projects whether they -- projects whether they come from administration or congress or from outside analysts still show deficits between say 2013 and 2020 you have between 4, 5, 6, 7% of gdp which will if that happens would cause the ratio of debt out standing to our gdp to rise to very high levels. i think while that's still some time in the future the risk exists that even today investors, creditors might become concerned about our ability to maintain a sustainable fiscal position. i think it is very important that the congress i realize it is very difficult but the congress try to develop plan a program an exit that will be a credible plan for returning to a sustainable fiscal situation over the next few years. >> thank you. >> gentleman's time has expired. the gentle lady from california ms. waters is

recognized for five minutes. >> thank you very much mr. chairman. i'd like to thank mr. bernanke for being here today. the last time he was here we had limited discussion about the federal funds rate. there is going to be some testimony here today by dr. ball of johns hopkins where he says the fed should not raise the federal funds rate in the near term. his exact quote is, some day the economy will recover and the fed should raise the federal funds rate not assume some day. would you agree with this assessmentment? how long would unemployment have to go in order for you to think it is appropriate to raise the federal funds rate? do you agree with dr. ball's assessment that the fed should give greater weight than usual to unemployment when deciding how to set rates? i raise this question because as you know, the national urban league released its state of black america report for 2009 yesterday. we know that last month our

blacks were unemployed at nearly twice the rate of whites 15.9% to 8.8%. the gap since 1974 is just barely closing. in considering the question on the federal funds rate, do you consider this wealth and employment gap to be a serious problem? do you think that a rising tide for the overall economy will actually reduce the gap based on your experience as an economist should we be targeting stimulus to the nunlt -- communities with the greatest needs on and on and on. i guess i've been talking to you and others about the unemployment rate among african-americans latinos, rural poor for a long time. i hear nothing about what we can do in terms of targeting. i hear no plan coming forth about how we can involve

these communities and opportunities that would reduce the unemployment. can you help me out with this in some way today? in talking about the federal funds rate or any other aspect of your responsibility to help us understand what we can do. >> certainly. first we're in complete agreement that the high unemployment rate is a tremendous social and economic problem in the united states today and just a quick look at the figures verifies that already immigrant populations suffer from much higher unemployment rates than the average and that's bad for social integration. it's bad for progress in the communities so i absolutely agree with you. that's a very severe problem. particularly when you have as you have today a lot of long-term unemployment because it's one thing to be

out of work for a month or two but if you're out of work for six months or a year then you begin to lose your skills you begin to become very unattractive to employers and it's clearly a long-term negative and not just a short-term negative. as i said to chairman watt federal reserve takes very seriously its responsibility to try to reduce maximum unemployment. that's why eve done extraordinary things to go beyond zero rate interest rate policy. balance sheet and providing as much stimulus as we can to get the economy moving again and with consider that to be very important. as we exit at some point of course we will pay attention to employment and how that is evolving. we will not be able to wait until things are completely back to normal because monetary policy takes some time to operate and given those lags we're going to have to anticipate to some extent the return of the economy back to normal conditions. but we certainly want to be

sure that the economy is on a sustainable growth path and that jobs are being created as we begin to withdraw --. >>ing kouz me mr. chairman -- excuse me mr. chairman i don't want to interrupt you. do you have any ideas about what we can do about the extreme unemployment in these communities rural poor, african-americans, latinos. i understand what you're saying and you correctly described the problem reiterate what we all know but what plans, what ideas do you have about how we can target these communities to get rid of this unemployment? >> i was talking about the federal reserve's role but there's certainly number of things that congress can consider. >> i really do want to know the federal reserve's role. is there anything that you can recommend? >> i can recommend things for example i met yesterday with community develop m financial institutions cdf is i'm sure you're familiar with those who are take funding and bringing it to

underserved communitys to try to create economic opportunities i think that's a very valuable direction. i know congress is looking at education and training issues and i think given the long-term unemployment issues trying to make sure people can either retain their skills or get new skills is going to be very, very important. there are a number of proposals out there for job creation through fiscal measures. i think it's really up to congress to decide what combination of actions to take but certainly there are things that you can do through the states for example to try to increase employment. but many of those programs i've tried to give you a few ideas. many of them of course are fiscal and therefore appropriate province of the congress. we at the federal serve -- reserve have a lot of economic and analytical capability and as you know we are always willing enter interested to provide technical assistance to to any congress person work on a program. we worked with the treasury on their employment programs and we stand ready to

provide any kind of help we can and if you have some specifics things we -- yud'd like us to work on. >> that might be one of those issues we might want to pursue outside the context of hearing gentle lady's time has expired and gentleman from texas paul is recognized athank you gentleman for yield yielding. i imagine everyone agreece the increase in the monetary base last year and half is probably history -- historic. don't think we have much in our history to look back as a precedent. i would assume we can't look back too easily and look at trying to solve a problem like this and what we have to do and how much the monetary base has to shrink. as we talk about this i think most people assume that they're waiting for a cig that l from you -- signal from you when the balance sheet might shrink. but you know, even in the depression when it shrunk 16% it wasn't done

purposely. it was the way the system was working back then. can you give me a rather quick answer on this. do you have any idea what percentage the base should shrink or might shrink or is that something that you don't even want to address? >> i think we would like to bring the plans sheet back to something -- balance sheet back to something consistent with where it was before the crisis which means enough to acome americans -- -- accommodate american's demand more modesty and that would suggest something under a trillion dollars. >> or less. >> of course that would be very unprecedented. during the crisis that paul volcker had to deal with from '79 to '82 it was considered you know, major problem. the inflation got out of hand at 15% and he had to come in a do something and i guess the question is, how much did he have to sh

writtenk the balance sheet -- shrink the balance sheet during those three years? >> not very much. he was focused on money growth in particular. so he wasn't clearly in same where we are now these large unused balances. i would point out he was focused on m 1 and m2 growth. m 1 and m2 are not doing anything now. they're very flat. it's just the base as you point out. >> excuse me, but the prout -- truth is during that time which was considered very tight money the monetary base was still growing during those three years the monetary base grew 31%. so my suggestion is, it might not be so easy you know to cut back because even in a midst of an inflationary crisis like that maybe 6 months or a year from now hn you decide to do something maybe there will be an increase in m 1 and m2 and then it lab different ballgame when you're dealing with this. but i have another question dealing with something you

said on page four when you talk about one tool that you will have because quite frankly i think if we get into a situation where this housing crisis reemerges which i believe it is, it is going to be difficult for you to do what you say because that's why you have obviously hesitant to do anything. but you said one of your tools will be to pay interest on the balances and that will cause banks to do different things and borrowers to do different things and of course i see that as a method of price fixing. in the early part of the last century free market economist said that socialism could work. it wouldn't work. it would fail and socialism and communism would fail because of pricing. and i assume that you would endorse this principle that waging price controls isn't necessarily the best way to handle rising prices. is that a safe assumption? >> absolutely. >> okay. my question and concern in

economic policy is isn't ficking interest rates in order to get the economy to do something a form of price fixing? the important -- the importance of prices in a free market is to tell the businessman and consumer what to do if the price is too high. they don't buy and the businessman you know, responds to supply and demand. why is that not true in money? money is one half of every transaction so if we're working on this false assumption that you're exempt from the market forces and you have some type of unique ability to say interest rates are different i know what is best. i know what they should be. they should be 0% for 15 months instead of 16 months. why does that logic not apply to fixing interest rates. >> because if you believe that wages and prices are not perfectly flexible and there are many that are not then the economy can get pushed away from full

employment and as it obviously is today and economist of all strifes including milton friedman and others agree using monetary policy can be a useful tool to try to create growth and stability in this particular case low interest rates create more demand and can help bring the economy back to full employment. obviously there are limits to that and we recognize those limits but changeing the interest rate is really just the other side of changeing the quantity. quantity and price are two sides to the same equation as you know so we can either change the quantity or change the price. by changeing the price we affect economic activity and try to achieve the object tefs that the congress has given us. >> my fear is that your results will be the same as waging price controls. >> the gentleman's time has expired the gentle lady from new york is the last case. >> thank you mr. chairman. good morning mr. chairman. >> good morning. >> the central bank is currently in the process of

winding down theal p facility which provided liquidity for commercial real estate and small business lending. many experts have expressed concern that these lending sectors remain vulnerable to further losses. without theal p -- talf what would the fed do if returns or small business lendsing markets. >> well, what we've seen. let me put aside just for a moment cre in the other categories credit cards and auto lien loans and student sqloens maul business loans -- loans and small business loans we've seen asset-backed securities market come back pretty well. we've been seeing spreads that are normal. seeing issuance outside the fed's facility not 100% normal but we've seen considerable improvement in those asset-backed securities markets. now, cre is a difficult problem as you know and the basic reason at that point

is that the prices of commercial real estate across the country have dropped in many areas 40% or more which obviously makes the credit worthiness or credit risks much greater and has made it much more difficult to obtain credit. we've been attacking that issue from a number of fronts at the federal reserve. the talf is just one dimension. the commercial mortgage-backed securities market is not completely normalized but it has improved and those spreads have come in and we believe that it's getting more and more difficult for us to justify our unusual emergency powers in the context of a market that is improving but we recognize there are a lot of issues still and that's why we have for example issued guidance to the banks about how to manage their c r e portfolios and in particular how to make sure that they you know, provide credit where credit is, where the borrowers are credit worthy and try to help them work

out loans that are troubled and find ways to solve that problem. so we're working more through the banks now at this point than through the mbs market or cmbs market the but that is certainly one of the most difficult areas right now. >> mr. chairman we continue to hear that small businesses are facing a problem in terms of accessing credit. in your view is lack of liquidity the root cause of tight credit for small businesses? what is it? >> well there are a lot of reasons. there's certainly been a big drop in the demand for credit from small businesses because of weakness of the economy and in some cases small businesses have had financial reverses which make it much more difficult to lend to them. but all that being said there are certainly credit worthy small businesses that cannot obtain credit and again that has been an important priority of the

federal reserve and we have worked with congress and the treasury as well to try to support small business lending. once again we've issued guidance to the banks about encouraging lending to small businesses and have trained our own examiners to take a balanced perspective that they not over penalize loans to small businesses and we are trying to get as much feedback as we can. for example we have inserted questions in the nfib survey to get back more information from small businesses about their credit experience and currently our reserve banks around the country are holding meetings with small businesses, banks and community developments -- development groups to try to understand better what the issues are and how we can improve small business lending. so it's a tough problem. i think there are some pro poe sfarls from treasury i think are worth looking at but we are certainly working with the banks on this issue. >> can we talk about 30

billion proposal from treasury for a moment. should regulators be concerned that the banks who participate in this program may stretch to make prudent loners in an effort to reach lending levels that deliver higher interest rate incentives? >> there there are various twice structure the program but all the ones i understand basically make the bank have some skin in the game. that s they share in the loan and if the loan goes bad then they'll lose at least part of the loss and i think that's the reason to try to use the small banks in particular to make these loans because they have the information and expertise to make them so as long as the banks have suflt -- sufficient incentive to make good loans because they'll lose money if they don't b then i think that will reduce that risk considerably. >> and do you think that without any string attached to the 30 billion that the banks will make -- >> we there should be

strings attached in terms of for example being able to report they increased their lending by a certain percentage for example tau gentle lady's time has expired the gentleman from california. >> thank you mr. chairman. chairman bernanke i think most economists believe that creating a massive new entitlement the healthcare entitlement bill that we passed is going to add to our deficit. i don't think anyone in here believes we're going to cut half a trillion dollars out of medicare as we say we are in the bill in order to help pay for it. so congress is adding to the deficit and on that note in recent weeks berkshire hathaway and proctor and gamble and lowe's and johnson & johnson debt traded at lower levels, lower yields than treasuries of similar maturity. and essentially the market is saying it is now safer to loan to warren buffett than

it is to the united states government. mr. geithner disagreed with that conclusion or that assessment. i would just ask you your view because i don't know what else it could mean and also ask have you ever seen this in a bond market? what does this say about our fiscal outlook? >> it is very unusual certainly. there are a number of possibilities. the one you raise is one possibility. although if the u.s. government is not paying off going to be a huge amount of economic dislocation that would affect everybody. i think one of the issues recently has been and this would be consistent with what you're saying is that the u.s. government's very large debt issuances have been very large auctions with lots of borrowing going on has put some pressure on the normal purchasers of that debt and they had a preference for diversifying0 into corporate debt as you described. >> but let me ask you about that because the federal reserve in one analysis i saw purchased a staggering

80% of the one and a half trillion of debt issued by the federal government last year. if we won a trillion and a half deficit here somebody's got to buy it. and i think it was the pem coanalysis -- pimpco analysis tad sad 078% was bought by the federal government. and i know there was some opposition from some people within the fed in terms of doing that. but you have pundits quipping -- in essence this is like a ponzi scheme in a way. so with yesterday being the worst day since last july for 10 years for 10 year u.s. treasuries is the federal reserve considering getting back into the business of buying u.s. treasuries or are we laying off of that approach for a while? >> congressman, that number isn't correct. we purchased last year $300

billion in treasuries which was much less than 80% and that total number brought us back to 790 or so billion which is abwhere we were before the crisis. so at this point the fed owns the smallest share of u.s. government debt as it had for many, many years. we are not monotizeing the debt and we have no immediate plans to do so in the future. >> let me ask you another question and i appreciate your analysis on that. i was struck when i read the analysis from pimco and i don't know how they perceive the amount of government intervention into the market here, but let me ask you one last question. the dallas fed president richard fisher said of the easy money policy during the most recent housing boom rates held too low for too long during the previous fed regime were an accomplice to the reckless behavior.

now i remember the economist the pritedish magazine arguing at the time when we lowered the fed funds rate to what effectively was below inflation. that we were going to face a boom a bubble in the housing market and they also argued that because europe would have to follow suit to be competitive it was going to cause a bub there will as well and year after year after year that rate was held that low and so i would just ask you given the fed's track record what assurances do we have that the fed will be any more vigilant when the next bubble begins to form? is it even possible to take away the punchbowl as they say just as the party is getting started? >> congressman i don't want to rehash history i think there's lite of conventional wisdom out there about the earlier episode and i think when we at the fed we published a paper looking at the evidence and i think it is much less clear than some people would make it. putting that aside we are,

we recognize that very low interest rates we have today that a number of people have been concerned about the possible of creating a bubble in some asset class not clear which one and all i can say we agree it's important to monitor what is happening in financial markets. we are doing that although very difficult to know whether an asset is approach gratly -- appropriate i prisd or not we do not see at this point. if you have some views certainly like to hear them but we don't see at this point any major mispricing in important asset classes right now thank you chairman bernanke. >> gentleman's time has expired the gentleman from california has deferred until later in the process and the gentleman from new york mr. meek is recognized for five minutes. >> thank you mr. chairman. mr. chairman, good to see you again. just want to make sure that first let me get an understanding. with the talks and reference to interest rates. i no at the last fomc meeting

the president of the federal reserve bank of kansas city tom hoenig descented in regards to the use of language about low rates for an extended period of time. he basically made the argument that that does not give the feds the flexibility, the fed the flexibility it would need in case the recovery happens at a quicker pace and that people are starting to build expectations into the marketplace because of the low interest rates. do you just ask you first of all, can you have the flexibility that you need and then if the economy improves at a quicker rate, can you be flexible without shocking markets that are building in the expectations about the low interest rates? >> yes we can. mr. hunt specific concern was the sam one i talked to mr. royce about which was about bubbles and asset imbalances.

and as i say, we're looking at that issue but i think it is very important to keep in mind that when we talk extended periods we're not saying a fixed period of time. we're saying a period of time which depends on how the economy evolves and our statement very specifically says it depends on the level of resource utilization or unemployment. it depends on what inflation is doing and what inflation is -- expectations. so if those things begin to move then obviously that is going to lead us to respond appropriately. >> i tell you what my concerns are just in the housing market for example in that regard. what takes place or what is taking place in america and a lot of communities a lot of people are underwater right now with their mortgages and some are okay. they're making their payments they have the adjustable rates because the interest rates are low and so there are concerns they're making it now but if those interest rates jump up then they're going to have a

problem paying their mortgage that shock and where we go. now, bank of america has recently i want to ask this question, has said that they're going as posed to just reducing interest rates they're going to reduce principals by as much as 30%. side like to know what you're dosh so it -- so it i would like to know what is your opinion, a, do you think that would have a significant impact on reducing foreclosures in the future because i'm concerned about foreclosures going up in the future b what is the fed if anything is doing to encourage other banks to lower the principle -- principal as posed to just reducing interest rates? >> i think one thing we're learning is that when it comes to addressing foreclosures one size doesn't fit all. there are people with different types of problems. there are people who have a payment which they can't afford and a lot of the programs we've seen so far are about getting the payment down. then you have people who are

unemployed for a period. maybe they can afford their house in a longer term but for a period of time they don't have the income and they need temporary help and then you have a lot of people around the country who are underwater as you say and the federal reserve has argued for several years one strategy is to help people underwater build up equity again so they'll have an incentive to stay in the home and continue to make the payments so i think that going forward i think is the useful to have all of these different strategies. each different type applies to a different group of people. i don't know that much about bank of america specific approach. a lot depends on the details. but i'm glad to see that they are including this strategy. the industry was very reluctant to use principal reduction for a long time and i'm glad to see they're opening up now to the idea of using that as one tool to addressing foreclosures. the federal reserve as a

bank regulator we put out guidance in the november of '08 and we are strongly urging banks to be responsible in restructuring of their mortgages where necessary and in particular in participating in the administration's congress's plans to help underwater borrowers. >> do you see, do you have the concerns that i have that we could have another foreclosure crises though given the way that the markets are and the interest rates right now especially those adjustable rates especially those underwater because they cannot refinance their mortgage to get a fixed rate and therefore -- and thereby -- tau gentleman's time has expired so the chairman will perhaps answer that question. >> later? >> later or briefly. >> okay. we control very short-term

rates. very much, many fewer adjust rate mortgages out there now than there were a few years ago. most people have fixed rate mortgages so they wouldn't be affected very much by our policy. >> gentleman's time has expired. je happen from texas. -- gentleman from texas. >> thank you mr. chairman.