2021 depending on which scenario you use. under the alternative scenario, which we had initially pursued the debt ratio in 2021 would have come up at $22 trillion u.s. i'm using round numbers to $22.1. which is $2 trillion higher than under the baseline scenario which is $20 trillion. the baseline scenario is the one that the committee looked at
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that was presented to the credit committee after the discussions with the treasury. and it was on that basis that the decision in august was taken. >> i'm just getting -- trying to get to the heart of it. a serious mistake was made. and you're saying they're the people who have made the mistake? >> no. there was no mistake made by either side. there are different snare joes. these are measures about the future. which you have to have an analystical debate on what is the likely strategy of fiscal consolidation the government might take. the cbo itself, these are all cbo scenarios. it's not an s&p scenario. the question was which of the various scenarios should be underlying the rating and assessment?
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we did agree with the treasury that it should be the baseline scenario which would lead to $20 billion rather than $22 billion. there was no mistake on their side and no mistake on our side. >> you just made a mistake writing an article mistake. what he says, and i'll read what you he says. he says, standard & poor's presented a judgment about the credit rating of the u.s. based on a $2 trillion mistake. after treasury pointed out this error, a basic math error of significant consequence, s&p still chose to proceed with their flawed judgment. he thinks you made a mistake. >> well, i just represented to you. >> no mistake on either side? you must have made a mistake in thinking you made a mistake? >> well i can only describe to you the turn of events from the time back then and the turn of events as i described. this is a normal discussion that you have with governments when
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you meet the government officials to discuss what is the likely turn of policy choices that will be taken. clearly, in the future you can have various scenarios. hopely there were various scenarios published by the cbo and a natural process to discuss which is the most likely scenario that should be on a base case when we assess the credit risk of the united states in this case and the treasury and s&p were in agreement that the one that we used was the proper one. >> you didn't change the scenario after you heard about the $2 trillion? >> well, the scenarios are under public domain. we knew about the various scenarios. >> you didn't change the base case scenario? >> as i said earlier -- >> after -- >> i said earlier -- >> clarify. did you change the base case scenario after you heard about the $2 trillion? >> no, we did not hear about the $2 trillion at the treasury because this was the outflow of the published scenarios by cbo.
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what happened in the discussion with the treasury is that the treasury did make a credible statement and a credible stance that the base case scenario of the cbo is the proper one to adopt and we agreed to that. although originalry we were planning on using the alternative scenario. the value of a relationship and made a credible statement on that. >> u.s. treasury will be listening to this and can submit evidence if they choose to on that point and to congress. was the rating committee reconvened to discuss this $2 trillion issue? >> the rating committee discussed the various scenarios. under both scenarios that are -- that we discussed here, the
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outcome, according to our published criteria -- >> just answer the question. i mean, there's a sequence of events here. when the -- treasury, when u.s. treasury pointed out what they considered to be, and they still seem to consider to be, this $2 trillion mistake, this was still prior to your decision to assume downgrade. was it not? >> the discussion -- between s&p and the treasury was prior to the credit committee that decided -- >> that's what i just asked you. the answer to that is, yes. now, when that discussion took place and you learned about their view of this $2 trillion mistake, did you reconvene the credit committee? >> again, i refute the name mistake in this context. >> i said, their vunchts yes
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sh, view. >> yes, but i just want to make sure of our view. we did convene the committee which discussed the mutually agreed scenario which is the cbo base case snay yo leading to a $21 trillion debt in 2021. soap the answer is, yes. >> okay. since the downgrade, the yield on u.s. government bonds has fallen by more than 1/5. does that square with your judgment? >> it does square with the judgment. what we have to understand is that the yields and the capital market developments depend on many, many factors. one of them being a, an opinion issued by a rating agency. my interpretation of market developments is the following -- that there has been not only in the u.s. but more generally globally an investor flight to quality and, say, papers, and
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there are a number of those available. one of them being the u.s. treasury bond. >> yes. so, broadly they are together, aren't they? germany being another example of a beneficiary flight to -- along with the u.s.? >> correct, right. >> so you've got, and the uk. you've got a number of countries you've not downgraded? that have benefitted from this flight to quality but one you have downgraded is also benefiting. why do you think that might be? >> that might be. first of all we need to keep things in perspective. the sovereign credit rating of the united states is aa plus signaling our belief there is an extremely small probability of default. >> but higher than before? >> naturally, higher than before. correct. >> okay. >> so i think the flight to quality phenomenon that we're
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observing is something that you need to look at the various alternative assets that are at the disposal of the investors, and the investors take the view that this is a safe place to put the money. now, you need to remember that ratings and market yields do correlate over a very long term, over the whole spectrum of the ratings, but it's not the case, although it's sometimes perceived as such that if a rating agency lowers or raises the rating it automatically the refinancing costs of that particular issue would change. >> do you really believe that the u.s. capacity and willingness to repay is lower than that of, say, finland? >> i do. >> and you take into account there that finland has huge
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expenditures, a small country, not least to russia but to very powerful regional factor, and that the countries heavily exposed to one industry? unlike the huge diversification of the united states? and still come to that view? >> we rate all 27 sovereigns according to a published methodology. one of the key elements in the methodology is the political environment and also has to do with public finances, and both accounts, if you want to compare the u.s. with finland, you will notice two things. first of all, that the debt ratio in the u.s. is much higher. you will find the debt trajectory is more diverse. more importantly, you will find that it's been our finding, at least, and people may come to different conclusions on that, but we felt that the government challenges the u.s. political
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systems facing in generating a coherent strategy of getting public finance challenges under control are more pronounced than they are in finland, and the specifically last summer -- the u.s. government got extremely close to a real liquidity crisis, because of the washington establishment could not agree on the way forward that would have been required to raise the debt ceiling. >> would you think that there is any truth too, in a point put to us by a sovereign risk expert many, many years experience in the field at a high level, who said -- who has given us advice, i kwoeshgts like journalist it's looking for a splash, each agency will wish to be the first to hit the headlines anew developments suggesting the rating should be reviewed or
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changed rather than seen to follow competitors? sovereign risk -- sovereign rating generate a lot of publicity for the agencies. in other words, this is partly a marketing operation. do you think there's any truth at all in that? >> no. i think there's no truth at all. we do apply criteria to all the sovereigns, and we do assess all sovereigns according to this criteria, which, by the way, has generate add very satisfy result in terms of the abilities of default and ranking within sovereigns. it is our view and our duty to the marketplace consists of assessing in a timely way the credit characteristics of various sovereigns and if we believe they have changed we consider it as our duty to inform the general public of this changed opinion as soon as possible, and that's exactly what happened in this case and it happens in all other cases. >> thank you.


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