Rep. Paul Ryan, Bill Miller Talk Debt, Economy
Reaction to credit downgrade
- Duration 14:48
- Date Aug 7, 2011
Reaction to credit downgrade
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The S&P downgrade was one more below and a week when the Dow Jones fell almost 6%.
And the latest jobs report showed unemployment still over 9%.
Here to discuss what can and should be done to bolster the economy.
Our congressman Paul Ryan Republican chair of the House Budget Committee who's in his home state of Wisconsin.
And here in the studio Bill Miller head of Mike mason capital management who beat the S&P 500 index for fifteen straight years and gentlemen welcome to Fox News on.
The beer let's start with the yes indeed down -- congressman Ryan.
What do you think of the decision and if the US is forced to pay more in interest rates to but it -- borrow to go and further into debt.
Isn't that -- and odd.
Tens of billions of dollars to the deficit.
If we go up another point it adds about a trillion dollars or more over the ten year window so yes.
Clearly I'm not very surprising this downgrade we more or less saw this coming.
Because we're on all wrong fiscal path.
We'll find out tomorrow what kind of spike in rates we're gonna get.
But obviously not only does it hurt the federal government in its ability to close deficits -- are -- people you know car loans home loans all these things are are gonna go up.
And so it's because Washington is not got its fiscal house in order and to me this is this more vindication of our actions we pass the budget.
But according to -- somebody from S&P yesterday would have prevented this downgrade from happening in the first place.
We passed a budget that would make the debt peak in two years at 74 and a half percent of GDP and they -- steadily down from there on after.
So we put out a plan very specific plan to address this situation.
Pay off the debt balance a budget reform the tax code to create jobs in the economy you gotta have two things spending cuts debt reduction along with economic growth and job creation.
But but this isn't gonna help us get that -- congressman Ron and I just want to follow up an -- bring in mr.
Miller is not a little bit like a doctor is saying I did the operation perfectly but the patient died.
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Condemned the political.
Dysfunction here in Washington -- that the gridlock here in Washington let's put up what they sad.
The political brinksmanship of recent months highlights what we see is America's governance and policy making becoming less stable less effective and less predictable.
-- -- We previously believed and -- what they seem to be saying and there's no question that if they had passed your budget.
Would've solved that the debt problem but the chances were they -- -- you about some -- all the Democrats and the president simply.
Killed over isn't the failure to compromise.
The two sides -- -- -- of the problem.
And -- -- state both political parties are responsible for the mess we have right now this is not.
A Republican or Democrat only problem this is both parties got us where we are I would argue though that over the last couple of years we've gone deeply in the wrong direction.
The kind of compromise you need to actually fix the structure of our debt just like the gentleman just said previously our entitlements.
And unfortunately our partners and the other side of the aisle the president in the senate.
Have always been -- -- willing to put a specific plan out there to address entitlements specifically health care entitlements.
The president just treated to brand new health care entitlements expanded Medicaid a third.
And then put this new rationing board in charge of Medicare and so there are unwilling.
To open up in restructure these entitlements which according to S&P -- the primary drivers of these of this debt.
So yes we haven't been able to get the kind of compromise because our partners and obscenity I'll have been unwilling to reform the programs that are the cause of our future debt problem and and reason for this downgrade.
Let me bring in Bill Miller at -- -- how do you expect the markets to react to the downgrade and do you think.
That the downgrade will cause interest rates to rise both of the treasury -- our government borrowing debt.
And filtering down -- is somebody wants a home mortgage -- somebody wants a Carla.
That the Tel Aviv stock market usually go early indication release these initial reaction of markets.
The S&P downgrade.
-- further uncertainty into the markets markets hate uncertainty.
But contrary to what I think people may expect I don't expect that will pay more for interest rates that the downgrade was -- economic event was symbolic and psychological about an important one.
But usually that it ended the what with the best and -- -- said about it's a meaningful indicator of of credit risk that the US is not a not a worst credit risk now and there were two weeks ago.
We have our -- reserve currency weakened we can print money and our fiscal situation is not change the last couple weeks actually made and made a move to do it better with their make it better.
-- I wanna get back to the market site though because obviously that's what people are really focusing on immediately you expect a down day on Wall Street tomorrow.
The Wall -- had a bad week last week's there's a lot of panic overall on the markets I'd expect a lot of volatility and gets all about uncertainty Chris that's the that's the big issue we just don't know when you have to -- the markets -- Our I want to get to that to the central question which is at a time when growth for the first.
Quarter of this of this year was less than 1% in the first half of the year.
What -- Washington what can -- should Washington do to boost the economy mr.
Miller let me start with -- That the debt deal that was signed this week and let's put it up on the screen will cut 25 billion dollars and 2012.
And 2013 and 59.
Billion in twenty forte.
Will that put a drag and an already -- we'll talk.
Well those those numbers are not very large.
-- so about that by itself won't put a drag on the recovery the issue is exactly as is the opposite which is.
There's very little on the fiscal side -- on the spending side that the government can really do to stimulate the economy.
In the short run on the monetary side interest rates -- RD zero so there's very little the -- -- -- apps and and a new series of large scale asset -- that's what got the market -- which is.
The normal policy levers are not in place to stimulate the economy at least in the short run at the store the spending cuts don't worry you at this point not not those levels of spending cuts I do think they're there are some automatic triggers that make come and -- will cause.
Problems and and and -- -- 2013.
Congressman Ryan let's talk about.
You know what fiscal lovers may be last laugh the president.
Wants to extend the payroll tax cut He wants -- -- unemployment benefits He wants to put some seed money.
Into an infrastructure.
Bank I know the stimulus is a dirty word but could you support any of -- is a short term.
-- to it -- maybe give a little boost to the economy.
I don't want to repeat the same mistakes this is the same economic reasoning policies in logic.
The president uses -- -- stimulus He said it would keep unemployment from getting above 8%.
It didn't I gives a trillion dollars in debt hangover it would simply exacerbate our debt problems in my opinion.
I'll go -- every one of those individual issues like unemployment insurance others but I really think we should be tax -- -- those things are all temporary.
-- their demands cited in the they've proven not to work.
And they still facilitate uncertainty for businesses and so what's plaguing our economy today's session for the small businesses.
Who create most of our jobs is this just increases the amount of uncertainty as to what the future holds for them on regulations on taxes on interest rates and all of those things.
So this actually exacerbates those problems we think more certainty more certainty and regulations on taxes on spending on debt.
On price stability with with the sound money are the key to this and so I really think the best thing we can do right now in dividing government I would love to see.
Is fundamental tax reform.
To get us a tax system that's internationally competitive.
And does not penalize businesses for making things in America for hiring people.
We had a very uncompetitive tax code.
-- -- of special interest rate and loopholes.
Let's deal with that and I think that would be a pro growth strategy it's what we propose in our budget.
I hear talk from some Democrats at their interest in taking a look at this so I've always thought the tax reform is the best way to go and I do believe.
But getting a trajectory in place real entitlement reform that shows the world in the country.
We're getting our debt under control will help take pressure off future tax increases in interest rate increases and will help the economy today -- mr.
-- a lot.
Lay these out and is kind of a side by side comparison let's put -- up on the screen as we said the democratic plan.
To boost the economy is to extend the payroll tax cut.
Extend unemployment benefits and create an infrastructure bank.
The Republican jobs plan and obviously we're just doing this and bullet points is cut corporate taxes.
Roll back regulations and expand US energy production.
In very broad strokes when you look at the Republican plan -- democratic plan which is the better and the more -- a plan to boost the economy.
And which would get more buy in from the markets.
-- I -- congress and Ryan with the markets wanna see as a reduction in uncertainty so fundamental tax reform on the corporate.
And on the individual side broadening the tax -- lowering marginal rates.
I think it is critically important some of the democratic plan the short term payroll tax cut that's that's a good idea unemployment extension that that's a good -- -- -- there's parts of both but fundamentally tax reform.
The congressman Ryan in the next two weeks congressional leaders -- is expected to name and like I have to name.
The members of the so called super committee which is gonna have to try to come up with.
Another one and a half trillion dollars in deficit reduction.
I Thanksgiving talk about having a deadline.
Have you been told that you're on the -- -- -- and do you wanna be on the can.
-- that that's get a question on.
No I have not been told I had talked to the speaker He hasn't made his -- yet He has to August 16 to make its elections.
I would put this committee in perspective I wouldn't call it super it's a select committee.
Tasked with getting about one point two to one point five trillion dollars in savings and spending cuts as we see them.
We propose five point eight trillion dollar so we obviously have shown plenty of ways of arriving at this kind of a number.
We just have to find out whether that are bipartisan friends and it's of the -- can get to that number if we do that we have another good down payment on debt reduction.
We're -- trillion dollars in savings from government agency budgets.
With this deal we -- -- get another trillion or so in savings from what we call entitlement spending.
It is not enough to fix this problem but it is a down payment on the problem and look Chris we would even be talking about this savings -- spending cuts.
Had we not taken the majority and gotten this kind of an agreement the president started off with a debt limit thing.
I'm warning a blank check just raise the debt limit that He -- -- big tax increase which have hurt the economy.
So what are we end up with wind up what cutting more of a dollar and what they're spending for every dollar -- debt limit increase.
And I hope that this select committees makes good on its word.
In cuts about one point two to one point five trillion spending let me ask in the should be an easy question to answer if speaker Boehner comes to UN says -- on launch on that committee.
Would you the law.
Yes I would if He did that you wanna be on -- now well look I I think you care about obviously I sell my stock and is -- I'm not putting my stock and his committee -- just don't want to I think people are hype.
Are over emphasizing.
What this committee's going to achieve.
I don't think this committee is can achieve a full -- -- problems because Democrats have on they have never wanted to put their health care bill on the table they have not.
Wanted to address they don't put a plan out Williams hit a budget passed and sent in two years.
The president hasn't put out a specific plan to fix this problem.
And they don't -- wanna go -- structural entitlement reform which is what you have to do to fix this problem prevent -- don't already get this economy growing a bit let me tell.
I I will do this but I want to make sure people understand.
That I don't think this is going to be a committee it's gonna fix all of our fiscal problems.
I hope this is a committee it's gonna get another single or double which is get a down payment are problems ultimately Chris I really think you need to change leadership from Washington.
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- They -- that I actually bring up a bunch of -- and ask you about.
Because you talk about the lack of open mindedness and production and not passing a budget by the Democrats all fair points.
-- and ask about your open mindedness if you were on that committee and you got to deal.
Let's say three or four dollars in spending cuts and entitlement guns for every one dollar in revenue increases in the revenue increases came.
Through tax reform.
Pat where your lower right but you also closed the loopholes and does some of the deductions and use some about.
For revenue -- and speaker Boehner agreed to use 800 billion dollars of dot.
At least temporarily.
Would you be open minded to including some of that revenue as part of a debt.
It all depends on the spending side of the ledger and here's what I mean when I say that.
Can you get higher revenues through broad based tax reform that gets more economic growth and -- for -- higher revenues the answer I believe is yes.
The question really is and we have yet to see a response to this question.
Are we doing the things we need to do to get the spending line down.
Down to 20% of GDP it's going to 40% of GDP about a -- my kids are my age and we have yet to see.
Three to 12 to one -- of one whatever you call it.
We've yet to see any commitment to actually bring the spending line down.
So if -- -- raising revenues to chase ever higher spending that's not good policy I don't think that's a good agreement.
If we're convincingly.
Restructuring these entitlement programs.
And getting that spending line down to -- that revenue line.
Then can you have higher revenue growth growth through more economic growth and -- from yes the answer is yes OK but I don't see any agreement from the other side.
Getting anywhere close to doing that on the.
Let me bring in mr.
Miller and I have one last question -- Mr.
Miller is this super committees select committee.
A formula for another stalemate or do you see the chance particularly with the pressure now from the downgrade.
That there could be a grand bargain at entitlements and tax for a.
I think it's a start -- at best to start but it's likely to be staff on both sides.
But people but the leadership want to represented their positions is probably greater than 5050 chance of have a stalemate.
But I but I think that the issue here is is that the key issue for markets is long term entitlement reform discretionary spending doesn't matter at all on this.
In this thing except it'll be a little -- -- economy it supports pro growth policies.
And fundamental entitlement reform special on health care -- of the key things for a long term fiscal health and therefore the long term compliments of the markets in in the country.
Okay finally congressman Ryan you talk about changing the leadership and watch and -- got thirty seconds left and I have to ask you the obligatory 2012 question you said recently.
You wanna see how the GOP presidential field develops before you make up -- might I know you say you've already got the best job in Washington.
But it sounds like there are some circumstances.
Under which you would consider running for president what are -- and my answer is still no that question was I misheard the question -- -- is asking you who was behind in the -- supporting that is.
So but my answer is still the same as it always been the last time we asked me.
And let me just conclude with this I don't think -- -- grand -- they're gonna come out of this because they're not gonna put Health -- Reform on the table and that's why I'm -- produce a decent down payment on -- out of a select committee.
Dominant we -- leave -- -- related state discussion congressman Ryan mister -- thank you both thanks for joining us and will be really watching to see what the market's due tomorrow thank you gentlemen.