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THE WHITE HOUSE

Office of the Press Secretary

For Immediate Release November 9, 1995

                           PRESS BRIEFING BY
                      CHIEF OF STAFF LEON PANETTA
                  AND TREASURY SECRETARY ROBERT RUBIN

The Briefing Room

12:20 P.M. EST

SECRETARY RUBIN: Good morning. I don't think it's afternoon yet. Oh, I guess it is afternoon. Okay, we're out of sync. I revise my comment. Good afternoon. Leon Panetta and I will speak a bit about events that are going on with respect to debt limit, continuing resolution-related matters. I'll start with the debt limit.

The President will veto the House debt limit because it moves America closer to default. It is crafted to coerce the President into signing a budget that he has already said he will not sign because he believes it is unsound for the future of this country. The consequences that this legislation is not -- I will repeat -- this legislation is not a debt ceiling increase, it is a shortcut to default on the full faith and credit of the United States of America for the first time in our history.

As written, the legislation cuts off our ability to borrow on December 12th. It then pushes us closer to the brink of default by repealing existing powers the Treasury has with respect to cash management to prevent default. The bill also rolls back the limit on outstanding debt to a level $100 billion below the current debt limit, an action that extraordinary and perhaps unprecedented.

Finally, the bill attempts to design a system of priority of payments to certain federal beneficiaries that would take effect when the debt limit is reached. As a practical matter, it would take several months to put those processes into place. So, during those several months, even those protected beneficiaries would, in fact, not be protected. Moreover, all other federal payments not identified as protected -- for example, Medicare payments and tax refunds -- would be jeopardized under any circumstances.

In summary, this legislation will either force national default or coerce the President into signing a budget that he will not sign as being against the national interest.

Let me conclude if I may with a few additional observations. For over 200 years, America has never defaulted on its debt. Our creditworthiness is an enormously valuable national asset, and it must not be relinquished. Default will call into question the integrity of the United States with respect to meeting our commitments.

When you create a question mark about meeting your commitments in the financial marketplace, that has real and serious consequences. Default would increase the cost of federal borrowing by virtue of having created a question remark with respect to our integrity, with respect to meeting commitments, would increase the cost of borrowing for the federal government for as far into the future as you can see -- 10, 15, 20 years from now we would pay more for money by virtue of having tainted our financial reputation.

Moreover, the effect of default is particularly critical when the nation enters a period of uncertain circumstances, when there are difficult circumstances to deal with and your reputation in the financial marketplace is most important. Default would also affect private sector borrowing costs because much of private sector borrowing is geared to federal interest costs. For example, variable rate mortgages are geared to federal government borrowing costs; so is much corporate debt and much consumer debt.

Finally, the example of the largest nation in the world defaulting on its debt would be an horrendous example in the global financial markets as other nations around the world make the very difficult decisions they have to make when they are in difficult circumstances with respect to meeting their commitments or taking what sometimes seems to be the easier way out and defaulting.

Our reputation with respect to meeting our commitments must never be sacrificed. And that is why default should be taken off the table as a tactic with respect to resolving the budget debate.

Unless the Congress acts to increase the debt limit with a clean debt limit increase bill, and raises the debt ceiling, and does so before November 15th, Treasury will be forced to take extraordinary actions to stave off default. As I have said in many instances before, both to the press and in letters to the leadership, these actions are without precedent; they are costly; they require legal judgments to be made based on the facts then before me as we come up against the brink of default, but they are definitely preferable to default itself.

There is a much better alternative before the Congress. It should pass a clean extension of the government's borrowing authority. The debt limit is not about deficit reduction, it is about meeting past obligations. Progress on balancing the budget, progress that this administration is fully committed to, will occur only by making the difficult decisions about spending cuts, and that must be done in a non-coercive environment and in accordance with usual legislative procedures -- public debate, public debate -- back into Congress and then decisions being made.

Let me conclude by repeating the comment I made earlier because I think it is really key to this entire matter with respect to the House debt ceiling proposal, and that is that this legislation is not a debt ceiling increase; it is a short cut to default on the full faith and credit of the United States of America for the first time in its history.

MR. PANETTA: The debate over how to achieve a balanced budget is, I think, one of the most significant of our lifetimes because it really does involve deep, fundamental issues about not just our values but the future course of this country. We're deciding the future of Medicare and Medicaid. We're deciding whether this nation should maintain its commitment to education, protection of the environment. We're really deciding whether to raise taxes on working families and reduce them on the wealthy, or give middle-class families the kind of tax cut they deserve.

These are large and fundamental issues. And there are legitimate differences between the parties as we approach these issues. They ought to be fully debated. They ought to be fully decided, but not in the context of crisis.

The President has presented a balanced budget. The Republicans have rejected the President's proposal out of hand. And they continue to reject the President's proposal with every amendment and proposal that passes on the House floor which continues to contain the most extreme elements of their budget.

Therefore, the Republicans are now obviously resorting to a form of blackmail in order to push their agenda onto the country. The President has made clear that he will not allow that to happen, that either he or the country should be forced to decide between whether we destroy Medicare or whether we shut down the government. That is not an acceptable choice. That is blackmail.

The President has consistently and repeatedly told the leadership of the Congress that he wants them to pass the legislation with regards to the debt ceiling clean, without any extraneous provisions, without provisions that seek to implement any element of their agenda without provisions that tie the hands of the administration. When it comes to the issue of default, Mr. Secretary has said this ought to be faced directly and cleanly, and it ought not to be part of the larger debate with regards to the budget.

The President has said that consistently. He said it in this room on October 25th, he said it in his radio address on October 28th; he told the bipartisan leadership exactly that in the meeting we had last Thursday on November 1st.

Again, the President cannot, on behalf of the nation, allow the Republicans to basically threaten the country into choosing between whether or not we shut down the government or force a default, or accept the cuts that they've proposed in Medicare and Medicaid and education and the environment and their proposed tax increases on working families. That is just not a choice that this President is going to accept.

Secretary Rubin has been writing and talking to the leadership for months about the issue of default, and he has again repeated those concerns today. Yet they continue to load the bill with regards to the debt ceiling with key elements of their agenda and with straight-jacket provisions that would virtually force the country into a default. They included issues like elimination of the Commerce Department, reg reform, habeas corpus, seven years. There are a number of issues that they're now adding to the debt ceiling, which, again, are totally unacceptable. And the President will veto that proposal if it comes to the White House.

The same is true, I should add, for the continuing resolution to keep government services available to the American people. The continuing resolution expires on Monday night -- this Monday night, at midnight. The bill passed by the House that they approved yesterday -- the continuing resolution that was approved yesterday basically, again, tries to push the same kind of choice on the American people, which is we want to double the premiums on Medicare recipients, slash education, or we will cut off all services to the American people. Again, that is unacceptable.

The continuing resolution that we are currently operating with, that we worked out with the leadership in a cooperative fashion, that was approved by both the House and the Senate and is now in effect is an even-handed measure. Congress should simply extend that measure so that we can continue whatever discussions we should have with regards to the budget.

Let me make clear that the reason that we're at this point is that the Congress again has not finished its work both with regards to the appropriations as well as the budget. Of the 13 appropriations bills, they have only sent two to the President that he has signed. This is the worst record of a Congress since 1987 when it comes to appropriations bills, and they still have not passed any form of balanced budget bill and sent that to the President. They are now 40 days past deadline. Congress should stop, obviously, playing the games that they're currently involved with, get down to business, do their work, send the President a clean debt ceiling bill to avert default, send us a simple extension of the continuing resolution and then let's all get back to work on the broader issues involved in the budget debate.

The concern, obviously, that we have is that what we're facing right now is not exactly a secret, it is, in part a design that the Speaker and the others have spoke to for these last few months that they are essentially trying to threaten the country and threaten the President with the choice between accepting their priorities or facing the prospect of default. So this is basically an implementation of that strategy.

I think what the Republican leaders have to understand and realize is that they are now the majority party and that they, as the majority party, have to accept a degree of responsibility for helping to govern this country and to govern it in a responsible fashion. They cannot act like a minority when they are, in fact, responsible for helping to govern this country. This means that they have to begin acting like adults, live up to their responsibilities, even the unpleasant ones. The debt limit is not an easy vote. I understand that. It's a tough vote. But it's one of the responsibilities of governing. They should do it now before they cause even greater uncertainty in the markets.

The President is looking forward to signing into law before the end of this year legislation that balances the budget. But it has to be legislation that balances the budget without harming our senior citizens, without harming our children, and protecting again our investments in education, in protecting our environment, in providing the kind of targeted tax cut that we think is necessary for middle-class families in this country.

So he will do his part -- he will do his part -- the President of the United States will do his part to ensure that the United States lives up to its obligations and its financial obligations, as well as its governmental obligations to the people of the United States. He fully expects that the Congress will do the same. We hope that the Speaker and the Majority Leader will recognize and implement their responsibility to govern.

Q Leon, so far we understand that there have been some meetings and you're going to meet again this afternoon about some orderly process of beginning to shut down the government. Can you tell us what that would involve and what services will no longer be provided if the CR is not reauthorized?

MR. PANETTA: Well, we have, beginning in the latter part of the summer, asked all of the departments to prepare plans in the event that we would have to face the situation. It was one that we thought we might have to face on October 1. But because, again, the leadership took the responsible approach, we were able to agree to a continuing resolution that was acceptable to all sides and we avoided that.

Nevertheless, each of the departments and agencies in the federal government have a plan to implement if, in fact, we are ordered to shut down. We expect that the Director of the Office of Management and Budget Alice Rivlin will present a briefing on what specific steps have to be taken on Saturday. I can just tell you, as indicated in The Washington Post this morning, that we're looking at the prospect of 800,000 people having to be furloughed immediately, and there will be additional steps that would have to be taken in order to comply with the law if, in fact, we are forced to shut down the government.

Q Does this mean that there won't be drug cases being made, that there won't be people getting Social Security checks? I mean, for people who are home wondering, what does it mean for them, can you tell us what that means?

MR. PANETTA: It will clearly have a lot of implications here -- certainly, for the 800,000 who are on furlough, but more importantly, as an example, new claims on Social Security will not be processed, new claims for veterans will not be processed, and there will be other agencies, such as the Environmental Protection Agency that will have to close much of its operation. There are some agencies that are allowed to continue under a Justice Department opinion because of the urgency of the operations that they work with. And as I said, there will be a more definitive presentation of all of that on Saturday. But let's make no mistake about it, when you shut down government services to the people of this country it is going to have an impact on those who, frankly, are innocent victims of this political debate. It just simply should not happen.

Q Mr. Panetta, if there is no continuing resolution by Monday night's deadline will the President go to Boston as scheduled Monday night and then go to Japan later in the week as scheduled?

MR. PANETTA: All of that, obviously, is -- we're going to continue to review what steps the President has to take in line with what the Congress does. Our hope is that we won't reach that point. Our hope is that, obviously, the leadership will agree to a clean debt ceiling increase and clean extension of the continuing resolution, and that we won't have to in any way bring crisis upon the country. But the President -- all of us are reviewing the situation on Capitol Hill and, obviously, if it gets to that point we'll have to revisit those decisions.

Q Legally, legally, is there an opinion yet on whether the President can go to Japan if there is shutdown of the federal government?

MR. PANETTA: I believe under the rulings that it is possible for the President to be able to continue to make that kind of trip because it involves foreign policy of the country and our national security. But I also have to say to you that if we -- if, indeed, we are at a point where we have been forced into a default, then that is a decision that we are going to have to look at at that point.

Q Secretary Rubin, you asked about -- or you said in your remarks Treasury will be forced to take extraordinary actions to stave off default. What do you mean by that?

SECRETARY RUBIN: Well, we have said in letters to the leadership that there are a number of powers that we have -- the very powers that this House legislation is attempting to take or would take away -- that if we can make the judgment at the time we face going over the debt limit or face default can be invoked would enable us to work our way through the default date and particularly with the Civil Service Retirement Act and the G Fund. And they are both -- they both have provisions in them which allow them to be used for debt management purposes. But you have to make a legal judgment at the time that you get up against the debt limit and you get up against default as to whether or not the statute is applicable to the facts at that given moment. And that's the decision that I will have to make at that time.

Q How much time will that buy you?

Q Yes. How much time will they buy you? How much money is available to you? And do you have any alternatives besides the retirement fund and the G Fund?

SECRETARY RUBIN: There are other measures we can consider using. They all involve very difficult practical and legal issues. We are working on them. In terms --

Q Can you tell us what those might be?

Q How about the Bank Insurance Fund, can you use that?

SECRETARY RUBIN: No, we have no intent of using the Bank Insurance Fund. I don't want to go through all of these items, for various reasons. But let me say that, in facing the question of November 15, the two powers that are at issue were the two that are addressed in the House legislation, Civil Service Retirement Act and the G Fund -- in terms of how long they can take us, that once again becomes a question of how large -- what the inflows and outflows will be. And as we've said all along, in a budget of $1.5 trillion, these numbers, although we make estimates every day, these numbers vary considerably, and as time goes on they may be different than our estimates.

Number two, there are serious legal questions that you have to continue addressing with respect to the applicability of the statutes to the fact at any given moment. So I think that's really a question that, while we have made some very preliminary judgments on, I would not want to answer in a public forum.

Q But are you talking of days or weeks?

Q Given the historical and long-lasting impacts you've cited about default and your tremendous concerns -- the letter you've released today -- do you believe that it is more important to resist the Republican budget and go into default? Is the Republican budget worse than the long-term consequences to this country of a default?

SECRETARY RUBIN: I think the two things are undesirable. I think default should be absolutely be off the table. I don't think default should be part of this debate. In any negotiation -- and I've done very large numbers of negotiations in my private sector life before I came here -- there are all sorts of taxes you can consider, but there are some things that you say simply are beyond the acceptable, and default is beyond the acceptable in terms of the national self interest.

In terms of budgets, my view is that the congressional majority's budget, the reconciliation bill they've put forward, is not the proper course for the future of this country. I believe that the President should veto, as he said he will.

Q But there seems to be a distance between you and the President on this issue. He believes that it's better to go into default than to accept the Republican budget.

SECRETARY RUBIN: No, that's not what he believes at all. He believes that --

Q That's what he said.

SECRETARY RUBIN: No, it's not what he said. What he said is that default should absolutely be off the table, that we should separate the debt limit from the budget process, get a clean increase in the debt limit, and then go on and resolve this budget debate through a public debate, through congressional process and through interaction between the administration and the Congress.

Q Mr. Rubin, even though that's a linkage that you don't like, it is linked, and I wonder if you could prioritize. Will you let the government go into default in favor of --

SECRETARY RUBIN: I don't accept the premise of your question. I don't think they're linked at all. I think that the debt limit, as I've said now many times, should be separated from the budget process, the debt limit should be increased.

Actually, what really should happen is, the debt limit should be increased to a period beyond the budget process, and then the budget process should be resolved through the usual legislative processes, including public debate. What is actually happening -- another way to look at this whole thing is that what is really happening is that there is an effort to coerce the President into doing something that he feels is very much against the interests of the nation, and that really is an effort to undermine the normal legislative processes that go on in this country.

MR. PANETTA: Let me just speak to that. This is not a real choice. This is a false choice. If the Republicans really believe in the validity of their budget let them take it to the American people. Let them get the support of the American people on their issues. Let them debate it openly. Let them go through the process the way every other party has had to go through a process when you want to get something done. But don't, don't, put a gun to the head of the President and head of the country and say, you don't accept our priorities, you don't accept what we want to do to Medicare and Medicaid or what we want to do to education -- we're going to blow you apart. That's a form of terrorism. We are not going to accept that.

Q There is an opinion in the bond market that it's possible to take a hit in terms of a default, knowing that it's a price to be paid for long-term deficit reduction. In other words, that the risk is worth facing and even confronting. Default is worth it -- that's the argument that is made by some in the market. What do you say to that?

SECRETARY RUBIN: I say it's a false choice. I think what the President has said is exactly right -- we need to take the debt ceiling, get it out beyond the budget process, and then continue the deficit reduction process he began in 1993. Through the budget process he's brought the deficit down to half -- roughly half of what it was when he took office. We can continue that process, put his budget in place, and we can go to balance. My answer is the false choice.

Q Mr. Panetta, excuse me for changing the subject, but I wondered if you'd spoken with Hazel O'Leary about the article in the Wall Street Journal today and what your reaction was to that report?

MR. PANETTA: Well, I was very concerned with the article that appeared in the Wall Street Journal and called the Secretary and asked for a full report on what was behind this particular situation. And I want to give her the opportunity to present me with that report before making any further decisions.

Q So when will she do that?

Q When do you get the report?

MR. PANETTA: I've asked for that, hopefully, by the end of the day.

Q Mr. Panetta, is this the kind of situation that might require a resignation?

MR. PANETTA: I don't want to speculate on that. I want to see what the report is first.

Q Mr. Panetta, accepting your qualms about the debt ceiling, with respect to the continuing resolution, you're an old budget tactician from Congress, why shouldn't they load it up with all the -- I mean, I understand that you don't like it, but why shouldn't they load it up with all the things they want to try to force your hand? Isn't that part of the normal legislative process and tactics, if you leave default aside?

MR. PANETTA: Well, look, again, I've always assumed that there would be a point at which, frankly, there would be a discussion as to what we ought to do with regards to the CR. When we did the continuing resolution last time I had the opportunity to sit down with Congressman Livingston, Senator Hatfield, and I think we were able in a rational way to try to work out some give-and-take that resulted in a final continuing resolution. That's the best way to make it happen.

The problem is that once you engage in the process of loading up a bill with objectionable items, then you basically are in a fight in which both sides dig in. And suddenly, what happens is, once a member has been forced to vote on a continuing resolution that contains some of these extreme elements, that member is stuck. And rather than get to the situation where you're putting people in that kind of lock, why not try to -- and this is essentially what I argued with the leadership last Thursday -- let's understand where we are. The President is not going to accept your budget at this point. Let's provide a clean extension of the debt ceiling. Let's provide a clean extension of a CR, send us your bill; the President will veto it; then hopefully we can engage in discussions that can bring us an agreement on a balanced budget. Now, that's where we are, and it seems to me that's the responsible way to try to proceed here.

But what you're seeing happening right now is, very frankly, a path that clearly is going to lead to a veto if they proceed the way they are. We ought to be talking; we ought to be discussing the approach there. I had asked both the Speaker and the Majority Leader Dole on the airplane, please do not proceed with a continuing resolution or a debt ceiling proposal until you've talked with us about it in order to try to avoid this problem. That has not happened.

Q Mr. Panetta, is there a change in the President's earlier support for the Senate version of welfare reform?

MR. PANETTA: I think what you'll see -- and Alice Rivlin will be briefing on the report that's coming out with regards to the impact of the various welfare reform proposals, as well as the budgets that are up there -- it basically reflects what the President stated -- has stated in his radio address and has continued to state, which is that the Senate version on welfare reform is a good beginning and a step in the right direction, but there are improvements that have to be made in the conference.

We have made clear that there are improvements that have to be made, particularly with regards to children and particularly with regards to trying to protect states that have to deal with these issues in terms of work and responsibility. So what I think this report helps us do, very frankly, is it gives us some momentum to urge the conferees to try to implement the improvements that we've requested.

We have not changed our position, if that's what you're asking.

Q Precisely, what does the President want changed in the bill, or added to the bill, or whatever, before he would sign it?

MR. PANETTA: It's going to be laid out specifically in the report. It was laid out in the letter that Alice Rivlin sent to the Congress. We specifically are asking for improvements with regards to the immigration issue; we're asking for additional funding with regards to the contingency funds; we're asking for additional funds with regards to child care and child support; we're asking for revisions on the SSI provisions and on the food stamp provisions. Those are the key elements. The rest of it will be presented to you in the report.

Q Secretary Rubin, can you stave off default with the Civil Service Retirement and the G-7 -- can you stave that off for a matter of days, a matter of weeks, hours?

SECRETARY RUBIN: I believe that with the powers that I now have as Secretary of the Treasury, assuming that I make the requisite legal judgments when we come up against the debt limit and the day to default, that we can work our way through this for some period of time. And I think I'd rather not be more precise than that other than to say for some period of time.

But meanwhile, what should happen is that Congress should fulfill its responsibility and act a clean debt ceiling increase and get this out of the budget process so that we can then go on and resolve the budget debate.

Q Secretary Rubin, do you see any signs that foreign investors are beginning to lose faith or get nervous about holding U.S. bonds or the dollar?

SECRETARY RUBIN: I think, rather than comment on investors' reactions at the moment, which I have resisted doing with respect to all markets since I've been Secretary of the Treasury, I would rather go back to the comments I made before, that as a matter of policy -- of policy -- undermining the integrity of the United States with respect to meeting its commitments should be absolutely off the table for all concerned and these processes go forward.

This is very, very serious business and it's going to affect the future of this nation for a long, long time to come.

THE PRESS: Thank you.

END 12:51 P.M. EST