>> i sleep with my smart phone. >> and you've got your mirrors in your cloud. >> this is a play for the facebook era. >> it's a play for advertising growth moving that way. >> we'll be back soon, hopefully. >> i'll be back and thanks for giving me the chance to talk about ops place, a new site for targeting employment. and the super bowl is coming in, leave it to the nfl to come up with a rule to give people a chance to be high. if the 32 owners that are like royalty can do it, why not computers? >> make sure you join us tomorrow for jobs friday, squawk on the street is next. good morning and welcome to "squawk on the street" on this groundhog day as we now face six more weeks of winter. that's the rule, white? he came out and its six more

weeks? >> he did see his shadow. >> one day after we kicked off the month on a bullish note, the dow looking to lose about three points on the open, but basically unchanged across the board, as for europe, taking a look there, and similar action there, up just fractions of a percent. >> the dissection of facebook continues this morning, but how do you play it outside of the facebook name? we will get cramer's take on that and more specifically this morning, zinga. >> will there be sparks between ben bernanke. will there be sparks between him and paul ryan? >> and a mixed bag in the retail sales results, target, limited, costco, macy'macy's. we have to start off with

facebook. now we have some of the metrics here that we didn't know before, we know how many users they have, 845 million users, we know how much revenue they make, it's an 88% growth rate. >> try to replicate this company, you can't. when you try to evaluate that company, if i gave you a lot of money, could you re-create it, i think you could regreet groupon. it guys, i got to tell you u facebook will reignite interest in our stock market. >> why will it reignite if the average person will buy in the after market will not see the same pop, and they know this by now. they've been through the ip. >> i think there was a secular decline in the stock market interest, post 1999, 2000.

a lot of the new generation, remember, we got a lot of younger people who don't remember that era, who want to buy stock in that market. they have seen apple go from 1 to 450. >> people will see that they have shut out that they buy at higher prices than the after market and they're disenchanted with the market that repeatedly leaves them behind. >> we'll have to see where this thing ultimately opens. $100 billion is hard to get your head around, in some ways. especially when you look at numbers, it's an incredible business, and it's growing rapidly, but it's growth rate does seem to be declining, the rate of growth that is, google at the same time, in its history was still ramping up revenues at an enormous rate. and i do won't when you get to

valuation, not questioning the business model, not questioning the power of this company, it's a beast, but when you get to valuation, don't you have to consider that if in fact we do see a decline in the rate of growth. >> there's the facebook as it occurs at the offering, depending on how much they put out there and retail interest, and then there's the facebook in three to six months from now. i agree with you if there's any metric of slowing, but we have a heavy retail audience and the institutional audience. the institutional will obviously want to be on the deal. because there there are tremendous uptake. retail will come in because they want to use the product. only then will value come into play. >> they put in for 10% of the entire offering. morgan stanley, we'll take down 10%. that's going to be across the board. >> it's going to be the greatest one up trade of the year.

but the question is aftera. >> i think we got to do a dichotomy here, if someone comes out and says i want to avoid the facebook because of valuation, mel polili melissa is a first - will transcend any deals that will come, certainly groupon, that went to 28. i'm just saying when i look at the profitability, when i look at the fact that the advertisers like this, i come back to the idea that inthis is a very profitable company. >> you're basically talking about the rebirth of a marginal buyer of stock is that what you're saying? >> worst in years, you got to go back ages, we're down a third from what we used to do in the stock market ten years ago, we obviously hit some sort of, i

think, incredible end of bear market i believe coming into 2012, i genuinely believe that. the and isn't that something that you have people coming out of the market in droves. >> it is one deal. we're in the infancy of the internet where there's so much coming at you and even though valuations were difficult and we said this is all going to end, it was the beginning of something enormous. >> true. >> this is not that. i don't know if this is going to galvanize retail interest across the board. >> look, there's no doubt about it that this has been -- i'm not saying it's been mere money, stocks very horrible. unless you had a good yield, stocks have been horrible for a decade. all i'm sighing is that this is an intriguing piece of business to people who haven't been in the stock market in years, i'm trying to grasp the phenomena,

there's an electricity in it that i don't want to overlook. >> you're buy retail prices. >> i'm saying that morgan stanley is a retail broker, that is submmith barney. even though they may be giving this business away, i think there's something to be said that morgan stanley is moving into the groove business, that real estate is no longer dogging them and i think that stock is a legitimate way to play, even though i don't like it -- i'm willing to go with morgan stanley. >> the retail arms of these big firms that may be part of this facebook deal, not necessarily the online brokage firms. the retail firms are getting into this morgan stanley. >> two months ago, david, you

told me call corpsman, this guy has got a good story. what i'm saying is, david, i think corpsman is in the sweet stop. >> i think that's a sweet spot on morgan stanley. no doubt, whether or not a facebook ipo somehow ignites a retail broker raj business. -- >> would you cut me a break? >> it is what you tweeted this morning. can kramer tweets. should we buy xyz because of facebook? >> you should buy facebook because of facebook. >> i am saying that morgan stanley did a lot of -- i'm not contradicting myself, that was written at 4:40, just so you know, there were a series of

people that are saying should i buy zinga? >> if you want to buy zinga, you should buy facebook. >> i want to come back to the idea that at 4:40 in the morning, when i am not even close to awake, you are scribbling things. >> i make it my mission to outtweet him for the day. >> once again t bears immediately come in and say, jim, you're wrong, it was a bad auction. spanish bond interest rates they have been cut in half in the last three months, the bears have to wake up and smell the sm spanish java. >> how about kellogg's? did you see their old chocolate cereal and double chocolate cereal. >> that's going to help obesity,

that's good. >> bernanke is going to talk in front of the house budget committee, touching on the state of the economy, and we'll see what he says about the data that's been mixed. >> we got the big jobs number tomorrow. we'll all wait and see how that looks. >> everybody i have been talking to ceos and sr. executives for the last eight months. last july, august u when we really thought things were falling off a cliff, they didn't see it. and it's kind of gotten better since then. that's my only take. as for the big numbers, i leave that to professor leeson. >> it's empirical, there's too many companies saying good things, midwest is looking real good. i think it transcends anecdotal i really agree. >> we're agreeing, you're

backing me up. >> in 1998, and 1999 we will come out here and duke it out about yahoo! do you mind if we continue doing the same thing on facebook as if it's a replay? >> i think we should be doing that. >> who played the bull and who played the bear back in that debate on yahoo!? did you say that you could not replicate yahoo!? did you say this could ignite a surge in retail by the investors. i'm just wondering if we're sort of duping ourselves into saying that facebook is a game changer. >> it did change the game. >> 100 to 400. remember qualcomm? what was the price target at qualcomm, 1,000? >> it's at 400 and holding. >> we also have someone in the game who's threatening facebook,

google plus, 90 million users from the current quarter. >> the average revenue per user, much richer than facebook. >> why facebook clearly belongs in the 10 x revenue club, he's calling google plus, a facebook competitor is in a tough slog. i urge people to go to this website above the crowd.com. he came in very late on twitter, he was way behind us. he comes in here at 2:00 and we're here another 9:00. >> qualcomm's getting better, obviously a fantastic quarter. it's all about the smart phones, you see examples like couple minutes outside of that? >> someone's talking about gin,

be careful. cummings blew that way a. there's not even rail lines, rockefeller made his fortune on rail lines to get the oil from ohio to the market. >> cigna, sony, chipotle to some degree. abber skrercrombie & fitch. >> i will have the ceo on tonight and i'm going to take the other side of chip chip poelt lee. the rest of those, i agree with that. >> and guy pointed this out on "fast money" yesterday, going into the earnings, if you had blintd folded me and said guess what which way the stock will trade and how much of the move will be, you wouldn't guess 2%

on a name like chipole. >> i still think that food with integrity works. i like the story, david, once again, i urge you to tell me -- >> urge, go ahead. >> pull me back, go ahead, pull me back. >> from what? from liking chipotle? >> from being a little aggressive. perhaps some of these stocks are caught up in some sort of hoopla. >> i'm not going to call you back. >> david, you did write earlier this morning about red stone on the viacom call. >> i did, that's right. and that call continues. in fact i had to get off the call at the moment that they were going to start taking questions, questions will be centered on if they haven't

already been on a decline in ad sales, especially on nickelodeon who's seen significant ratings decline. that doesn't look accurate. that stock is looking down as much as $3 or $4. don't forget viacom has a large buy back, they have said they see buying back as much as $2.5 million in the current fiscal year, is it specific to viacom or is it more general? google didn't have a significant quarter, then we got a broadcasting on cable saying that gm pulled back or cancelled about half of what it bought in the upfront market. it may be gm specific. but there's just some general fears out there about what we're sealing in the ad market. >> gm was down six and the average was up. >> i think they also may have changed their ad agency. but a couple of media hedge fund

guys mentioned it to me this morning, along with viacomm, i'll have a call on the numbers themselves. >> and going google had problem. mobile is a big conundrum. >> we might be late on this, but the company is almost is there, ina in their words in terms of pruning. >> dell is being like ibm except for they're keeping the pc. i think michael dell has done a remarkable transformation, you never let people get ahead of themselves, when you mike michael dale, he's conservative in breaking things down. the emc deal is broken up. i think that dell although it's up substantially this year, may be back to an ibm like pace.

i think it's a good call. >> one big reason we're seeing so much outperformance in tech, when we come back, a squawk on the street exclusive. david cordani will explain the earnings on cigna today. and a lot more to get to, bernanke speaking just after the top of the hour, stay with us.

♪ welcome back. rick santelli here on the floor. i guess there's some cause to celebrate. less people ng up every week for jobless claims benefit is a good thing. but we saw productivity dip. and that's not a good thing. usually when you see productivity slip, costs move up. and that indeed was the case for our preliminary fourth quarter data that we had at 8:30 eastern. we're about three or four basis points higher than we were at the beginning of the week. we don't to wait for the form of what's going on in greece and europe. and it is somewhat amazing the markets being so patient. marketing positions definitely affects the process, but exactly how long that timeline is, i'm

not sure. >> busy day shaping up, we'll see in a little bit. meanwhile a major mining deal is in the works. glencore is in negotiations to sell-extrata. >> we think that china's back, you hear that from joy, joy global, mining equipment, you hear that from caterpillar, you hear that from cummings, i think people want to have that supermarket of minerals, to deal toe to toe, the more scale you have, the more you're able to bargain. the communists have been the greatest bargainers in historiers. >> this will put pressure on the miners to do more. >> 40% of commodity con shump un. >> when i got into to the business, china was 10% of copper. we were 30% of copper. now china is 40% of copper, we

have 10% of copper. >> something to think about. opening bell just minutes away, much more "squawk on the street" just minutes ahead. >> it's february 2, and punxsutawney phil looks for his shadow. the mad dash is up after the break.

♪

5 1/2 minutes before the bell rings on wall street. time for kramer's mad dash. >> macys didn't really go the comp, but they've got good numbers. >> how about the gap? the gap was a real surpriser. >> down 5? >> yes, i have always fell that gap is a sale on any strength. i'm not deviating. >> they're calling target back on the beat, having disappointed the past couple quarters. what's up with abercrombie other than the retail market? >> i have given up trying to call teen retail on "mad money." it is just impossible to gauge, it's so fickle, it's too hard. >> $1.10, the $1.15 estimate

with 225. >> when you look at american eagle, when you look at these guys, it's hot, cold, hot, cold. who can deal with this month to month angst? >> limited, meanwhile, 9% versus a 2.9. >> victoria secret, that's their best month, valentine's day. >> "squawk on the street" continues in just two minutes. >> coming up, there are many things you could be doing this morning, water skiing. an obstacle course or going for a dip. but you chose to spend it with the opening bell. which of these 500 stocks are you waiting for? "squawk on the street" will be right back.

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and we're watching the opening bell here this morning, there's a look at the s&p 500 and the cnbc real-time exchange. over here at the big board, green wave medical technologies, a celebrator of american health. and over at the nasdaq, the mayor of trenton, new jersey, ma makes, the world takes. >> imagine too, jim, pricing your ipo on the same day that facebook puts out it's anti- virus software maker. >> anti-virus is so important. i can't emphasize it enough. >> that's the reason why we're getting some of the activity that we are.

>> that's a secular trend. >> you can even take a look at it over there. if you get a chance. very busy picture, busier than usual down here. >> i knew that maybe retail could come back. retail has so left the building and it would be a monumental moment to any that they left with the bottom, wouldn't it? >> you say qualcomm today, introducing a quarter holding. >> quite simply, a core holding is something you should be able to buy and let run. that was always considered to be a danger term after 2001. and after 2001 the nasdaq peaked because the core holdings went away. it's coming back. >> you put dell in that category as well? >> too early, but i do li like -- -- he has done a fantastic job. he doesn't want anybody to say

that, he's very low key, he's very self-efacing, a busy week for sony, lowering expectations for the full year. >> microsoft came up with the xbox. even though it's at a 52-week high, what is sony's value added? remember, apple is an ecosystem. microsoft is a juggernaut. sony seems to have lost their way. >> harve greenberg saying the gncr moved today. something but short squeeze, is all this just a squeeze? >> i think that's a great point. i don't want to disagree with herb because herb has recognized the faults of green mountain. green mountain did put out a great quarter. can it be a short squeeze? at least have it be based on some better numbers and the numbers were better. i have hane on tonight talking about sales.

through the roof. and green mountain was a great short and it should have been covered, that's my take. >> you've got a bunch of stuff on your list today. >> i like the in fact that kellogg can make a come back. it's been written off. chipotle was a miss. a lot of guys are upgrading or bumping their price target. and a couple of things that are happening that are just driving me crazy. the oil service stocks, immediate trading down big after the close. it is overseas deep water oil. the dichotomy here is incredible, carl, if it's oil, it goes higher, if it's natural gas, it gets killed. coup . >> we got viacom to watch. we go back to david favor back at hq. >> we're keeping an eye on

viacom this morning, it wasn't the earnings that people are focused on, it was a decline of sales of more than 3%. a number of analysts out there were looking for a decline, down 3% was the number and interestingly so is the stock down. the company has a very significant share buy back in place, that also certain helping shore up these shares, got some accounts in there. don't know much about media, but like them buy back and will at least lend some buying strength. let's take a closer look at media networks, at the actual ad sales. 1.35 billion is down. nickelodeon, by far the most watched kids network out there. their ratings decline and

they're getting less from advertisers because ofa. they say they're working through that. there was some ratings systemic issues, they don't want to belabor it. but the ceo says you'll see improvement in nickelodeon's ratings. so a few things on the call that may have helped stock actually along the way. he said scatter pricing holding up well, that means what they're buying in the market right now. scatter pricing is looking up a bit. healthy double digits in the health they got in the upfront markets. an interesting decline there, nickelodeon ratings and a lot of people are still trying to figure out. >> david, don't you find it interesting that a lot of fepeoe were saying you got to buy the tv networks because of political spending, it sure didn't go viacom's way. >> and it won't be the first place you look for political

spending, i guess mtv if you're looking for -- >> isn't that where we get our news? >> nickelodeon's audience still too young to vote, i think. >> time-warner, there's some questions there in terms of ad sales, that stock is down about 2%, news corp is down about 1%, even though things look pretty good there. and we have talked about google, so some larger questions about whether we saw a little bit of weakness overall in the fourth quarter, is that going to be replicated in the first quarter of the year. viacom's ceo did see advertising improvement in the fourth quarter. it sees a number of advertisers returning to the ad market in the current quarter. >> don't forget baseball, it really is incredible. i was talking about it with carl during the break. if you want to target the 18 to 19-year-old you go to facebook

because you can figure out who you're hitting than's what the holy grail of advertising is all about. >> you're talking about share buy backs is not an effective use of cash. look at how much viacom is buying back. $2.5 billion of purchases. melissa? >> we have not seen a day like this in a very long time. two ipos at the same most, opening for trade momentarily if not already. >> and medical technology, digitizing your medical records and making them available everywhere. $10 is their price. it looks like $10 to $10.05

right now. there's been a lot of talk about medical business about digitizing, what happens if it getting stolen. but gateway just opened at 10.20 or so. and here's family members of the companies, this is the great thing about the new york stock exchange, they brought family and people here, some of the officers came by and said hello to us. it's a great tradition, ceos bring their families. it's one of the greeat things that's going on. >> how volumes pick up which have been rotten in january overall. >> did you see joseph ackerman? ackerman's leaving, it's a bit of a swan song. but he went out of his way to say trading volumes were horrible in europe last quarter. their profits dropped 38%. you said the investors got

spooked, people who trade bonds, people who trade stocks got spooked. by the way, with the ploobs over there that t problems over there are saying that banks should stick to private banking, the old traditional stuff, forget the old trading type of stuff. the deutsch bank was very poor. we're trying to get these banks away from trading activities. >> so do you say facebook won't ignite the retail industry? >> i hope they find some creative ways to give investors a chance to invest in facebook. the equities business needs more retail people believing in investigati investigating. maybe facebook will do that. >> they could allow more investigating through brokers. it's 98% institutional, 2%

retail. >> instead of selling 5 billion zl maybe they could get people who are users of facebook. we need more belief in the equity business. let's hope they get creative. i just want to comment on the great situation, it's groundhog day. there's three levels of negotiation going on, the greece and the private lenders, greece a and. they're cutting the pensions, they're cutting minimum wages. there's going to be a huge fight in the next few weeks and that's going to be the problem, whether or not they can actually get that through. it's the negotiations between the greek -- and not a lot of reporting going on about that. >> when the headline crosses that retail is imminent, did you check the date stamp because you

thought it came across last night? >> there's a meeting on monday, that's the new deadline right now here. by the way, retail sales are very, very mixed. >> thank you. back over to your carl. >> thank you very much, let's hop over to rick santelli in chicago as we wait for the fed chairman to take his seat on the hill. >> many are waiting with baited breath, some of us are thinking it's groundhog day and probably what he's going to talk about is something similar to what he's talked about before. this particular talk may be interesting about how this committee has been trying to discuss issues with the congressional budget office on some of their methodology. and also something struck me in the "wall street journal" today. they put the biggest ipos, what's the biggest did bait on our channel? is the -- but consider this, if you're anying that jobs are going to go along with a higher stock market or the economy is

going to feel good for most americans, look no farther than the number 3,000, that's basically how many employees that google has, they're going to have a market cap of what, $75 billion? they're going to boost stocks with 3,000 people. that's a bdepression. it's a numbers game and the numbers are about people. >> looking beyond the chain store sales numbers and getting a handle on retail earnings. and as we head to break, take a look at this morning's early movers here on wall street. the gap with it's bead on sales up 10%.

got it. welcome back, i'm sharon epperson here at the nymex floor, and we're seeing a lot of price action in the oil market, the spread between wti prices is the widest it's been in about 12 weeks time. but it's not necessarily the strength in red that is the story, it is the weakness in wti futures and what these guys are trading right now at a six-week low, the supplies that we're seeing, the increase that we saw and the weak, weak demand for

gasoline. gasoline is also under pressure and the gasoline demand at the weakest point we have seen in almost ten years. 10:30 is when we get the report on natural gas storage levels and keep in mind that target of 2.$2.23 the previous low, that what traders are looking at as the potential downside for the day. >> we're the stories we're squawking about. strata and glencore international. glencore currently owns 34% of exstrata. and the number of employer jobs -- >> chain store sales being released this morning. joining us with a closer look at the numbers this morning, adrian

shapira. in the context of the broader calendar, not as important as some other months, but what are the key lessons so far today? >> january is about 20% of the quarter, so by far the smallst month of the holiday season. but it's an important cleanup month. i think key to all retailers are getting out of the season clean with their inventory and starting the year fresh. >> we know what weather did to them before the holidays. >> right. >> was january a shift from that pain in any way? >> no, it was more the hot promotion, but cold weather. that was the continuation through the holiday season. we have been calling it a white knuckle christmas and january was much of the same. i mean it was unaccommodating and as a result you saw the cold weather really getting promoted quite hard. >> we have seen amber cbercromb the one this morning.

>> i think what you're saying is some very aggressive promotions out there to move the inventory and some worked. i think you saw it, whether it's kohl's or target, names that lagged during the holiday season, they came out with harder and better promotions and drove january sales. >> i always want to say don't do anything in january. if there's a month that doesn't matter, isn't it this one? >> it's a nonevent and you saw it, there weren't many changes to the quarter. i think it's just getting the inventory clean. we're heading int ining into eas week and i think retailers just want to put the christmas season behind them. >> on jcpenney, we now have a look at what their strategy is, there are apparently some lines to go into the stores with sort of the new pricing strategy

going on. but doesn't it warrant a pricing like a macy's or a tiffany or a coach? >> where we come away is clearly the management put out a progressive transformational story. i think it's going to be a bumpy ride. i think these things are never a straight line. i think the in fact that you saw customers are still motivated by sales and what you're seeing is these event periods are very important. the lulls are probably deeper. so it will be interesting to see how jcpenney, given the in fact that the month is the same month-long promotions, we're expecting macy's kohl's coming out over the weekend. we'll see how they're faring as they're dialling down the intensity during those promotional events. >> walk us through two or three of your top recommendations. >> as far as retailers, think

what we're seeing is target has an opportunity here, they're against a very easy q-1 comparison of 2% and you're seeing that threeings and fours are more likely as you step away from the promotions. target has an opportunity in the near term. target for us looks quite encouraging as we head into the start of this year. >> and added to that, do you do ralph later than as well? >> ralph just hits that theme very strongly, i think they have got tremendous, multiple ways to win and we think ralph is there for sure. >> adrian sh hrkadrian. thanks. coming up --

>> many shadows do i see, six more weeks of winter it must be! >> cramer isn't afraid of his shadow and he doesn't see six more weeks of winter.

busy morning, simon is going to tell us what's coming up at 10:00. >> we're standing by for the chairman, we'll get the statement first and then tough questions from the gop-led committee. plus an exclusive interview with the ceo of cigna, we'll ask david cordani if investors were right to dump his stock in the first 30 minutes of trading. electronic arts had a disappointing third quarter outlook. >> the after market bow bozo. >> fourth quarter earnings also beating estimates. >> focusing on the carnival cruise mishap. i think people will come back to cruise in the next year.

the stock has been five out of six times. they'll trade down as soon as they announce. people stop shooting first and listen to their going conference calls. >> sandridge energy. >> we don't need in, tom. >> johnson & johnson, you're watching too, it is up in "today's" session. >> j & j are using this technology to be able to beat al alzheimer's, five years in the making. >> can you believe that panetta is pulling out of afghanistan? guys, this government is serious about cutting the defense budget. >> go to stocks.cnbc.com. you want to talk about the billboards or do you want to talk about the markets. >> i hate to keep reverting to facebook. i think everyone else dims by

compare son. it's a major focus. got to stay on it. expensive per user. >> remember the dichotomy. >> facebook the deal and facebook the valuation. the first one, don't put the cart before the court, the deal's first. looking good and feeling good, it's all about that, you've got p hane, aller aga lallergan mak good and feel good.

>> the federal reserve chairman ben bernanke is expected to speak in just a little bit. let's bring in our economic reporter. it will be interesting to see if there are any sparks between the chairman, steve, and the committee chairman. long-time committee congressm paul ryan. >> we'll be watching the political back and forth to see how big the federal reserve will be in the election. bernanke is going to warn about the possibility of a sudden fiscal crisis coming from the high levels of deficit.

he warns that interest rates could soar quickly, and a large government debt represents serious economic consequences. he sees the budget deficit narrowing, but he says the nation faces a sizable -- even after we get done bringing tax receipts back up to a normal place, the deficit will still be at 4% or greater as a percent of gdp and that -- the current debt he says threatens to drive up capital and the growing share of our future income will be devoted to interest payments on federally held debt. he does warn not to be too precipitous about bringing down the deficit. on the economy, he's very much

back. the economy is gradually recovering from a recent deep recession but the pace of recovery has been frustratingly slow and the outlook is uncertain. jobs, the situation appears to be improving but it still has a ways to go before you can call the labor market normal. indicators of spending and the job market have shown some improvement, but the struggling economy has left it vulnerable to shocks. he talks about inflation being subdued. and very much back and forth and i'm not getting a clear signal. certainly as a precondition being laid here for additional quantitative easing if that's what we wants to tell us, but it's not a very clear signal here, carl. >> i imagine they're going to have to ask him directly about his potential plans for qe-3, yes? >> i think that's death goi eth going to be one of the questions, i guess the congressman's gauge for

president, mitt romney is the least of the critics out there. he has said he would fire fed chairman ben bernanke but i'm interesting to which the federal reserve itself is going to be an issue for this committee. >> we will keep an eye on capitol hill for you. we'll be taking you to the fed chairman as soon as he begins speaking a little bit later on today. meantime, we're also keeping an eye on another breaking story on the hill. the house subcommittee taking on the collapse of mf global. the focus is there on risk management. he says he warned the board for a long time about the positions mf global had until it was too late. we'll keep you up to date on that hearing as it takes place. let's take the conversation back to facebook, the question on many people's mind is its valuati valuation. kayla, i guess the question is going to be is the honeymoon over now with facebook, was

zuckerberg right to fear the action that he started yesterday? >> i don't think he was right to fear it, because it was obvious lot in the pipeline for quite some time. one interesting disclosure, we have talked about a lot of them, one is that facebook said the fair value of its class b shares, these are the shares that have been privately traded and that employees have gotten was $29.73 at the end of december 31st. during that quarter, toward the end of the year on the secondary market, the shares were trading between 30 an$30 and $31. . their facebook valuation comes below that. so we said we're going to take a look at the private options that took place yesterday. second market holds options every single wednesday. and we found out that some of yesterday's options remained open, but volume was pretty good. they closed roughly $250,000 shares as part of that motion.

it's likely in the range of $32 a share. contracts were trading at $38 yesterday and 37 today, so they are coming down just a slight amount. d but the demand is till high there. >> i have heard there's a lot of activity and a lot of people getting pinged on, would you be interested in buying. the question is why so much activity prior to an ipo that's so many months away? >> so if you're an early investor, if you got shares as part of a private placement, or if you're an employee these shares can only trade once. if i was a buyer, i can't go and resell those trades. but the issue is you're going to run into about a six-month lockup and you're going to run into a pretty hefty tax bill.

for its employees, martd of that is going to be taking that tax burden off off the table for them. a lot of people are saying should i be buying preipo. >> that is interest, i think there has been an uptick in activity primarily to avoid that lockup we were talking earlier with jim cramer about the financials and what we know. we don't know what the float will be, we don't even know how many shires outstanding there will be. >> we know mark zuckerberg is go to be in control of this company. some people have noted there is a declining rate of growth, it's still enormous, but comparing it to google for example, in the same period of its gestation, some are saying i wonder if they really can get to that 1$100 billion valuation, given the concern that there is on the

declining rate of growth. >> there was a great article in the journal this morning about the parallel halves of facebook and global. the problem and the caveat that i'm hearing for a lot of people was that there wasn't already a google when google went public. even though it's showing nose numbers right now, will they where competing against the very competitor they're being compared to? and of course google, twitter, microsoft are their competitors in the s-1. so there's a lot of krn there. >> we're waiting breathlessly for that s-1. is there much of what was expected or what we have already heard through yourself and others? >> a lot of things were excluded, the percentage of shares that would be offered. how they're going to take this company public, the speculation about could they do some kind of public offering. and of course a lot of people

bought into this early, goldman-sac goldman-sachs, dst, general atlantic partners, microsoft, what portion of the shares that will be offered are going to come from those early investors. >> and use the proceeds? >> it wasn't specific. they said we have no specific use of proceeds here in the s-1. and of course my language is a little fudged there. but it did say as much, it did say that because a lot of these employees will be selling -- not selling their stock per se, but converting some of these restricted stock units over into class a shares that there will be a tax burden associated with that. we need a tax burden to come on and explain all the nitty gritty of how that works. >> all right. you got any other questions? >> david let me ask you, when you've lined up the good of wall street on an offering like this,

does it automatically mean that the offering will be a success. >> one will anticipate given the demand and the expectation in the after market, that will will be great demand, the initial buyers of this stock will be very aggressive. i have already talked to one hedge fund, i mentioned earlier, we'll go in for 10%? why wouldn't you? you know that first trade is going to be up. it seems hard to imagine it won't be. the question is what about after that? and how large will the float be, of course. but when retail comes in and those who were not able to get in on this ipo, what plies are they willing to pay and how is that stock going to hold up? >> i want to bring up a chart that we made yesterday for something i'm calling the post private premium. if you look at where groupon traded on the private markets where linkedin traded on the private markets, but where they actually price their ipo is

roughly a $25 to 28% premium. >> and you think they're going to do the same here. >> we don't have enough data points, simon, but if you were going ona you would get a price of $42.50 per share. now get that $100 billion valuation by looking at that. >> forgive my cynicism, david, but with so many people involved in the ipo, is it reasonable to assume that they too are buying in the secondary market to ensure that the lead prices we get from that are not depressed in the wake of the -- >> you want people encouraged to hold on to their stock when they buy it initially. you want to enkurjs demand on the ipo once the stock is priced, but we'll have to give it a little bit of time. of course the ipo itself is

still months away and we'll have plenty of time to digest that s-1. >> let me turn to julia, what do you have from there, there morning? >> well, simon, i have been scouring the s-1 to look for how they will justify that $100 billion valuation that kayla and david have been talking about and that question all comes down to the question of growth. well advertising is facebook's core business, generating about 85 first of the company's 3.7 billion in revenue last year, advertising growth is slowing from 145% in 2010, to just 69% last year, and the problem is, or at least one problem is that more people are using facebook on mobile platforms where the company does not yet serve ads, this puts the growth focus on payments for virtual goods like for a cow in farmville in zenga games. the payment is worth $106

million in 2010, to 500,000 last year. the company started making -- zenga which is really the core of that business, facebook takes a 30% cut of all of those payments and zenga's business is 12% of facebook's revenue. facebook says there's much more growth in sites like zenga. the market will more than double from 2010 to 2015 expecting a billion dollar virtual goods market which it hopes to get a growing percentage of. facebook says it may look to extend other types of apps. i say we shouldn't be surprised if we see it mover into retail. certainly it's more entertainment sales, we look for facebook to compete more with apple with the likes of music

and more movie sales. if facebook does hit a billion users by the summer as it's expected to, that means that face book will already reach half of all internet users, where's the growth? it all has to come down in mobile. facebook reaches $425 million monthly mobile users. >> we have ben bernanke speaking in washington. let's go to that. >> opportunity to discuss my views on the economic outlook, monetary policy and the challenges facing federal fiscal policymakers. over the past 2 1/2 years, the u.s. economy has been gradually recovering from a u.s. recession. while -- the shug it -- indeed last year supply chain

disruppation disrupp ati ations -- risk derailing the recovery. fortunately over the past few months, indicators of spending, production and job market activity have shown signs of improvement. the federal market committee participants indicated that they expected somewhat stronger growth this year than in 2011. the outlook remains uncertain and close monitoring of economic developments will remain necessary. as is often the case is ability and willingness of house holds to spend will be an important determinate in how the economy expands in the future quarterings. households continue to face significant head winds. notably, real household income and wealth stagnated in 2011 and access to secret remains tight foremany borrowings. remains at levels that are still quite low by historical

standards. overall the job -- increased by 160,000 jobs per month in 2011, the unemployment rate fell by about 1 percentage point and new claims for unemployment declined somewhat. nevertheless it is shown by indicators that we still have a long way to go before the labor market can be said to be operating normally. particularly troubling is the unusually high level of long-term unemployment. more than 40% of the unemployed have been jobless for more than six months, roughly double the fraction during the economic expansion of the previous decade. on certain job prospects along with tight mortgage and credit conditions continue to hold back the demand for housing, although low interest rates on conventional mortgages and the drop in home prices over the years have greatly improved the

affordability of housing. a persistent excess supply of vacant homes largely stemming from foreclosures is keeping downward pressure on prices and limiting the demand for new construction. in contrast to the households sector, the business sector has been a relative bright spot in the economic recovkocovery crec. capital spending has increased briskly. moreover many us firms, not only in manufacturing, but also in services have benefitted from strong demand in foreign markets over the past few years. more recently the pace of growth in investment has slowed. however there are some signs that these concerns are abating somewhat. if business confidence continues to improve, u.s. firms should be well positioned to increase both capital spending and hiring.

larger businesses are still able to obtain credit at historically low interest rates and corporate balance sheets are strong and a although many businesses continue to face difficulties in obtaining credit, but credit conditions have begun to improve modestly for those 23ir78s as well. global activity seems to be slowing from spillovers in -- high debt levels and weak growth prospects in a number of european countries has raised electric mat concerns about their fiscal situations leading to substantial increases in sovereign borrowing costs, concerns about the health of european banks and introductions of confidence in the ability of secret. resolving these problems -- working hard to address their fiscal and financial challenges. nonetheless, risks remain that developments in europe or

elsewhere may unfold favorably and may worsen economic prospects here at home. we are in frequent contact where european authorities and will continue to monitor the situation closely to take every step to -- let me turn now to a discussion of inflation. as we had anticipated, major all inflation had increased significantly. in the first half of the year a surge in the pricings of gasoline and food along with some pass through of these higher prices of other goods and services has pushed consumer inflation higher. at the same time, supply -- 3.5% in the first half of 2011. to about 1.5% in the second hoof, close to its average pace in the preceding two years. in an environment of well anchored inflation expectations

more stable commodity prices and a substantial slack in markets we expect inflation to remain subdued. against that backdrop, the fomc decided last week to maintain it's stance on monetary policy. to maintain its existsing policy of reinvesting principal payments. the committee now anticipates that economic conditions are likely to warrant exceptionally low levels to the federal funds rate at least through late 2014. as part of our ongoing effort to increase the -- following it's jarm meeting the fomc released a statement. the statement begins by emphasizing the federal reserve's firm commitment to pursue its congressional mandate to foster stable crisis and

maximum employment. to clarify how it seeks to achieve those objectives, the fomc stated its collective view that inflation at the ray of 2% as measured by the annual change in price index is most consistent over the longer run with the federal reserve statutory mandate. the current estimates of the longer run normal rate of unemployment is between 5.2 and 6%%. the statement noted that these are general -- efforts to return both inflation and employment to their desired levels. in my remaining remarks i would like to briefly discuss the face fiscal challenges. the averaged around 9% of gdp over the past three fiscal years. this exceptional increase in the

deficit has mostly reflected the automatic single response of revenues and spending to a weak economy as well as the fiscal actions take on the ease the recession and aid the recovery. as the economy continues to expand and fiscal policies are phased out, the deficit should narrow in the next few years. unfortunately even after economic conditions have returned to normal, the nation will still face a sizable budget gap if current policies continue. using information from the recent budget outlook by the cbo, when constructing a projection for the federal deficit, assuming that most tax positions are extended and the position payment rates are held at their current levels. under these assumptions, the g -- assuming that the economy is then close to full employment. of even greater concern is that longer run projections is based on plausible consumptions under

current policies show the structural budget gap increasing significantly further over time and the ratio of outstanding federal debt to gdp rising rapidly. this is clearly unsustainable. these structural imbalances did not occur overnight. they're the results of an aging population and especially fast rising health care costs. notably the cbo projects health care outlays which were about 5% of gdp in 2011 could rise to 9% in 2015. having a large and increasing level of government debt relative to national income runs the risk of serious economic consequences. over the longer term, the current trajectory of debt -- product fifth growth. to the extent that increasing

set is financed by borrowing from abroad -- high levels of debt also impair the ability of policymakers to respond effectively to future economic shocks and other adverse events. even the prospect of unsustainable deficits has costs including an increased possibility of a sudden fiscal crisis. as we have seen in a number of countries reechbcently--althouge historical experience in economic theory do not indicate the exact threshold in which the perceived -- we can be sure that without corrective action our fiscal trajectory will move the nation to that point. u.s. fiscal policy must be placed on a sustainable path and ensures that debt relative to national income is at least stable or declining over time.

obtaining this goal should be a priority. even as fiscal policymakers -- they should take care to not to understand necessarily -- achieving long-term fiscal sustainability and -- are fully compatible, indeed they are mutually reenforcing, a more robust recovery puts fiscal policy on a path to sustainability. thereby supporting improved economic performance today. fiscal policymakers can also promote stronger economic performance in the medium term through the careful design of tax spent policies and spending programs. so the fullest extent possible our nation's tax spending policy should increase the incentives to work and save, invest in the skills of our workforce,

stimulate private capital formation, and provide public -- although we cannot expect our economy to grow its way out of our face call imbalances. increase the likelihood that we leave a healthy economy to our children and grandchildren. thank you mr. chairman. >> thank you. >> we agree completely with the last part of your statement which issi ivf we don't get our fiscal house in order, it's going to get ugly pretty fast. also i want to salute you for having more transparency on the operation of federal reserve. the latest fomc statement clearly was an attempt to put your policy on the table and let is country see it. but it's in that policy that i have a couple of questions. early on, you put out an inflation target rate of 2%. that puts out certainly more clari clarity, but at the end of the

statement. in sending monetary policy, the -- am leave yagss deviations from employment of the committee's assessment from its maximum level. however under circumstances in which the committee judges that -- are not complementary, faking into account the magnitude of deviations in a potentially different time horizons in which employment and inflation are elected to return to levels judged consistent with it's mandates. it seems as if you're moving away from an inflationary target, at best it's imbig wous and at worse it says if the deviation is higher than up employment, which clearly it is, unanimous it is on inflation, the fed is willing to accept higher levels of inflation than your preferred rate in other words to chase your -- >> no, i wouldn't say that's

correct. so 2% is our definition of price stability. as part of our mandate, we wanted to achieve that 2% inflation rate in the medium term. obviously monetary policy works with a lag, we can't achieve it every day, every week. but we want to move inflation always back towards 2%. we are not skeeking, we will not actively seek to raise inflation or to move away from the target, we're always trying to bring inflation back to the target. the only sense in which there is a balance, of course, is that in looking at the two sides of the mandate, the rate of speed, the aggressiveness may depend to some extent on the balance between the two objectives, but we're always trying to return both objectives back to their mandate, we are not seekinginflt

tolerating higher inflation. >> it's a necessary precondition for economic growth and therefore nen then full employment, at least in your judgment. and then you talk about mandates single versus double a lot. but if we're to say that we're not going to look at the deviations between the two, and if we're saying that we think that full employment is 5.2% to 6%, we're clearly above that, but at your pce we're closer to where your innation target is. i don't know how else to interpret this, the results of this balanced approach is at higher than preferred inflation may be tolerated, not that it's desired, but that it will be tolerated. and i will simply just quote maul volk -- my concern is, that this appears to be less an

inflation targeting statement than an inflation equivocation statement because we're now targeting deviations. and that's the concern. when this statement was released, we saw a buildup of commodity prices, even though i think you said fairly recently,a demand is down, therefore commonity prices should be low. so my basic question is, if this is our interpretation and we have a spiking commodity prices occurred after the statement released, is that not the market's interpretation of this statement? >> mr. chairman, first of all, as we say, the two sides of the -- are generally complementary, we agreed that low stable inflation is good for the economy, it's good for growth, it's good for employ. and we think most times there's a complementary relationship

between the two. you discussed earlier the responsibility of the central bank for the dollar and for the price level. inflation currently looks to be very well controlled. our expectation, and of course we'll adjust policy as needed, but our expectation is that inflation will be below target for the next couple of years, of course unanticipated results can happen. the dollar has been pretty stable since the crisis. i don't think you should read into this any unwillingness to keep price stability as a critical goal of the central bank. all central banks including those with a price stability mandate take into account to some extent the overall statement. >> i'm sharon epperson, breaking news on natural gas supplies, natural gas supplies fell by 132 billion cu billion cubic feet, it was lower

than anticipated. now back to capitol hill and ben bernanke. >> not just during the crisis moments, but now through 2014. and by buying down treasury rates, is it your view that this is putting an artificial cap on price discovery in the treasury markets and is that not lulling policymakers, fiscal policymakers into a false sense of security when true price discovery and other markets like it has in other countries might -- are we not lulling ourselves into a false sense of security by this intervention in the treasury markets? >> mr. chairman, first quantitative easing is just -- is very analogous to the usual policy of cutting short-term interest rates. that also lowers longer term

rates, it's basically a way to provide more support for the economy. our policies are hardly unusual. at this point almost every industrial bank including canada who had less of a recession than we did, has a large balance and low interest rates, including the single mandates. and again, as i mentioned, we not having any signs of higher inflation or a declining dollar. in terms of the issue relating to disfotorting the bond market again, it's the objective of the policy to get the rate lower and to bring inflation up to target if necessary. but i think the basic reasons for low long-term rates which are also a feature of every other major industrial economy are low inflation, slow expected growth, and the fact that the dollar is a -- a safe haven and with problems in the world,

people are investing in u.s. treasuries because they're attractive. it's important for me to say if congress is being lulled, they could been lulled. i think we agree that atoempx needs to be paid to these issues, in case some of the countries you're referring to like greece and portugal. the rates are going to go up and there's nothing the central bank can do about that. so you should, obviously it's important for congress to address these problems and i have spoken out about it quite consistently as you know. >> i think we would agree that sustainable long run economic growth derives from savings and investments and therefore increases producttivity instead of borrowing con sumpbation, i know you well enough to know that you agree with us. but do you measure the effect

that these policies video on savors, on people living on fixed incomes, on people living on cds. are you concerned at all about the very, very low interest payments that these savors are getting from these kinds of fixed income assets which are hitting our savings and investment side of the economy in exchange for helping the borrowing and consumption side of the economy? >> we are quite aware of that issue, we hear a lot about it, we consider it, we think about it. and, you know, i recognize that for people on a fixed income or who are -- whose main income is interest on a cd, i think that i recognize that it imposes a hardship. the purpose of our policy, though, is to create a stronger economy and savors collectively hold all the assets, all the capital in the economy and if you don't have a strong economy, if you have a weak economy,

you're not kbrgoing to get good returns on all the other assets. >> my time is running out. let me give you a business sense of this. a lot of us believe that the federal reserve was too loose for too long in the 2003 to 2005 period. and that is what, in part, led to the asset bubble and the now investment that we have and the problems we have today. i know you don't agree with that, but because you don't agree with that, our fear isa you're just going to repeat these same mistakes again but on the order that we can't comprehend right now. and -- sort of bailing out fiscal policy because the branch of government in charge of fiscal policy, this branch is not doing its job. i mean a budget hasn't passed congress in two years, we're going to pass a budget, we did win last year, but there's nothing in the senate. so fiscal policy not being done the way it needs to be done, but

that's not for the federal reserve to come in and bail us out because that can be done at the expense of the priority which is unique to the federal reserve of maintaining our currency as a reliable store of value, and we fear that these exercises and these new ambiguous statements will compromise that, that's the point i'm trying to make. >> thank you, mr. chairman, dr. bernanke thank you for your testimony and you laid out what i think is a very clear, two-track strategy for dealing with economic growth as we move forward. the first is recognizing the fiscal and budget tear -- there's an agreement on this committee that we need to come up with a predictable, stable way to reduce our debt. we have had disagreements over how we do it, but not whether we do it. in looking at that, there are two lessons, i think with what

we see happening in europe. one is the debt crisis. that if you wait too long to address these issues, you're right, your borrowing costs are going to go up, people are going to lose faith and we should heed that as an early warning and not delay putting in place those predictable changes. but your testimony also pointed out that there's a dangerous in overreacting to that in the near term in terms of the negative impact it could have on economic growth and the other strategy that you have laid out is the need to nurture in very fragile economy we're in right now. so if you could just briefly talk about some of the lessons we have learned from the european experience, recognizing the debt crisis and early warning system, but the austerity only and immediately approach, some countries can't avoid it. like greece, because they have

gotten themselves in a fix. but talk about the fact that austerity and only immediate deep cuts whether or not that can have a negative impact on the very fragile recovery that we're having. >> the european situation is complicated. among other things, of course they have monetary union and a fiscal disunion. they don't have the same kind of situation we have here. and you're correct also that there are -- there are some countries like greece obviously and others that have very difficult fiscal sustainability issues and they have tried to address those in the near term. i hesitate a bit to advise my colleagues in europe, but i would cite the imf and others that point out that very slow growth or recession makes makes

fiscal improvement difficult. so it's important to try to figure out what the right balance is there and i want to be very clear. i don't want anyone to interpret me saying anything other than that this congress has a very difficult and important job to address the long-term fiscal sustainability of our federal budget, that's a critical thing. i think that even more aggressive strategies that have been per sursued recently are warranted over the long-term. but i also think that can be done in a way which is per swraive to markets and achieves those objectives but don't quite jolt the recovery quite -- doesn't do it all at once. i think that as long as there's a credible, strong plan over a

period of time and we move into that plan, that we'll achieve most of the objectives of fiscal sustainability. we need to at least avoid doing harm. i would say do no harm is an important piece of advice i would offer you. so there is a balancing act there that i think is important for us to pay attention to. >> thank you, dr. bernanke. and as you point out, nose two goals are totally consistent, sometimes they get muddled in the message and i understand that sometimes people hear that, interpret the need to prevent doing harm to the fragile economy now as meaning we shouldn't move ahead on long-term debt reduction. of course you can, as you said, you can do things at the same time, but if you undermine the fragile economy, as the imf, as you indicated, has warned is being done with certain fiscal policies in europe, that just creates an even bigger hole, and

as i, again, apologize, i believe to go believe -- i have to leave to go to the -- failure to extend the payroll tax cut and whether failure to extend unemployment compensation for millions of americans who are out of work through no fault of their own, failure to do that would be a drag on what is already very fragile economic growth. >> congressman, i know you appreciate that i don't endorse individual tax and spending policies. i think that's a good approach pore me to take. obviously you need to look at the whole picture, you know. i agree with what you said before, that you can't do one without the other. you can't say, well, we have got to protect the recovery and therefore we just put completely put aside all of the fiscal

issues, approaches to fiscal sustainabili sustainability, you've got to do both simultaneously and you've got to do both credibly. it's a balance that's important. >> as i look at your gdp numbers, your professional growth numbers. they assume some extension of current policy, as an example, an extension at least through the end of the year of payroll cuts. i'm not talking about exact numbers, but there are differences between those and cbo. and assuming we don't extinld the payroll tax cut, and assuming that all the tax cuts through the end of the year, including middle income tax cuts lapse. that's the reason the cbo economic forecast, gdp projections are lower than yours. >> yes. >> i thank you mr. chairman, and i thank my colleagues. >> you yield the rest of your time? >> i yield the rest of the time. >> so we're going to allow m --

>> that is a look at the house budget committee there, the questioning of chairman bernanke from the committee chair paul ryan and the ranking member chris van holland. fascinating q & a between bernanke and ryan. gets asked a lot of the same questions he gets asked in the press conference with reporters, but in centered around balance and employment and whether or not the fed even considers the impact of low rates on savors. >> outstanding question bring paul ryan, really reflecting market concerns, unusual for a congressman by the way about fed policy, he was asking about the long-term policy statement, does it mean the fed will tolerate higher inflation to bring the unemployment rate down? bernanke says no, it does not.

does -- brern saying that's up to you guys to do, what we're doing is in order to make the economy stronger which if we don't do,led make it -- low interest rates to hurt savors, but ultimately slower economic growth will hurt them more. >> and a really fascinating comment from ryan that you just tweeted about and that is we can't get our act together here in congress that, doesn't mean that the fed needs to help us out. >> you can follow me on @steveleaseman. you can't hold a hammer over us and that hammer would be highest interest rates. >> i don't know if it's just me or not steve, but challenging in questions in ways that he's sometimes not. >> i think going at him what market concerns is something that ryan is very good at. i was gripped by and not really used for political purposes, i

thought. >> it's a concession when he spoke about the inflation target, he said he will drive towards 2%. but the speed at which we drive towards that may be dependent on other factors, in other words that you'll mandate unemployment, so he's saying if we overshoot 2% we might be reluck tantd to drive it back to 2% if unemployment is still high? >> it's hard to say that it's a concession to the guy who told you what to do and that's coming. congress gave them a dual mandate and they can't rirveg on both together. they've got to do a balancing act anda long-term policy -- all the ultimately what they have done what they believe, simon is an accomplishment is putting that 2% target in print. it never was, so they think that's a hawkish kind of development and i think bernanke might be a little surprised that it's not being picked up on by ryan, that they have now put that 2% number in print. >> i'm wondering what you made of bernanke's comment that

congress must not jolt an economic recovery. it almost seems like an admonition to congress. >> he's been on this for a long time. it's basically the global think on this, melissa is that you cannot bring deficits down too quickly because it will hurt economic growth too much right now. it's a german idea that's been big on austerity. and the americans have been more on the idea of bring it down gradually, convince markets that deficits will come down in the longer to medium term but not immediately. >> we'll check on this a little bit later. we have seen a rally on the euro against the u.s. dollar during this system. of course we'll cover the chairman, we'll continue the coverage of the testimony and the q & a on capitol hill after a quick break.

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let's hend you back to capitol hill. scott garrett is questioning why the fed issued a paper on housing when he was not requested by capitol hill. >> just how that would have all worked out. why didn't we see a white paper at that time spelling out whether this would work and

whether you advocate or didn't advocate. >> i know you're skeptical, but we're trying very hard not to encroach on congress's fiscal responsibilities, especially on the made about governor duke and president dudley, they are not representing any official position of the board. they're speaking on their own recognizance. if you pay attention to the speeches, there's a wide variety of opinion even on monetary policy. so there was no official endorsement of those positions. we are trying to provide useful background. i apologize if it was misinterpreted. again, our goal was just to be helpful. >> i guess i would take off what the chairman was talking about. you have two-man dates in the area of employment, area of monetary policy and that's a lot for the fed to be responsible for. we have a mandate in the area of fiscal policy and we would like to retain that. you do have a responsibility in the position that you have, you're the owner of about $1 trillion right now of mortgage

backed securities. in that position wearing that hat, can you comment on the president's new proposal on the refi plan? what would the impact be as far as realized losses to the balance sheet if that plan was to go through? >> no, we haven't done that specific calculation. and once again, i'm not going to endorse or not -- >> not endorse the program. what does it cost if we were to do that? >> there are costs as the president acknowledged. there are costs to it and they would have to be raised somehow, whether from a bank tax or some other way. he mentioned $5 billion to $10 billion. we don't know if that number is correct or not. there would also be costs to investors. >> you're the investor in this situation. you bought it some would say at a premium. so your cost. have you begun to look to see what your costs would be as the loss realized on those -- >> no, we haven't, although i

think it should be acknowledged that the rates of refinance have been extremely low, lower than expected over the last couple of years. so in some sense that is reversing a gain that we got. but you're right, there are costs to the program, there are costs poe he poly to investors. and those costs to the government potential. >> that would be one area that we would like to have information specific back on. and also as a regulator, what the impact would be for the banks that you regulate, what the impact would be if you increase the fees on them. i see my time is up. >> let me return to the last question. and that is, many economists would think that unemployment of 5.2% to 6% leaves many people out there hurting badly in an economy. is a fairly substantial rate of unemployment, even though it's much better where we are today, in setting your goals of trying

to assure -- to avoid excessive price instability anden nation, you have not taken a drastic position on unemployment. you've tried to have some as you said balance between the two, have you not? >> well, there's nothing in our statement which suggests that we think that 5.2% to 6% unemployment is desirable or is a good outcome. we're just saying given where the economy is today, we think that's what it can sustain. there are many policies that congress could consider. workforce skills and other things that might affect that long run unemployment. and if that unemployment rate is changed, we'll respond to that. >> and on your estimates of what type of growth we will see in the near term in the economy that are in your testimony and the reports of the fed, what assumptions do those estimates make concerning fiscal policy and where the congress will be? i understand you're not getting into specific bills pro and con.

>> well, in order to make forecasts, we make guesses about what congress will actually do. there's no endorsement or nonendorsement involved in that. basically the cbo presented two kind of extreme proposals. one is the current law proposal which assumes for example that all the tax cuts are ended and that the doc fix is not adopted and so on. and then there was an alternative take thescenario -- >> we had testimony about both question. >> assumed all the tax cuts were extended and took the opposite approach. our numbers obviously are based on an intermediate level, assumes that some of these policies undertaken but not all of them and we try to make our best guess. but it's only staff guesses

about what they think congress may do. and i don't think those forecasts -- the details of that are particularly helpful to you. you'll be trying to figure out what the right thing to do is. >> with regard to an issue we've discussed when you've been here on the committee before on whether the policies of the financial community concerning rewards and compensation for taking excessive risks rehe main a problem, you've issued a report in october dealing with that. it indicated there had been improvement, but among the largest banks, there continue to be a number of problems with regard to risk taking and how that leads to rewards from some of those that are taking the risk with other people's money. could you give us an assessment of what's happened since that report came out in terms what have progress is being made to deal with this issue that many of us are concerned could lead to another financial meltdown?

>> the federal reserve undertook even before financial reform was passed by the congress, we undertook to look at this as a safety and soundness matter. and very early on, we began working with the boards and the compensation committees of the major institutions to try to structure their compensation in ways that did not lead to more or excessive risk taking. and i think as the report suggested, we made a good bit of progress. it's really sort of about that time of year when a lot of this information is finalized in terms of what the compensation packages will look like. we it continue to make progress on that. we continue to work with the banks. as i said, i think a lot of the major institutions have taken serious steps in this direction. i would point out in addition that beyond the actions that the federal reserve took independently, dodd-frank

requires the fed and other bank regulators to establish incentive compensation standards. and that rule making process is under way. so that will augment and add to the guidance that we've already provided. so we have seen progress and we continue to work actively with the banks to i think in everyone'serests to make banks safer and reduce the risks to the taxpayer. >> does more need to be done? >> well, we continue to work on it. as we said in our report, we don't think that we're where we need to be necessarily. and i think there's a lot of interesting questions. this is actually an active topic of academic research about how best to structure pay packages, what kinds of -- what role should options and stock payments and so on pay -- play.

so more does need to be done. but i think part of the process will be learning in our consultations with the institutions and with academics and others about what works best. europeans are doing something things there, as well. >> mr. simpson. >> thank you, mr. chairman. thank you for being here today for your testimony and comments. i've been a member of which committee and i think the chairman has, also, for eight years now. and for eight year, we've had economists and other experts come and tell us that we have a structural deficit problem that is unsustainable and we need to do something about it. so far we've failed to heed the warning. we're now at a operation where if we don't heed the warning, there will be cops defenses to pay that nobody is willing to accept. and the sad thing about it is that both parties sit and demonize one another no matter what we try to do to address this problem. we call the democratic just tax and spend liberals that don't care the economy and they try to

show us pictures of paul ryan pushing grandma off the cliff. unfortunately, that doesn't solve the problem. when everyone in this room, every listening to us, and everyone on this committee knows what has to be done. we've had several commissions that have looked at what needs to be done. they all say almost universally that you've got to get to $4 trillion to $6 trillion in savings if you're going to have an impact on the long term deficit of this whether. whether simpson bol simpson bowg of six or whatever. we all know we to get entitlements under control and he we all know that we need a pro-growth tax policy in this policy instead of a 19th sebceny tax code. we all know that. we might have differences of exactly how to do some of these things, but we all know that the problem exists and we all know we've got to come together. what we need is an armatist to

solve the problem because if we don't, all these other things won't matter. >> that's correct. it is striking that when the u.s. debt was downgraded by s&p last summer, it was more about what they cited was the political concerns about the ability of the congress to work effectively to make progress. so it's easy for me to say obviously. i recognize that politics is a tough game. and that there are a lot of disagreements in congress. but obviously the more that can be done on show cooperation and collaboration, i think we all agree on the issue as you say. >> are you surprised that this 1st of january -- if i was new zealand and australia and philippines and talking with officials there and businesses there, i was surprised that they are really watching congress. they're worried about congress' inability to get together to song this problem because they

know that the problem is going to extend to them if we don't solve our problem here. the general assumption that we have to get the-to-# trillion to 6 $4 trillion to $6 trillion in savings is the right number or a number that will stabilize our deficit and get us headed in the right dreirection. it's sometimes hard to explain to the public what could potentially happen. could you paint a picture of us if you think what will happen to this economy if we don't take the steps necessary to stabilize our debt and if we put it off for another year or another year after that as we've been kicking that can down the road forever? >> the $4 trillion to $6 trillion, congressman, was a number that was talked about for the next decade. and the idea was that achieving that would stabilize the debt gdp ratio and maybe get some

progress there. and i was supportive of going big, so to speak, when we were discussing all these issues, we, the country, were discussing these issues last summer. so, yes, i think a very substantial additional attack on the deficits is needed. but the other point i would make is that the $4 trillion, the $6 trillion number, again, it's about the next decade. the biggest problems we have are beyond the next decade. they stretch out into the next 20 or 30 years as entitlement costs in particular begin to rise and as our demographics begin to move adversely. so one thing i would surge you as you bnk these issues is not just to focus only on the ten year official budget window, but to think about the longer term even beyond ten years because what we've seen, an example

would be the social security reform done in the early '80s. it's still phasing in. the more time you give people, the slower the process, the more warning. the more likely it's going to be successful both politically and economically. in terms of the implications for the economy, i think the good scenario is that when the economy recovers, that we have higher interest rates, we have higher borrowing abroad, we is a slower growing economy, et cetera, as i discussed in my testimony. the bad case scenario, which ultimately will happen if we don't change this this trajectory, is that analogous to what we've seen in some countries in europe, investors will begin to lose confidence that we can manage our long temp fiscal situation and we'll see sharp movements in interest rates or loss of confidence in

u. the u.s. in which case changes would have to be made, but in a much more chaotic and disruptive way than by doing it in a long term thoughtful way. >> thank you. >> thank you again, sir, for joining us. i cringed a little with my good friend in new jersey's portrayal. it seems to me that you are independent of congress. you're not cbo. you are managing the monetary system and you are purposefully an independent agency trying to insulate the notion in a somehow you're at the beck and call of a particular administration or congress. my understanding is that's the structure that is in place to try to give that you independence. am i missing something here? >> well, the fed was created by congress, but congress did set us up in a way. for example, 14 year terms for governors and so on to try to

create independence in making monetary policy decisions. we have a number of roles including supervisory roles and so on which bring us into contact with issues related to house beiing and mortgages. but i want to be clear that our intention was to try to provide useful background and we in all cases looked at both sides of the issue and we recognize we have no doubt whatsoever that it's congress that has to make those decisions. >> and i appreciate that. having been here through some of the stormy weather, i think there are lessons to be learned by all of us. i think you you, some of your governors, looking at the events, i hope congress is looking at what he what we did or different do. the motion that somehow we might ask the fed to come up with a report on recovery act, i mean, there is an independent agency. it's called the cbo which we set

up to give us that who produced such a report that said that it raised real inflation adjusted gdp between 0.3% and 1.9%, that lowered the unemployment rate between 0.2% and 1.3%. it increased the number of employed between 400,000 and 2.4 million. it increased the number of full-time equivalent jobs by between half a million and 3.3. that's an independent agency that congress set up. you may not like the answer, but somebody else, an independent agency, to do is not going to get us any further down the line. i'm personally struck by what my good friend from idaho said, because as usual, he's making sense, get to it, deal with the notion. and i have opined in this committee and elsewhere that we know what to do.

it's not that hard. that we could do things to rein in military spending without putting us at risk. we could reform agriculture al spending. we could, in fact, move to have a health care system that rewards value instead of volume. that meet mrs. better ns mr. be which isn't ten years. the real test is 20 and 30 years. and i'm hopeful that we're able to focus on the big picture, that this budget committee in the course of our deliberation can look at things that actually enjoy bipartisan support that could make a difference over the flex quart next quarter century and not have the picture that is being portrayed today and yesterday by independent experts become a fulfilling prophecy.

i feel this is something we ought to be focusing on and in particular the motion that we are looking at the longer term the real challenges are beyond ten years and that's where the savings have to occur. that's where it actually gets easier, not harder. and for us to bludgeon the fed, i think you've done an extraordinary job trying to balance being more transparent in what you're doing but not spooking people -- >> the questioning of bernanke continues in front of the house budget committee. still looking for clues about the fed's would-be plans for qe-3. the clafr man splittihairman saw

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ben bernanke being asked about the importance of housing to the recovery and he's saying that the lack of a housing up turn has been one of the main

reasons why the recovery has been lackluster. let's go back to the hearing. >> i do think that the lack of a housing recovery is one of the big reasons that recovery has not been stronger. >> so without abdicating a specific solution, you're saying it's something to which we should be paying policy attention. >> i think it would repay your efforts to think about ways to make -- remove barriers to recovery in housing. i don't think it's firely a market phenomenon. i think there are a number of legal and administrative and regulatory barriers to housing being as strong as it should be. >> shifting gears to europe, could you comment on in the last 30 days or 60 days as a recovery or a positive solution is in

europe, is it closer or farther away in your view? and we can't control this. but if they were to have a failure of some sort over there which is not well constructed or whatever, that would affect us. could you comment on where you think europe is today and what impact it would have on us even though we can't control it if they were to have some form of -- >> certainly. there's been a couple of positive developments. european central bank has provided extensive financing to the european banking system and will provide another round of financing at the end of this month. that has had the benefit of reducing some of the stresses in the banking system. it has even gone so far as to bring down to some septembexten borrowing costs. so that's taken away some of the

financial stress. there's also been progress in terms of an international agreement within the eurozone to have mutual surveillance of fiscal policies to try to get long long term agreement on fiscal stability within the eurozone and with individual countries. those are positive things. but there's an awful lot remains to be done. greek negotiations are still ongoing. the banking system remains under capitalized. it's been contracting its credit which has been contributing to a weakening economy in many countries in europe. and i think the back stops that are need to protect other countries from contagion, the europeans have been setting up financial back stops to do that.

still a lot of uncertainty about the size of those back stops and how they would be use. more work needs to be done there. but i think it's important to conclude there are fundamental problems. also issues of competitiveness. countries on the periphery like greece and portugal are not at all competitive to germany. they have big current account deficits that cannot change the value of their exchange rate because they're tied to the euro. so it will be a difficult process to get to a more competitive situation. all those things put together mean you could have slow growth for quite a while. >> dr. bernanke, the economy is creating jobs. we've had 22 months of private sector job growth. the unemployment rate is at its lowest level for three years.

and at home in florida, in 2007 and 2008, the headlines in the newspapers were devastating about companies closing and losing jobs. and it was noticeably different last year with stories about companies hiring. it's pretty said dteady right n. but obviously we can do better. in your testimony you said a more robust recovery will lead to lower deficits and debts. so here's the froustration. and our colleague who give us the list of ways to reduce the debt and deficit, it was very noticeable that he did not include job creation in that list. it was cut spending, we're doing that, the budget roll act, we did that. we need to do more.

entitlements. there's some common ground we could find there. but he left off that very important list job creation. and the testimony from the cbo yesterday was that, yes, if we had a lower unemployment rate, we would have a lower deficit and that followed up on his letter of october that says the underutilization of capital and labor resources in the economy, if we had better utilization, if we had more people working, the projected federal deficit under the current law in fiscal year 2012 would be about one-third lower. that testideficit would be equa about 4.0% of gross domestic product compared with 6.2% projected for 2012 in the cbo's baseline. if the economy were operating at its potential, the deficit would be lower because incomes and therefore revenues would be higher while the rate of

unemployment and, therefore, outheys for certain government programs would be lower. so here's our frustration. they know we can be doing more, but congress has not been able to come to agreement on ways we invest in infrastructure and research and development. so give us some words of wisdom on this. going forward, what do you believe are the most effective policy options that all of us can be -- can pursue to speed job creation and, thereby, lower the deficit? >> congresswoman, first of all, i'm glad to hear that the tone is a little better in florida. that's good. there has been some progress obviously, but still very slow. in my testimony, i made i think three related points about fiscal policy. the first is that whatever we do

for confidence purposes and long run sustainability, we have to keep our eye on the long term. we have to make sure we have a credible plan put in place that will be moving us towards sustainable in our fiscal policies over the next few years and into the subsequent decade. so i think we have to keep that part always on the table. that's really important. secondly, i think we can avoid if we can avoid unnecessary disruption to the recovery. i think that's important. he pointed out there will be a massive fiscal contraction in 2013. without addressing any of the specific policy involved, i think congress should be aware of that and try to avoid having too big a hit on the recovery in 2013. and then finally, again, without

taking specific policies -- taking the side of specific policy, my third point is that miss cal policy is not just about spending and taxes. a lot is the yacht of the budget. are the things we're spending on, are they going to help our economy, do they support r and d or workforce skills or other things that will help the economy grow in the long run. on the tax side, are we moving toward more efficient, more effective tax code, simpler, fairer and the like. so i think you want to look at the top lines, but -- it's easy for me to say, but it makes a difference the quality of the programs, the way the money is spent and collected makes a difference in terms of jobs and growth. >> mr. cole oig. >> thank you very much. before i get to my questions, i

want to thank you for the role you played during the t.a.r.p. situation and want to thank you for the transparency and the efforts since then to try to restore a measure of public confidence in the fed. i think a lot of people, fed, sec, the gses, congress, will have a lot to answer for. but at the moment of crisis, i think you did a terrific job for the country and i appreciate it very much. >> thank you. >> you laid out pretty compellingly the fiscal challenge we face going forward and i think that's what we wrestle with more than anything else. and let me positi posit a coupls and get your opinion if it's appropriate. first, you mentioned spending restraint and that's actually beginning to happen. the appropriation committee has cut it two years.

we have an agreement in the budget control act going forward that will let out the belt a little. but in the context of federal budget, not a lot. we can argue whether it was a good policy or not, but we did tie long term spending cuts in some fashion to the debt ceiling increase. so lots of signs we're beginning to see discipline and it's likely to stay here for a wheil. on the revenue front, the president extended the tax cuts. he had the ability not to do that. because we couldn't possibly have yoefrp riddoverridden the . he told us pretty clearly then that he thought we needed those tax cuts for another two year. he bargained in exchange extension of unemployment and the payroll tax holiday.

come january next time, we're going to have a revenue mcfor high income earners and he'll have the ability to impose that. so let's just -- hate to do that as a republican, but let's assume he's in a position to do that. are those two things, spending restraint and revenue increases of the kind that we're talking about, sufficient to deal with the long term structural deficit that you describe? >> no, i don't think they are. and i think standard cbo calculations would support that. discretionary spending is not particularly high as a share of gdp relative to history. i think you could cut discretionary spending pretty close to zero and not solve the problem in the long term. focusing solely on discretionary spending probably is not by

itself sufficient on the spending side. >> or only on the revenue side. only on the tax side. >> i was going to say on the other side, that there are many arguments for and against changing the taxes on hire income individuals. but that by itself won't close the budget deficit either.hire e individuals. but that by itself won't close the budget deficit either. we need a much broader set of policies. i think the elephant in the room is really health care costs. under the -- as i mentioned in my testimony, we're heading towards 9% or 10% of gdp just from federal spending of health care and then another 8% or 9% eventually in private sector health care spending. so that's a broad issue that affects the budget and affects the efficiency of our economy. but i don't think we'll get a real solution there without some

kind of way of addressing that problem. >> i agree very much. and obviously we had an effort in this committee to do exactly that in the so-called ryan budget. i suspect we'll have something very similar again this year. i hope we look at social security, as well. i know that decision hasn't been made. because i think that's the crux of the issue. but we have a lot of commissions that put out a lot of ideas. are you aware of any other officials that passed or proposed, has the president laid out long term proposals of sbulgt entitlement spending other than my friend the chairman here? >> i don't know of any comprehensive plan. there have been a number of commissions which even though commissions are not fully detailed. for example, i don't think bowles simpson had a lot to say about health care and how to control that spending.

but that's where -- i think that's where a lot of the serious work has been done. >> thank you very much. ben bernanke answering questions, one of the latest headlines to come out, disappointment in the general economic recovery largely due to the disappointment in the housing recovery. we'll take a quick be and be back with more. i'm trading everywhere... on one of the most powerful mobile apps out there. i'm trading here every day. and i'm customizing everything. everything. from thought, to trade. i'm with scottrade. i'm with scottrade. i'm with scottrade. and seven dollar trades are just the start. ♪ [ rodger ] with innovations like our powerful mobile app and free scottrader streaming quotes, no wonder more investors are saying... i'm with scottrade!

is

we continue to digest the facebook filing last night. a lot of earnings. the fed chairman on the hill. about a minute to the european close and you can see traders tiptoeing around the chairman with markets overall generally flat here in the states. although we should mention some of the facebook related names like zynga still up 14%. >> they put on a rally during the course of the u.s. open. we were doing quite well. we've just come off partly from comments that we're getting from the german finance minute schaeuble. he also said there will be no more -- let's get these things on the screen. he says there will be no more public aid to help greece, which

makes you wonder whether the extra 15 billion euros that we think they need will ultimately come from. >> interesting take on what's going on there as opposed to here. we're very close to the flat line. >> so that's where we stand around europe at the close. obviously everybody is watching not just what bernanke is doing, but the greek situation. bear in mind we had a decent demand for french and spanish paper. so there has been the rally on the bond markets. you can see the yields coming down certainly on the spanish and italian yields. and bank to bank lending -- yields continue to come down. there's concern about portugal. bank to bank lending pretty much fixed as a one year low. in greece, we have the health

care workers striking there today. the question is whether the greek prime minister can get a deal on cutting the minimum wage and some bonuses. if he can't get that through, the money will not be worth coming to pay those bills. >> simon, don't go too far. i'm here with bob pisani. it was about that time yesterday some officials from the greek finance minute have i saistry sy from a deal. >> and bill murray should have rang the opening bell for groundhog day. and i want to you note that everything is slippery. everybody is moving. first the private debt negotiations were a moving target. how much the haircut was going to be. now the bailout money is a moving target. now as simon noted it's not $130 billion. it's starting to slip. it's made clear that negotiating for maybe more money. everything just kind of slipping and moving because the greeks do not know what their gdp target will be. they don't know how much money

they're going to need because they don't have a hand around their finances. that's the reason the germans have been wanting to be very active. one of the analysts this morning said a lot of the money is moving in to the black economy. and so the greek government can't get its arms on how big its oecwn economy is. >> can i explain why it's taking so long? rather than having a sequence of events where they do a deal and then realize there's no more money and the greeks won't follow through on the promises, they're trying to do it all together. trying to get the whole thing sorted so the imf says the deal that's here is sustainable rather than coming back later and saying we have a problem. the deadline ideally is monday. they would like to get it tied up by then. >> it's really march 20th when the next payments are due. i want to move on. germany, a six month high right now. i've gotten a lot of inquiries about facebook. facebook -- zuckerberg says he wants to be different. people are asking whether it will be possible for facebook

users to buy on the ipo on their own facebook page. there is precedence for this. does everyone remember the boston beer ipo in 1995? they put offerings essentially in the six packs. it was 33 shares at $15, $495. they were overwhelmed with offers. they got nearly 100,000 applicants. so two out of every three people who applied didn't get it, but 33,000 people got it at $15. -- $18. they got the beer and the ipo. that's the important thing. so there is a little bit of a precedent for doing this. and obviously you do it electronically. there would be some process to get it from the underwriter. here's the problem. it would create enormous transactional costs.

remember google. that -- i won't say a mess, but a real problem for the people doing it. there is also no indication that they're actually going to do this right now. nothing i saw in the s 1 indicated they would do anything creative. but i've gotten a lot of requests. i think it might be a great way to get people more involved in the equities market and in a feeling of ownership for facebook. are you listening mr. zuckerberg? i hope so. >> it would be unconventional, which has been their want. thanks, bob. want to get more reaction to the chairman's testimony. rick santelli joining us from the cme, steve liesman back at hq. rick, i'll let you have first crack at whatever you'd like, whether the impact on savers or this inflation target. what did you hear? >> to me talking about targets, it gets lost on me. first of all, i disagree with their measurement of inflation. i call into question the notion of how it's so hugely impacts the middle class, lower middle

class and poor so much more when a weaker dollar makes imports more. and so many people need to shop at places like walmart due to that fact. i also think it's disingenuous to keep passing the buck between fiscal and monetary responsibility. he wasn't bashful about a white pain other housing, but he doesn't tend to take on his hat of an enabler of the low interest rates. we need a hammer as long as rates are low, we can't help ourselves. so that i think's also a circular discussion. >> steve. >> i always want to know if rick has an alternative measure of inflation that works better for him. >> yeah, i call it going to the store. >> right. and how much of your income, rick do, you spend on food and gas? >> doesn't matter. i'm not talking about mine. i'm talking about the 99%. that's what i'm talking about. want to talk about that? >> yeah, i'd like to know what -- >> somebody makes 40 grand a year has a very significant

chunk of their change going in hair gas tank and bellies. and ben bernanke -- >> do you know what that chunk is or are you just making it up? it sounds really good. i'm in favor of the common man. but -- >> you don't agree with it. >> no, because the measures show, rick, all the measures show that inflation -- >> your measures and the fed measures show it. >> you'll recall over a three or four year period for inflation to be high has been dead wrong. >> oh, no, i never called for inflation. i call in order higher commodity prices. go through the tapes. i never mentioned that the dollar index would be down 33% in ten years. 33%. >> i can't argue if you make stuff up. >> the roman empire had numbers like that. >> you called for inflation for four years and it hasn't happened. >> no i called for hire came e commodity prices. go to the tape. >> even the chairman, steve, calls health care costs the elephant in the room. >> absolutely. that's the big deal out there.

in addition the issue of housing not being helpful to the recovery. i agree there are distortions created by the fed policy. it is a choice between the lesser of evils. feks on met savers are probably helped by a moving economy more than they are hurt by lower interest rates. that's not rue for the he witru among the savers. the guy is balancing all these lesser evils that are out are there republican wick has an. >> doesn't take much for you you guys to go at it. that's why we love it. more from bernanke after the break. heartbeat,

and that it put me at 5-times greater risk of a stroke. i was worried. i worried about my wife, and my family. bill has the most common type of atrial fibrillation, or afib. it's not caused by a heart valve problem. he was taking warfarin, but i've put him on pradaxa instead. in a clinical trial, pradaxa 150 mgs reduced stroke risk 35% more than warfarin without the need for regular blood tests. i sure was glad to hear that. pradaxa can cause serious, sometimes fatal, bleeding. don't take pradaxa if you have abnormal bleeding, and seek immediate medical care for unexpected signs of bleeding, like unusual bruising. pradaxa may increase your bleeding risk if you're 75 or older, have a bleeding condition like stomach ulcers,

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a lot of questions about qe-3 plans there may be. want to get a check on precious

metals. that trade does remain intact. >> and we're looking at silver that has broken out of the key range. that seems to be a key play here in the marketplace. traders say that bernanke's comments really don't change the upward trend we've seen in precious metals it year. silver the best performing commodity of 22% year to date. gold prices above that psychological 1750 level poised for 1805 in the next round. and of course it is the precious metals really getting the most from bernanke's comments, but still action in the energy sector, as well. we're looking at weakness in oil and natural gas. that is supply data. we'll send it back to capitol hill now and chairman bernanke. >> -- in terms of r&d investment? >> we do pretty well including both private and public. we are the biggest amount of --

in absolute terms of research and development investment and we have a pretty high percentage of gdp, as well. for some emerging markets like china, are beginning to approach us at least in terms of share of gdp, but we remain an r&d leader. >> thank you for joining us today. i want to follow up on some of the questions we've had earlier today and talk about policy responses. as you said, you're worried about the federal government's fiscal sustainability as we move forward. and it looks to me like we don't have to reinvent the wheel. if you look at this chart, you can see the differences in recoveries during the 2007/2011 time frame versus 1982 to 1986. there is an op-ed in the "wall

street journal" this morning by phil gramm and mike salon that if we had just followed the same policies as reagan, that we would have about 17 million more americans working today and that our gdp per family would be about $23,000 higher. so the basic question, we recognize the constitution says the government has certainly basic responsibilities. we have to provide for national security. some people feel like we need to provide for basic research funding. but then everything else is really sort of on the table. so my question is fairly simple. i'd like you to give me the an bridged reader's digest response if you can, who is the better allocator of capital to the greater public good? is it the private sector or the federal government? >> well, as i was saying earlier, there are some areas

where the federal government is really the only provider. it's very hard to get the private sector to provide just -- but for innovative industries and those sorts of things, i think it's agreed that the private sector is better and china is an example of a country which has a communist party running the show, but they allow private sector activity a very large role in the development of new industries. >> you've got the difference between private sector investments like keystone pipeline versus public sector investments like solyndra. that is pretty obvious at face value that the federal government does a pretty poor job of allocating resources. do you see anything that should dissuade us from thinking that it would be better for the private sector to allocate resources rather than the federal government? >> the private sector because of the profit motive and so on is

often better at innovatinnovati. i don't want to get into the keystone situation. i don't know enough about it. but i do know it involve as multistate right-of-way and all those -- >> i wasn't trying to get into the weeds on keystone. but as an example, on the one hand you've got a private investment of $7 billion and thousands of jobs created. on the other hand, you've got half a billion taxpayer dollars that was spent and no jobs. >> to be fair, you could point to situations where government investments in the space program or in the internet have paid off for the public. but clearly we have a market economy and we want to use the market wherever appropriate. >> good. exactly. looking at the stimulus plan, if your the most aggressive optimistic numbers of jobs created or saved that have been

prop you will ga promise you will gated, it's about $400,000 per job. could the private sector have done better if we had just said about $400,000 per job. could the private sector have done better if we had just said we're going to leave those stimulus numbers in the hands of the taxpayers to start with instead of cycling them through washington some would that have created a better economic outcome for the united states? >> that's hard to say. we were in a deep recession. one of the differences between this recession and '82, '86, fed's tightening was a big reason for it. in this case, rates are zero, we can't do as much as they did did in the mid-80s.

the other thing i would comment is that dividing the thumb of -- dividing the total cost by number of jobs to me is not exactly the right way to think about it bay the total cost involved the -- >> i wasn't trying to get into the gnats like that. i'm just saying what would have been a better policy response for the average american? a, $800 million in the hands of taxpayers or -- >> if could i quickly respond. i think there are times when -- chairman speaking to the house budget committee. want to draw your attention to two retailers today. gap is the single best performer on the s&p. single worst performer is abercrombie & fitch. lowering guidance. we'll take a quick break.

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s&p up a point, dow down about 14. we take you back to capitol hill and the fed chairman in front of the house budget committee. >> going back to some of the discussions that you were having, i had an interesting meeting with ford motor company a couple years ago and they said

if we had an energy plan that would allow ford to determine to go gang busters, whether it will be electric, whether it's going to be biofuel, whatever, if we have an energy policy that countries like japan have an energy policy, the eu came out deciding to go diesel, that that would really help our business sector be part of global competition in the way forward with competitives. can you maybe and you can about energy policy and determinants for our country to really embrace one to allow our businesses to kind of move forward together? ford said when they knew they had to build diesel, they could build the best diesel car. they were totally competitive in europe. but the lack of us having an energy policy for a nation as large as ours really left them up in the air.

>> i think companies would like to have clarity about what energy sources are going to be used, how the government is going to tax or subsidize different types of energy. i think the main issues there frankly are environmental as much as anything else. japan as decided to phase out its nuclear power because of safety concerns. the eu decision on diesel was generated primarily by environmental issues. so those could the kinds of issues that that scenario where government may make decisions about energy policy because certain type of energy it may be judged are better for the environme environment. putting that aside, we do need to maintain a role for energy markets. we were talking about this before. there is a remarkable increase

in the supply of natural gas, for example, in the united states. and that's a good thing as long as we can manage it in a safe environmental sound way. >> mr. mulvaney. >> thank you, mr. chairman. dr. bernanke, i want to drill down on something you've talked about in general here today which is europe and i want to go this into detail on the central bank liquidity swaps. since you've been here last time, i think it's grown from the agreements with various central banks from roughly 2.8 billion to about $103 billion as of last week. and my first question is where does that money come from, is that money you have in existing reserves, is that new money? >> it becomes both a liability and asset on the federal reserve's balance sheet. it's in some sense paid for by greater excess reserves in the banking system and on the other side with very an asset which is

money given to -- in exchange to the european central bank. >> but to the extent it's greater excess reserves, that would be in layman's terms new money. it's not money that you took out of a maturing treasury and moved over to a swap agreement. >> we choez se to do it that wa because monetary policy currently has rates very close to zero. but it would not be difficult to sterilize that to a number of different methods. >> fair enough. you stated earlier that it's your current intention with all of your maturing securities to reinvest those. as these securities mature, i think 90% of them are less than 90 days or all are, is it your intention to reinvest those in domestic securities, in the swap agreements? >> it's the ecb and bank of japan are the two main counterparties who would determine what their request is. and then we would decide whether or not to grant the request.

it's not our choice. if the swaps run out that will just be extinguished. it would mean a comparable drop in our 4r50ibliabilities and as. >> to the extent part comes back within the agreements and are reinvested in domestic securities, does that have an expansionary effect on domestic monetary? >> it does increase the high powered money supply a little bit. in this case it would be about 3%, 4%. it does not in from a have much effect on money in circulation. and it doesn't affect interest rates. so we see it as reducing financial stress, strengthening the role of the dollar,

improving funding for both u.s. and foreign banks. >> how is that different what you've just described from what you were trying to accomplish with qe 1 and qe-2? >> the difference him that they were much bigger. secondly, we were buying medium to long term securities on the open market. in this case the money is going via the ecb who is the counterparty and take all the risks, are going to help finance the dollar of european assets which is banks. >> i understand the first half of the tractionsaction. but when the money comes back, how is that different from qe 1 and qe-2? >> this doesn't involve any change in our holdings of securities.

we have an asset and liability liability unless banks are lending those reserves out, it's not going to be turning into more money supply. >> you've got the option as you exercised in 2008 to lend this money directly to the european banks. why aren't you doing that? why are you using the swap agreements instead of lending directly to domestic subsidiaries of overseas banks? >> domestic subsidiaries of overseas bank coame to the discounts window, by law, we have to treat them on an equal playing field as u.s. banks. from our perspective and economic perspective and from the u.s. tax payers perspective, doing it through a swap is much better because it's the responsibility of the ecb to decide who can qualify for the loan, to decide how much is

needed to address the money market problems and so on. and we're totally protected that way. we're protected also in discounts window through collateral, but i think this is a better way to do it. >> lastly and very quickly, we've established i think you have the ability to lend directly, the ability on do the swap as. but you told my colleague from south carolina in december that youed that neither the intention nor the authority to bail out european banks. do you still stand by that statement, do you not hayou do have that intention or authority? >> in that off the record conversation, i was asked and i said we've done the swaps, we talked about them. they had been done well before that conversation. and then the question was were we going to do additional things, were we going to make loans to the imf. and the answer is no. >> ms. wasserman schwartz. >> thank you, mr. chairman. good to see you. our friends on the other side of

the aisle since the debate over the recovery act ensued have furiously tried to insist that it had no impact, that it created no jobs and that it wasn't necessary. according to cbo, it was low up by 1 pmt 8 percentage points, up to 1.4 percentage points in 2011 relative to what it would have been had conditioning nkonlg co all. since 2005, we've created more jobs last year than we have since 2005. since march 20610, 3.2 million jobs have been created in the private sector. so had we not acted and passed the recovery act, would that recovery have happened as soon or even at all? and a