Senate Holds Hearing on Understanding America's Long-Term Fiscal Picture

Congressional Budget Office (CBO) Director Keith Hall testified Thursday before the Senate Homeland Security & Government Affairs Committee in a hearing titled "Understanding America’s Long-Term Fiscal Picture." Senators questioned Hall on the implications of debt and deficit projections for the U.S. economy, the scale of the adjustment needed to put the debt on a sustainable path, and what the Greek debt crisis means for the U.S.

In his testimony, Hall reiterated many of the main points made in CBO’s Long-Term Budget Outlook and in his testimony to the Senate Budget Committee last month. In particular, he noted that high levels of debt will weigh on economic growth through crowding out of private investment, reduce the ability of the government to respond to unexpected events, and increase the risk of a fiscal crisis.

When asked if there were any lessons that the U.S. should take away from the Greek situation, Hall noted that Greece’s experience showed that it was “very difficult to make fiscal policy decisions under the pressure of a financial crisis” and that it should highlight to U.S. policymakers the benefits of acting sooner rather than later. These benefits are explained in our recent blog post.

In response to a question by Senator Mike Enzi (R-WY) about the immediate impact of a Greek exit from the euro, Hall said that he thought U.S. government borrowing rates might actually fall a little (due to safe haven effects) and that the biggest impact would likely occur through an appreciation of the exchange rate.

Hall agreed with Senator Claire McCaskill (D-MO) that countries that had undertaken stimulus measures had performed better following the financial crisis than those that had followed the austerity path. However, he noted that "the debt has gotten so large, and under current law is going to get so large, our ability to respond to a future crisis like this is going to be very little."

This blog is part of a series examining aspects of CBO's 2015 Long-Term Budget Outlook. Click here to read our 6-page summary of CBO's paper, or here for other blogs in the series.