>> tonight on c-span2, a federal reserve chairman ben bernanke testifies at a hearing of the joint economic committee. joint chiefs chairman general martin dempsey briefs reporters about his recent trip to asia and military operations in afghanistan. and attorney-general eric holder is questioned by the house judiciary committee. federal reserve chairman bernanke told congress this

>> there are number of actions that congress can take right now to create jobs and strengthen the recovery. we know that the transportation

bill is one opportunity to create jobs. we have to err get that side to lot. we know that infrastructure, transportation infrastructure is central to our national competitiveness and a bipartisan bill passed in the senate with 74 votes to create almost 3 million jobs and by accelerating those in research projects. second we should do more to support small business by targeting tax incentives to firms that expand the payrolls and help strengthen the recovery the bill that i introduced to provide a tax credit of 10% for any increases to the payroll tax base that could be hiring workers, increasing hours, or raising wages of existing employees. third, the senate is taking a before and bill, which is legislation that cut the deficit by some $23 billion.

i think it has tremendous bipartisan support. it helps farmers magic to finance the risks relating to rapidly fox to the fluctuating prices and it helps critical support to rural america, part of our country that was especially hard hit in the recession and still has some major challenges. we have fiscal challenges to tackle in a bipartisan manner as well. without congressional action the automatic spending cuts contained in the budget control act of 2011, along with the exploration of several tax cuts, it will prevent a significant economic it went in 2013. the congressional budget office recently estimated that real gdp growth will slow to just a half a percent in 2013 unless washington acts. chairman bernanke has expressed concerns regarding the risk that a so-called fiscal clef presents

to the recovery. i share that concern and know a lot of others share that same concern. let's be clear. there are right ways and wrong ways to balance the budget. we have to be smart about the cuts that we make so that we can keep growing the economy and create jobs rather than make a bad situation even worse. that means we should not increase taxes on middle income families. we can't put america on the road to full recovery unless we all agree on tackling the huge budget deficit and debt that america faces. we need to continue to cut spending, no doubt about that. certainly, you cannot reduce the deficit by spending tens of billions of dollars on tax cuts for the very wealthiest. additionally, just as chairman bernanke was before this committee when we spoke about this, i would like to address very briefly currency manipulation, especially on the part of china because it has such a harmful impact on the

american economy and american jobs. we recently learned that china allowed its currency to weaken more inmates than any other month since 2005. chairman bernanke has testified previously that allowing it to appreciate would be good for both the u.s. and china's economy as well. the chinese government manipulates the currency so that their goods sell for less than they should. some people may think it is some far off theoretical issue. it is not. when china cheats, we lose jobs. i urge my colleagues in the house to pass the currency exchange legislation that deals with this issue, to pass it in the senate in a bipartisan way, and we want to get that out of the house. to sum up, our economy, while in much better shape than it was three years ago, is still recovering from the recession. with unemployment above 8%, the labor market still needs to heal . europe continues to wrestle with

debt issues. we know that, which will continue to impact u.s. financial markets and the global economy. so, against this backdrop it is clear we need to stay focused on promoting strong economic recovery and, of course, that means jobs. chairman, thank you for your testimony in that will turn to vice chairman brady. >> thank you for appearing before the joint economic committee. at this critical juncture discuss america's economic outlook. well we are all anxious for signs of a strong and sustainable recovery, the reason jobs report was gramm. with u.s. employees trading a mere 69,000 non-farm payroll jobs, the fewest in the year, job growth over the past two months has dropped by two-thirds for the first quarter of the year, business and consumer confidence is down, first quarter gdp estimates were revised downward. four and a half years after the recession began americans are enduring the 40th straight

month of the official unemployment rate at or above 8%. this is a post-world war two record. in much of the drop, the unemployment rate in october of 2009 is that americans are simply dropping out of the workforce. labor force participation rate is keeping a 30-year low. without the severe drop in the number of workers as the recession began the unemployment rate would be nearly 11%. since the recession ended the economy has started to grow at an annualized average quarterly increase of just under two and a half percent. ..

for lenders of last resort loans from the european central bank, not just greece that the european union union as a whole appears to be in recession part of the question whether greece are the member states of the european monetary union exit the euro and reach national currency or dominate. mr. chairman at this hearing i hope we'll get your perspective on europe, including the likelihood of a greek exit from the eurozone. the contagion risk of other member states and the consequences of these possible events for the european union, the united states and the rest of the world. when you appear before this committee last october in response to a question about the tools you are considering to mitigate and limit the adverse economic impact on the united states, you testified that you believed european central bank

had the capacity to provide liquidity to european banks, the additional currency swaps could provide dollar funding for global dollar money markets, that the mainline of defense was adequate supervision of well-capitalized american banks with the fed standing ready to provide as much liquidity against collateral is needed as the lender of last resort to the american banking system. is that still your assessment and are you considering any tools beyond those? in addition the american taxpayers and lawmakers like your counterparts in germany, are becoming increasingly concerned that they will be asked to bail out however indirectly, struggling european government and banks. there is a growing concern that the u.s. treasure will try to bail out the eurozone either directly with the exchange stabilization fund or indirectly with the international monetary fund. the fed has a challenge as well, explaining to a skeptical congress wife swap lines with the european central bank will

not turn into an indirect bailout of the eurozone country. at the same time european economies are weakening, growth is also slowing in both china and india. given the prospects of a global slowdown, some economists are speculating that the federal reserve a initiate a third round of one dictated the ease. mr. chairman during the questions i would like to discuss with with you whether and under what conditions the federal reserve would consider launching the third round of one dictated ease. it is my belief that fed has done all he can do and perhaps done too much. further quantitative easing won't stimulate growth and create jobs. there is a real risk that the maximum amount of liquidity that is art injected into the economy could trigger higher inflation before the fed can execute its exit strategy. i'd also believe another round of intervention will increase uncertainty among job creators while ignoring the genuine reason for low business investment and job creation which is sound, timely fiscal

policy. the businesses i look to along main street are not holding back on hiring because they are waiting to learn what the government will do for them. they are holding back on hiring for fear for the government will do to them. ... it was for higher taxes on job creators, the unprecedented tax we face at the end of this year, the unsustainable structural federal debt and deficit along with the flood of red tape can steer the consequences of the present state of health care lobbies are the two tracks on the economy and no matter what action the fed takes, without strong leadership by the president today and action by congress now on these fiscal issues, americans will not see the strong to cover it we deserve and of course the combination of sluggish growth and rapid accumulation of federal debt is a toxic brew that could eventually spark a debt driven economic crisis here at home

unless the united states soon reverses course. finally mr. chairman last january, the federal committee adopted an explicit inflation target of 2%, measured by the price index for personal consumption expenditures. by doing so that has taken an important step toward establishing a rules-based monetary policy going forward that should help achieve stability and protect the power of the dollar for time. nevertheless your adoption of the target rate is the 2% target a minimum, a midpoint or a maximum? how wide is the range and how long will the federal reserve tolerate the deviance from from the range before taking action? i also appreciate that you distinguish between that which monetary policy can't control mainly prices and that which monetary policy cannot, namely employment. i will request further publication on this monetary policy statement in more depth and with a mr. chairman i thank

you for appearing before the committee and i look forward to your testimony. >> thank you vice chairman brady. just to housekeeping matters before introduce chairman bernanke. number one is we will keep to our time limits more strictly sometimes and we do because of the number of members here and number two the senate has a vote at 10:30 and i don't think that's going to change. so we will accommodate members for that reason. but let me briefly introduce chairman bernanke. dr. bernanke began a second term as chairman of the board of governors of the federal reserve system unfair borene first of 2010. dr. bernanke also serves as chairman of the federal open market committee and principle monetary policymaking body. original took office of chairman unsavory first of 2006 when he began a 14 year term as a member of the poor. dr. bernanke was chairman of the president's council of economic advisers from june of 05 to january of 06. prior to beginning public

service dr. bernanke was a chair professor at princeton university. he has been a professor of economics for public affairs at princeton since 1985. mr. chairman, welcome. >> thank you. chairman casey, vice chairman brady and other members of the committee i appreciate this opportunity to discuss the economic outlook and economic policy. economic growth has continued at a moderate rate so far this year. gdp rose at an annual rate of 2% the first quarter after increasing at a 3% pace in the fourth quarter of 2011. growth last quarter was supported by further gains in private domestic demands which more than offset the drag and declining government spending. labor market conditions improved in the latter part of 2011 and earlier this year. the unemployment rate has fallen about one percentage points points.since last august. payroll employment increased 225,000 per month on average during the first three months of

this year, up from about 150,000 jobs added per month in 2011. in april and may however, the reported pace of job gains slowed to an average of 75,000 per month than in the unemployment rate ticked up 8.2%. this apparent slowing in the labor market may have been exaggerated by issues related to seasonal adjustment and the unusually warm weather this past winter. but it may also be the case that the larger gains seen late last year and early this year were associated with some ketchup and hiring on the part of employers who prepared their workforces aggressively and during -- if so the deceleration in employment in recent months may indicate this ketchup has archly been completed and consequently more rapid gains in economic activity will be required to achieve significant further improvement in labor market conditions. economic growth is poised to

continue at a moderate pace of overcoming accommodative monetary policy. in particular increases in household spending. income growth has remained quite honest but the recent decline in energy prices should provide some offsetting lifts to real purchasing power. while the most recent ratings have been made, consumer sentiment is nonetheless up noticeably and despite economic difficulties in europe the demand for u.s. exports have held up as well. the u.s. business sector is profitable and it has become more competitive in international markets. however some of the factors that have restrained recovery persist, notably households and businesses still appear quite cautious about the economy. for example according to surveys, households continue to rate their income prospects is relatively poor and do not expect economic visions to improve. similarly concerns about the

u.s. fiscal policy and the strength and sustainability of the recovery have left some firms hesitant to expand capacity. the depressed housing market has also been an important drag on the recovery. despite historically low mortgage rates and high levels of affordability, many prospective homebuyers do not obtain mortgages as lending standards at tynin the creditworthiness of many potential borrowers has been impaired. at the same time a large stock of vacant houses continues to limit incentives for the construction of new homes in a substantial backlog of foreclosures will likely add further to the supply of vacant homes. however a few encouraging signs in housing have appeared recently including some pickup in sales and construction, improvement and homebuilder sentiment and the parent stabilization of home prices in some areas. banking and financial conditions in the united states have improved since the death of the crisis. notably recent stress test done by the federal reserve on the

balance sheets of the 19 largest u.s. bank holding companies show that those firms have added about $300 billion to their capital since 2009. tests also show that even an extremely adverse hypothetical economic scenarios, most of those firms will remain able to provide credits u.s. households and businesses. that may turn to standards that have generally become less restrictive in recent quarters although some borrowers such as small businesses and as already noted potential homebuyers with less than perfect credit are still reporting difficulties in obtaining loans. concerns about sovereign debt and the health of banks and the number of euro area countries continues to create strains in the local financial markets. the crisis in europe has affected the u.s. economy by acting as a drag on our exports, weighing on business consumer confidence and pressuring u.s. financial markets and institutions. european policymakers are taken a number of actions to address the crisis but more will likely be needed to stabilize euro area

banks, calm market fears about sovereign finances and achieve a workable fiscal framework for the euro area and lay the foundations for longer-term economic growth. u.s. banks have greatly improved their financial strength in recent years as i noted earlier. nevertheless the situation reposes a significant risk to the u.s. financial system and economy and must be monitored closely. as always the federal reserve remains prepared to take action as needed to protect u.s. financial system and economy in the event financial stresses axil -- escalate. another factor in the way is the drag being exerted by fiscal policy. reflecting ongoing budgetary pressures, real spending by state and local governments has continued to decline. real federal government spending is also declined since the third quarter of last year and the future course of federal fiscal policies remains quite uncertain as i will discuss shortly.

with regard to inflation, large increases in energy prices earlier this year cause the price index to expenditures to rise at an annual rate of about 3% over the first three months of the year. however oil prices and retail gasoline prices have since retraced those earlier increases are co in any case increases in the prices of oil or other commodities are unlikely to result in persistent increases in overall inflation so long as household and business expectations of future price changes remain stable. longer-term inflation expectations have indeed done quite well according to surveys of households in economic forecasters and is the rise of financial market information. for example the five computations driving yields of inflation protected securities suggests inflation expectations among investors has changed little since last fall and are lower than a year ago. meanwhile the substantial

resource of labor and product markers continue to constrain inflationary pressures. given these conditions inflation is expected to remain at or slightly below the 2% rate that the market committee judges consistent with their statutory mandate to foster maximum employment and stable prices. with unemployment still quite high and the outlook for inflation subdued and in the presence of significant downside risk on the outlet posed by strength in global financial markets, a highly accommodative stance and monetary policy. the target range for the federal funds rate remains at zero to one quarter% and the committee has indicated in its recent statement it anticipates the economic conditions are like we do want exceptionally low levels of federal funds rate at least through late 2014. in addition the federal reserve has been conducting a program announced by september to lengthen the average maturity of the securities holdings at purchasing $400 billion of

longer-term treasury securities and selling an equal amount of shorter-term treasury securities. the committee also continues to reinvest principle received from his holding of agency debt and h. age and see mortgage-backed securities in agency mbs and to roll over its maturing treasury holdings at auction. these policies has supported the economic recovery by putting downward pressure on longer-term interest rates including mortgage rates and by making broader financial conditions more accommodative. committee reviews the size and composition of the security holdings regularly and is prepared to adjust those holdings is appropriate to promote a stronger economic recovery in a context since price stability. the economy's performance over the medium and longer term will also depend importantly on the course of fiscal policy. fiscal policymakers confront daunting challenges are going to do so they should keep three objectives in mind. first to promote economic growth and stability the federal budget must be put on on a long-run

path. the federal budget deficit deficit which averaged 5% of gdp during the past three fiscal years is likely to narrow in the coming years as the economic recovery leads to higher tax revenues and lower income support payments. nevertheless the cbo projects that if current policies continue the budget deficit proposed to 5% of gdp in 2017 when the economy is expected to be near full employment. moreover under current policies and economic assumptions the seau projects the structural budget gap and the ratio of federal debt-to-gdp will trend upwards thereafter and in large part the aging of the population. this dynamic is clearly unsustainable. at best rapidly rising levels of debt will lead to reduced rates of capital formation slower economic growth and increasing foreign indebtedness. at worst they will promote the fiscal crisis that could have severe consequences for the economy. to avoid such outcomes fiscal

policy must be placed on a sustainable path that eventually results in a stable or declining ratio of federal debt-to-gdp. even as fiscal policymakers address the urgent issue of fiscal sustainability, a second objective should be to avoid unnecessarily impeding the current economic recovery. indeed a severe tightening of fiscal policy beginning of next year that is built into current law, so-called fiscal cliff, what if allowed to occur pose a significant threat to recovery. moreover and certainty about the resolution of these fiscal issues could itself undefined business and household confidence. fortunately avoiding the fiscal cliff in achieving long-term fiscal sustainability are fully compatible and mutually reinforcing objectives. preventing a sudden and severe contraction and fiscal policy will support the transition back to full employment which should aid long-term fiscal sustainability. at the same time a credible fiscal plan under the federal budget on a unsustainable path

could help keep longer-term interest rates low and improve household confidence thereby supporting improved economic performance today. a third objective for fiscal policies to promote a stronger economy in medium and long-term to the careful design of tax policies spending programs. to the full six impossible spending polish should increase incentives to work and save common courage investments and work for skills, stimulate private capital formation, promote research and development and provide necessary public infrastructure. although we cannot expect our economy to grow its way out of a federal imbalance without significant adjustment and fiscal policies, a more productive economy will ease the trade offs that are faced by fiscal policymakers. thank you mr. chairman and i would be glad to take your questions. >> thank you chairman bernanke. i will start with the first round of questions and i will set forth a time limit for the question before i ask it. based upon three news items we

will call them. first of all we know china announced just today i guess that it has cut its benchmark lending rates for the first time in nearly four years and to reverse an economic slowdown. secondly the european central bank hinted at least that it would take no further action to aid the faltering european economy and then third, to federal reserve board governors as well as vice chair gallon have hinted at additional action by the federal reserve, so based upon those three items and based upon your testimony, the basic question i have for you is the federal reserve planning to take any additional action in the short term to spur economic growth and create jobs? >> mr. chairman, first i think china and europe face rather different economic situations

than we do. we have is they can make their judgment based on, based on what is happening here in the united states. looking forward to our meeting and about 10 or 11 days, think the main question we have to address has to do with the likely strength of the economy going forward. as i discussed in my testimony, the weakness in labor markets for the last couple of months may reflect the end of a catch-up period in which employers were offsetting the very sharp declines in employment that occurred during and after the recession. at that analysis is correct then going forward in order to see continued improvement in employment and lower unemployment rates, we will need to see growth at or above the trend rate of growth. so that is the essential decision and the central question we have to look at. will there be enough growth

going forward to make material progress on the unemployment rate? my colleagues and i are still working on our own assessments. staff are working on their updated forecast and we will have a new round of economic projections by all the participants between now and the meeting and that i think is the key question. if we decide that further action is required, then of course we also have to decide what action is appropriate or what communications are appropriate. we have a range of options and obviously the traditional reduction in the the short-term interest-rate, but we do have options that we can consider and looking at those options. we are going to have to make some difficult assessments both about how effective they would be and whether there are costs and risk associated with those steps that would outweigh the benefits they might achieve. so we have come obviously i

can't directly answer your question and is too soon for me to do that. if we have a committee meeting which we will try to evaluate these questions but the key question will he be facing wealthy will economic growth the sufficient to achieve continued progress in the labor market and our mandate for maximum employment says we should be looking toward continued improvement. >> thank you. that helps us give us a sense of how you're approaching the question. want to ask you about the so-called fiscal cliff which would have spoken to a number of times and a lot of americans i think get a sense of the then when you line up the matters that we have got to confront and literally just a number of months, the question of tax cuts, the automatic spending cuts that are put into place by last year's budget control act, the payroll tax cut x. worry -- expiration and a whole host of

other challenges. can you assess and if you can assess it, we want to hear your assessment, the impact on the economy just on one of those items and specifically if the tax cuts for middle income folks were to expire. just that particular question if you can make an assessment of that. >> well, the potential expiration, i am not sure i can break it down to the different components but the potential expiration of so-called bush tax cuts in 2001 and 2003 tax cuts, being that it is items in the fiscal cliff, and would have i think if everything else held constant, would have an adverse effect on spending and growth in the economy.

it would be significant. now in saying that, i am again talking about the size of the fiscal impact of that. i'm not necessarily saying that the right thing to do is to extend those cuts. maybe there are other steps you could take that would have a similar impact, that is the single biggest component of the so-called cliff. >> in keeping with my orders on time, i have to turn to vice chairman brady. >> thank you chairman. you mentioned third round quantitative easing. would it be combined to treasury or would other debt securities be purchased? >> again we have obviously made no decisions. the law permits us to purchase treasuries and agencies, government agency securities. those are the securities that we have purchased in the past and i wouldn't want to take anything off the table at this juncture.

but i want to emphasize again that there is in a sense to steps here. the first is to determine whether we think that growth will be adequate to lead to further improvement in employment and i think at the same time of course we'll be assessing the price stability mandate and the outlook for inflation. if we determined that further action is at least potentially warranted then obviously we have a number of different options that we would have to consider each of them and the costs and benefits associated with them. but at this point i can't really say that anything is completely off the table. >> i guess my more direct question is, the long-term interest rates other than the financial crisis, we haven't seen this level since the 1950's. do you really think that is holding back our economy? >> well the question is again, again, if additional stimulus

could the actions of the federal reserve might take achieve additional financial accommodation? putting aside potential bad side effects or costs that might be associated with that, i recognize that rates are quite low, so that clearly is a consideration. i do think that we do have methods, we do have tools that would allow us to get further commendation in the economy and provide some support. it's not quite the same thing to say that the problem of the u.s. economy is not -- is not the lack of financial accommodation. it's not the same thing to say that as to sate even as the main problems are coming from elsewhere the federal reserve might provide some sort of support by using the toolset has but i do want to say and i've

said this before, monetary policy is not a panacea. you would be much better to have a broad-based policy effort addressing a whole variety of issues. congress has considered many of these issues, so i would be much more comfortable if in fact congress would take some of this burden from us and address those issues. >> i think that is the point i would like to make. i believe is i wish he would take third round quantitative easing off the table. i wish he would look at the market in the eye and say the fed has done all it can, perhaps too much. i wish he would look at at the president and congressman congressman in the eye and say it is time to do your job. it's her tax policy right, if get your financial house in order, rebalance your regulations so that you are encouraging job creation and mitigate uncertainty and concern over the presence for health care law. i'm not asking to say that today but i wish you would because back home on main street i believe those are the elements

that are holding this economy back in until we get that right, no action from the fed will get this recovery moving in a way i think we would all be satisfied with. ais very quickly on europe, a lot of concerns about what will happen to greece as far as exiting the euro, what type of contagion will occur in europe. earlier, or last october you said the tools you believed are important are providing liquidity, currency swaps, ensuring american banks are in strong financial condition and being there to provide liquidity to solvent banks. are there any other tools than that that you are considering? should that contagion reached us from europe. >> no, you have a pretty good list there. who did the swaps as you know and they were very helpful to reduce dresses in the dollar

funding markets. they have been coming down quite significantly from the peak of 110 billion down to 20 billion so there needs seems to be declining. on the banking site, we have worked really hard to try to make sure that tanks and the financial system with the resilient to shocks coming from across the atlantic including our stress test which is shown strong liquidity positions. our reviews and ongoing reviews of exposures of banks to europe, so we are trying to make sure that we are as well as prepared as possible in the financial system. and then as i said in my remarks, the federal reserve retains broad-based authority to provide liquidity and collateral and the event of intense financial stress. that was retained in dodd-frank and in its role as liquidity provider of last resort the federal reserve stands ready to

do what is necessary. >> thank you is chairman brady. congresswoman sanchez. >> thank you mr. chairman. and thank you mr. chairman for being before us today. i want to go back to -- i want to go back to something you just said to my colleagues in the senate. you were talking about one of the biggest portions of that fiscal cliff would be the expiration of the bush tax cuts but he said i'm not advocating that necessarily. there are other steps that the congress could do. could you and your wisdom tell us what those other steps might he, just articulate them so i sorted happy to-do list if that is the case? i think i know them. >> i think i'm wise enough not to tell you the answer to that question but what i'm saying is that the concern here in the short-term is that all of these

measures together if they all occur will amount to a withdrawal of spending and increase on taxation depending on how you count between three and 5% of gdp. we will have a very significant impact on the near-term recovery. whatever benefits you might see in those programs in the very long term, and what i am saying is that in ways that are up to congress, step should be taken to mitigate that overall impact and a combination of tax reductions in spending increases, that is really up to you. that is no action is taken, what is particularly striking here is that this is all pre-programmed. if you all go on vacation it's still going to happen so it's important to be thinking about that in working with your colleagues to see how you might address that concern at the appropriate time. >> that leads me into my second question because i hear it a

lot, hear it on television and hear it from some of my colleagues. i hear from people back home. that we are all headed towards the grease situation. to some people the grease situation is hey, you have spent too much, you retired early. there are not enough workers to get this economy going to sustain the people who are living on payments if you will, mostly from the taxpayers. then there are other people who are saying the greek situation is too much spending and you are trying to collect taxes and the economy has contracted and it's almost like a vicious cycle going on. so my question to you is, for those people who say we are headed towards the grease situation, what do you think the grease situation is and is it really chew that we are

mirroring in any form that, because i think it's a totally different manner, -- with a type of real economy we have? >> the united states and greece are different economies. greece's a small economy. the causes of the crisis vary quite a bit from country to country. greece was a country that overspent and over borrowed and that is a major reason why it is currently in such trouble. the united states is a large, diverse economy with deep financial markets, international reserve currencies, dependent monetary policy, great credibility after 200 years of paying our debts, which by the way is a strength that we should

not squander if at all possible. that being said, so i don't think we are in a greek situation in the evidence for that is we are currently paying about 1.5% for tenure money where greece cannot arra at any price essentially. that being said i don't think we should be complacent. obviously we have a situation which is not sustainable and we do need to be thinking very seriously about how to put the fiscal budget on a federal budget on a path that will be sustainable in the longer term. >> thank you and in the interest, because we have so many members i will yield back my time and i will call on mr. campbell from california for his five minutes. >> thank you ms. sanchez. chairman bernanke, you made it quite clear that the so-called to e3 is a decision that has not been made and will not be made

for at least 11 days. what i would like to ask is, from my perspective, bqe three would affect interest rates potentially and potentially liquidity. neither of which it seems to me our obstacles to growth in interest rates being historically low and there appears to be liquidity. so my question is, why, in considering a few e3 if the decision were made to do it, in what way do we believe or somewhat believe that would help with the economic situation? >> again, putting aside the question of whether we need further steps in putting aside the question of the adverse side effects for risk and costs associated with given policies, our analysis is that the quantitative easing programs we did in the past did e.'s, did e.'s financial commissions. they lowered interest rates.

they lowered the spreads between private rates and cover my rates. so in other words even given a level of treasury security interest rates, it could lower the rate paid by corporations. we have lowered mortgage rates and raise stock prices and increase there for well for for the effects for consumers. so in general, we continue to believe that while some may think that the effects are less powerful than they were for example in 2009, we continue to believe that potentially that the source of measures could still add some additional accommodations and additional support to the economy. but then again, you know, as you point out, there may be some

diminishing returns and that would be a consideration we would have to look at as we try to analyze what our options are. >> okay, let me move over to europe if i can. in your testimony, he said that we should monitor the situation and the federal reserve are prepared to take action and you outlined what some of that action should be. what should we as policymakers be monitoring and what action might need -- we be prepared to consider? obviously in europe, we can't control the system and the monetary policy nor their political decisions. if there were to be a deterioration, a rapid deterioration of some situation europe via the currency or the banks or whatever, how can we put up the fire all wall or can we or what things might we be prepared to do? you mentioned you are doing what you can to minimize the impact

on the u.s. economy. >> well, congress and the administration have not agreed to any kinds of direct support in europe. the administration for additional imf funds for example so i think the main things that congress could do would be to help strengthen our own economy. the more mall and some, the stronger our economy, the better able we would be to withstand the financial spillover from the problems in europe. so that goes back to my earlier points about getting our fiscal situation clarified, taking appropriate steps to help troubled parts of our economy from the employment market to the housing market to whatever else we would be looking at.

but again i think my bottom line here is there is not a whole lot can be done that i can think of to attenuate the problem in europe. obviously we need to monitor it very carefully in and the best thing we can do is to assure we are strong and prepared here in the united states. >> are the risk to our economy in europe greater today than they were six months ago? >> well, the risks have waxed and waned. this problem has been going on now for more than two years. this crisis has been going on for more than two years and periods of greater intensity and less intensity. earlier this year, particularly following the long-term refinancing operations conducted by the european central bank as well as the debt restructuring of greece, the situation calm down fairly notably for a while, but for a number of reasons including the recollection which raised questions whether greece

would meet the requirements of the program and concerns about the state of italy, the spanish banking system and so on, the stresses have risen pretty significantly in the recent month or two. i'm not quite sure whether it is at the highest point it's been but it is certainly at a point where it's important for european leaders to take additional effective steps to contain the problem. >> thank you mr. chairman. >> i will recognize mr. cummings from maryland now. >> thank you very much chairman bernanke. it's good to see you again. when you appear before this committee last october you testified that in most recessions the housing sector is usually and i quote, big part of the recovery process unquote. you testified that many people are underwater and that the loss of equity means that they are

poorer, they are less willing to spend, and addressing the housing situation is very very important. in january the federal reserve issued a report on conditions in the united states housing market and the report says this, and i quote. continued weakness in the housing market poses a significant barrier to more significant recovery. chairman bernanke do you still believe that addressing the housing crisis is critical to resolving our economic crisis? is that correct? >> yes. >> economists and experts across the political spectrum believe that one key tool to addressing the housing crisis is targeted principle reductions for underwater mortgages because they help homeowners and save taxpayers money by avoiding default. mr. chairman 2008 he said this, the independent community bankers and i quote in this environment restoring some equity for the homeowner may be a relatively more effective

means of avoiding delinquency and foreclosure. and a lot of people have characterized those reductions is helping only homeowners but can you please explain why in some cases it actually could help the taxpayer too? >> well i think we have made some progress on this. first of all the housing market looks to be stabilizing, which if true would be good news. going forward, it would be helpful i think in recovery. there has been a lot of effort, since i gave that speech, to try to modify mortgages, to try to reduce foreclosures and so on and some of that has taken the form of principle reduction, notably the fannie and freddie have decided that some principle reduction or at least they are looking at runcible reduction as a tool for reducing foreclosures

and principle reduction as part of the settlement, you know, with a large servicers so we will get more evidence on this i think very soon. the board of governors does not have an official position on principle reduction versus other means of modifying mortgages or otherwise avoiding foreclosure. i think is a practical matter if you would -- if there is a limited amount of resources available you would want to consider for example reducing payments is more effective in some cases than reducing principle owed. so i think there is an important question there, but generally speaking i think the point that i was trying to make a few years ago is that, while we all focus on avoiding unnecessary foreclosures for help to give to the homeowner, it's excessively done it also reduces the loss to

the lender. it supports the housing market and that in turn helps the broader economy so to the extent that we can avoid unnecessary foreclosures, and do so in a cost efficient way, there are benefits that are broader than just a help to the individual homeowner. >> last november the president of the federal reserve bank of new york testified before the house oversight committee and he said this and i quote. we think you can devise a program for homebuyers and mortgages that are underwater to incent them to continue to pay on those mortgages by giving them some program of runcible reduction. obviously the devil is in the details so you have to have good programmed design, but we are confident that one can design a program which would be beneficial, net positive to the taxpayer. do you agree with mr. deadly that it targeted principle

reduction program could be designed in a way that would net present value positive taxpayers investors and homeowners? >> well, first president dudley was speaking for himself and does not have an official position on that. where i do it remove him is to say that the devil is in the details. a lot would depend on what the criteria are to be eligible for principle reduction and how it would be structured. for example, some think a useful approach with each to give principle reduction but to have an equity sharing arrangement whereby there are future gains, does it go back to the lender. i think it depends very much on the way that the principle reduction is structured. no doubt there are some situations where that would be the most effective method of offering unnecessary foreclosures but i do think we should look not only at that, we should look at the whole range of tools for averting

unnecessary for hoosiers and look at other issues like the version of foreclosed homes to rentals, steps to improve the credit of mortgage borrowers and so on, to really address the whole range of issues in the housing market. >> thank you very much mr. chairman. >> thank you very much. representative moller fannie. >> i want to talk about a different topic here today, topic that may not be an interest a lot of folks but something that caught my attention. want to talk about the turf to market and specifically the interest rate swaps. apparently if i have got my numbers correct, they notional value of the size of the market has grown from $682 billion in 1987 to over $400 trillion, and i recognize that his notional value but it certainly implies a large gross market to the market. and there was a federal reserve of new york report back in march

called the analysis of otc derivative action that essentially said it was very difficult to measure, very difficult to see, very difficult to value and most of the transactions occurred over-the-counter and not in the broader, actually said the lack of comprehensive transaction data has been a barrier to understanding how the otc derivative markets operate and as i was reading this it struck me that a lot of those words could be used to describe what happened with the mortgage-backed securities and the collateralized debt obligation issues we had back in 2008. so i guess my first question is, should we be concerned about this market and its lack of transparency? >> it is probably one of the most important derivatives market that we have paid a lot of attention to as the cftc who have a lot of jurisdiction over those swaps. i think it's important to say first on the one hand that those numbers that you cite greatly

overstate the national exposures that the people involved in the swap are facing. those are just notional values. is also true that interest rate swaps are specifically among the most straightforward and simple to understand of derivatives so that many of them are vanilla swaps that are pretty easy for regulators and four participants in the market to understand. so in some ways it doesn't pose the risk that you know, the credit default swaps posed for example. all that being said, you know i agree with the general trust which is we have seen that over-the-counter derivatives can be dangerous, and following the spirit of the financial reform from this congress we and our fellow regulators are working to

put as big a share as possible of swaps on centrally cleared, central counterparty type exchanges, and to decrease the transparency so that the regulators of the public will have more information. we are working in that direction and i agree with you it is an important object of. >> does the size of the overall market give a false impression are the true demand of dead and -- >> interest-rate swaps are basically ways in which participants can convert for example a fixed interest payment into an interest payment which is floating in depends on some indicator. so it is really a way of just customizing the flow of interest received or interest paid. you can have enormous amounts of interest rate swaps based on a relatively modest amount of underlying debt.

so i don't think it overstates the amount of actual debt in the market. is really a hedging tool for market participants who want to customize the flow of their payments and receipts and interest rates. >> the risk that some of the larger financial institutions, i think mostly just large financial institutions play in this market and given the losses they could incur given a rapid swings in interest rates, does that somehow impair your ability to perform your job? does it impair your ability to exercise independent in the monetary policy? >> no, don't think i don't think it does because the underlying instruments, credit instruments are still the same. it's just a way of sharing the risk or the pattern of interest receipts and payments. i should have said that to the extent that interest rate swaps

are not traded on central counterparties, we are also working with over-the-counter. the regulators are also working to make sure that there is sufficient margin posted on both sides of the swaps so that if there are rapid changes in the value of the swaps, that both parties will be protected and also in fact this afternoon we are going to have a meeting, an open meeting of the federal reserve to discuss basel iii and our discussion will include capital requirements for the market look, including derivatives, so in other words, even over-the-counter financial institutions are going to be protected both by the capital they hold and by the margin that

they place when they transact with counterparties. so, it's important for us to take steps to make sure that individual banks are not exposed unduly to large swings in interest rates for example. the counterexample is aig which is basically taking a huge one-way debt and what it lost the bet, it lost enormous amounts of money which nearly brought down the company. ..

with a mix of the spending cuts and the revenue. >> well, first of all, i congratulate you on these efforts. i'm glad to see people are working hard on this. it's really not my place to advise congress on the particular mix of spending and tax changes, so i hope you'll understand that. but i'm glad to see that there's a bipartisan effort involved in trying to address this important problem. >> i remember the last time we talked, you talked about how, if we failed to act again and went to the brink, as hand last summer with the debt ceiling, that clearly created some problems with our economy and thief's stall situation -- this

fiscal situation. >> the debt ceiling is a different issue. it's a strange thing congress can approve to spend five dollars and tax three dollars and not approve the two dollar issuance of debt, which is implied by the two previous decisions. no other country that i know of has anything like the debt limit rule we have, and the brinksmanship last summer of the debt limit had very significant adverse effects for financial markets and for our economy. for example, it really knocked down consumer confidence noticeably, so that's a somewhat separate issue, but i urge congress to come to agreement on that well in advance so as not to push us to the 12th hour. again, i think that trying to put our fiscal situation on a sustainable basis is perhaps one of the most important things that congress can be working on. >> when you look at the feds' last actions since late 2008, short-term interest rates at

zero, the fed pushed over 2 trillion in the treasure in an effort to support the action. do the past actions inform you as you go forward in the current economic situation as you make your decision? >> yes. obviously when we began these nonstandard actions, we didn't have the benefit of very much experience except looking, say, at japan, but we now hear motive actual data, more experience, and have been able to observe the effects on financial market prices. we had some model-based analysis of the effects on the broader economy. so, there's stale lot of uncertainty about the effectiveness of these tools and the channels through which they work, and it's also the case that monetary policies less effective than would normally be because of various constraints on lending and so on, but all

that said, having had that experience, has certainly made its better informed and better purchased to use these tools if next. >> my state, people are still hurting. one of the things when you look at the numbers in past recovers we have seen a correlation between economic growth and hiring. we don't have that correlation today. what has changed and can we do more to address the issue? >> i talk about this in my testimony a bit. in fact, the pace of improvement in the labor market from last summer through, say, march or -- say, march, was actually surprisingly strong, given the relatively tepid rate of growth and overall economic activity, and it was a puzzle we were trying to understand. i gave a speech about this in march. and one hypothesis is that there

was a burst of extra hiring that reflected the reversal of what might have been excessive layoffs during the recession period. where firms laid off too many workers. >> to catch up. >> catching up. if that is true, which we do not know for sure because there are a lot of other things going on, but if that is true, then the implication is that if growth stays going forward, growth stays near the potential rate of growth, say 2 to 2-1/2 percent, the improvement in the unemployment raid going forward might by quite limited. so, as i said, that's a question we have to think about. >> thank you, mr. charity. my experience in business and politics tells me that most of

the time when we are trying to solve problems we're actually treating symptoms, and i'm worried about that with our political policies as well as monetary policies. it's clear our current tax rates didn't cause the deep recession. as you know, they were implemented during a downturn in the early 90s. we had six years of growth. the problem clearly came from a loose credit policies that resulted in subprime mortgages and toxic securities, and we have not really addressed that except it appears we overaddressed it from talking to a lot of businesses, home builders, realtors, that we've constricted credit to such a degree that local banks that don't have the flexibility to deal with their local economies because the federal government and various agencies are telling them what has to be in their portfolio. so i feel like maybe the solution is much simpler, and maybe not simple but in effect we're not addressing that

problem that would allow the flexibility. we can't deal with overbuilding of houses. it's going to take years to do that. i don't think we addressed the true cause, or at least a big part of the cause. instead, we have tried unprecedented bank bailouts, unprecedented government spending, unprecedented monetary activism, and it's not working. so i'm concerned about that. and the thing i'm really concerned about now is since 2008 the national debt has increased 50% but the interest paid on that debt has increased about 2%, and i think some of the things you're doing in the federal reserve is giving us a false sense of security. last year i think you bought over 75% of the debt that we created, which masked the real problem, and i think probably gives us a debt interest rate that's much lower than it would be, and part of my concern now

is, as my colleague just said, on the one side, you appear by these huge derivative markets to have to keep our interest rates low, and on the other side, if you don't keep treasury yields low, banks are going to park the free money we're giving them in treasuries. it seems you're caught in a catch-22. now, where you have to work both sides of this to keep interest rates abnormally low and you have to continue to buy treasureries or we'll be a big so much on our national debt the fiscal problems with complicate overnight. so we're doing things that don't appear too address the true root causes of the problem and we seem to be now in a quagmire we can't get out of. now, i'm sure you have a totally different take on that, but i

think you'd have to agree that the activism has been unprecedented and reason toot least cause some concern. >> well, of course, it's been a whole range of approaches and responses to this crisis, which was a terrible crisis and required a strong response. i guess i would comment on your point about interest rates and the federal debt. the reason we keep interest rates low is not to accommodate congressional fiscal policy. it's because we think it's going to help the economy recover faster and keep inflation near our 2% target. but i don't think -- i would question whether or not low interest raise are enabling fiscal deficits. the deficit over the last three years has been over a trillion dollars a year, 9% of gdp. if we were to raise interest rates by a full percentage

point, and ignoring the fact that most debt is of longer duration and would not reprice, that would still only raise the annual deficit by something a little over $100 billion. so -- >> a trillion dollars over ten years, that's real money. >> a trillion dollars a year is what the current deficit is. >> is the interest cost on that, if would would be 100 billion a year, we're talking a trillion over ten years, we're talking real money. >> a trillion there, a trillion here, yes, sir. i agree with that. what i'm saying is that the situation is -- the deficits are so large, particularly going ute over next few years, irrespective of the level of interest rates that i would think that congress would have plenty of motivation to address that, and that whether or not the interest rates are currently

1 and a-1/2% or 2-1/2, doesn't e any difference. >> i want to -- my concern now is we're equating pro growth economic policies with more government spending, and our president is talking about that for the europeans, austerity is bad, and on one hand you're telling us this debt is creating a potential huge crisis, yet you're telling us we need to keep spending with more debt. what is the real signal here? >> well, first of all, it's not necessarily more spending. appropriate tax relief would also help in the same way. but i've always said, and i said in my remarks and said this a number of times, you don't want to just do short run stuff and ignore the long run. you don't want to just do long run stuff ignore the short run you need a balanced program, one which at least avoids -- a do no

harm policy is what i'm looking for here. a void derailing the recovery in the short term but combines that with a strong and credible plan for reducing the deficit over the medium term. that's the best policy. it may be difficult to achieve but in principle that would be the best way to go. >> thank you, mr. chairman. >> we have a bipartisan member keeping time. >> senator sanders. >> thank you, mr. chairman, and mr. bernanke, thank you for being with us. i'll try to be as briefs i can. the first question deals with conflicts of interest at the fed. as you know, jamie diamond is the ceo and chairman of jb morgan chase, the largest financial institution in this country. during the fed bailout, if you like, when $16 trillion in low interest loans over a period of time were given out to every financial institution in this country, jp morgan chase

received over $3 billion of those loans. the american people, i believe, perceive a conflict of interest when you have, among others, the head of the largest financial institution in america, sitting on the new york fed, which is supposed to be regulating -- the fed, regulating these financial institutions. many people, including myself, see this as a situation where the fox is guarding the hen house and we need real reform in the fed to make sure that it's representing the middle class, small businesses of the country, rather than just wall street and the big money interests. would you be supportive of legislation i have introduced which says that representatives of financial institutions -- not just mr. diamond but others -- get off of the fed and they be replaced by folks from then general public. >> well, you raised -- senator, you've raise an important point,

which is this is not something the fed reserve created. this is in the statute. on and the federal reserve act said, this is the governance of the federal reserve, and more specifically, that bankers would be on the board. >> six out of nine in the regional banks are from the banking industry. >> that's correct. that is in the law. and what we have done is try to make something useful out of that. what we have done is, first of all, taken a lot of actions to negate conflict of interest, and under dodd frank the gao did a study of the governance, pointed out answers of -- >> i wrote that position. >> and i congratulate you. but it also found that there were no actual conflicts of interest. because there is a firewall so that the banker does not have any information or ability to influence supervisory decisions. i'll answer your question,

though. the answer to your question is that congress set this up. we have tried -- i think we made it into something useful and valuable. we get information from it. if congress wants to change it, of course we'll work with you to find alternatives. >> thank you. i think that is something -- you're quite right, this is something congress established a long while ago. it's fine to change it. my second question is, in america today, we have the most unequal distribution of wealth and income of any major country on earth. worse than at any time in our country before the great depression. more individuals owning more wealth than the bottom 150 million americans. the top 1% owning 40% of the wealth of america while incredibly enough the bottom 60% own only 2% of the wealth in america. the last report that i've seen in terms of income -- not wealth -- suggests that in 2010. 93% of all new income from the

previous year went to the top 1%. now, my question is, we can talk about economic growth all you want but to the average person doesn't mean a damn thing if all of the new income is going to the top 1%. do you believe we can see an expanding middle class if we continue to have that kind of grossly inhe can witnessable distribution of wealth and income? >> i think it's not so much a question of bringing down the top 1% as it is bringing up the lower 99%. the question is how to strengthen the middle class. how to make middle class incomes higher and more secure? this has been a trend going on for 35 years, and it's related to a lot of factors, including globalization, the technical change, which has made a high school education simply less valuable. so, i would be very much in favor of measures to strengthen the middle class and help average americans do better in

approaches like education and so on with i think would be very constructive. >> last question. you have six of the largest financial institutions in this country. large wall street banks, that have together assets equivalent to two-thirds of the gdp of the united states of america. over $9 trillion. you have some folks on the regional feds and some others beginning to talk about the need to break up these huge financial institutions, which have so much economic and political power. the top six banks right, two-thirds of the credit cards in the country and half of the mortgages? my suspicious is if teddy roosevelt were here he would be talking about breaking up these financial institutions how much do you feel about the need to break up large financial institutions with so much economic and political power? >> a lot of people saying they

want to break up the banks are not being specific. dot h does that mean making them a little smaller or community banks? i would like to see plan that clarifies what is meant by that. the dodd frank act put forward a strategy for ending "to big to fail." it's important to end "too big to fail." that strategy involves taking away the advantages of size. means banks will be allowed to fail but through a safe method that would avoid the effects on the broader financial market through the liquidation authority created. large banks will have higher capital requirements, tougher supervision, will be subject to a whole set of rules that smaller banks will not face. i will guess that if the size of the banks is basically motivated by "too big to fail" motivation, if we take that away, then market forces will make it

attractive for banks to downsize, rationalize and so on. i would add an additional tool we have from the dodd frank is the living wills, which require banks to give us information about their very complex structures. one approach would be to ask banks for the purposes of being available -- able to be brought into receivership if necessary, is to simplify their structures to avoid these complex interconnect types of situations that i think are as much a problem as sheer size. >> thank you very much. >> senator coates. >> thank you, mr. chairman. and thank you, mr. chairman. on page four of your statement, you talk about inflation. you say with regard to inflation, longer term inflation expectations have been quite well anchored. expectations among investors have changed little on net since last fall, and we're lower than

a year ago. substantial resource, slack in u.s. labor and product markets should continue to restrain infliction near -- inflationary pressure. that's good news for all of us. let me ask you a question the reverse of that. and that's deflation. we have gotten some bad employment numbers, not only from may but the revision for april. we have bad news of asia. the australian manufacturing is in recession. india has posted its slowest growth in nine years. china many say is on the verge of manufacturing downturn. a lot of people are saying that we're at stall speed here in the united states. the question is, what is the risk of spending too much time worrying about inflation and

ending up in a potentially deflationary new re nation, perhaps by a shock from europe if they can't pull it together, and what are your concerns about that? what is the fed thinking about that? is that something we should worry about? is that something you're worrying about? what kind of guidance can you give us on that? >> when we set our definition of price stability is 2% inflation, we meant that to operate in both directions. we don't want inflation above that but we also don't want inflation below that. it's one of the principle motivations for the so-called qe2 in november of 2010 to avoid deflationary pressures and we were successful and brought inflation back to target. now, if part of your question was about sort of general slowdown in the global economy, and there are signs, certainly

in europe, china cut interest rates today. some of the emerging markets have seen slowdowns so there's signs of global slowdown, and we're trying to assess how important those are and what implications they have for the united states. i would say at that time this juncture with respect to inflation specifically, we think deflation is at this point probably a pretty low probability risk, and at the moment we -- inflation seems to be pretty establish, up close to 2%. we haven't seen much indication of declining inflation, particularly when you look at the -- either the noncommodity prices or look at expectations. so, that particular concern right now is not very much in our -- forefront of our concerns. >> what would a shock to the system, war in the middle east? euro coming apart? what would that do to that

analysis of what you just gave? >> well, i think it depends on what the shock is and how it happened. a shock in the middle east would cause oil prices to go up and that would tend to be inflationary, and also probably slow the economy further because it would be like a tax increase on consumers who have to play more on gas and less for other things. the euro situation depends a lot on -- in the situation which we hope will not occur in which there is a big escalation of financial stress, it would depend a lot on exactly how that happens. if greece were to leave the eurozone but the stresses were contained there, then the effects would largely be fairly moderate. if the financial stresses were to spread more broadly, that would create a lot of volatility in our own financial markets,

would put stress on our financial institutions, probably reduce lending, and would at a minimum tend to slow the economy. again, i don't think deflation is the main concern here. i think the main concern is promoting adequate growth to continue to bring down unemployment over time. >> given the kind of fragile world we are looking at from an economic standpoint, and particularly the situation in europe as it's unfolding, do you sleep well at night? >> do i -- >> do you sleep well at night? >> i generally sleep pretty well, yes, but i have lot to do during the day and i need to be well rested. >> thank you, mr. chairman. thank you. >> thank you. representative malone any. -- maloney. >> thank you, mr. chairman, and welcome mr. bernanke. i would like to speak in

opposition to the point of view put forward by the colleagues on the other side of the aisle in strong opposition any qe3. the believe the fed should use any tool in your arsenal, whatever it is to provide support to our fragile economy, and we need to ensure against any downward turns that would hurt housing, employment, and all the other areas in our economy. i think it's particularly important coming up on your june 17th meeting, that you act forcefully to help our economy, given the fact that the -- china has cut it benchmark lending rate, and already in response to that, the price of gold has gone up, the dollar has fallen. i'd like to hear your comments on china? will china be buying our treasury notes and combined with

the news that the eurozone debt and banking crisis seems to have deteriorated further in europe? should could you comment further on china specifically and the impact china will have on the overall -- really our economy? they have been a partner in financial recovery, and your comments on china. >> well, china is -- has slowed somewhat. so far the slowdown is moderate. they still have rates of growth we would love to have here. part of the slowdown is policy induced, intentional, in particular china took a number of actions to try to avoid what looked to be a building bubble in real estate prices, so they took a number of actions to mitigate that. that tends to slow activity, and they have in general tried to

slow growth both to achieve more sustainable pace of growth and also as a part of their process for trying to switch from an export-led economy to one that has a greater emphasis on domestic demand. so there's been some slowing there. we watched that very carefully, but so far i don't think the change in the china -- in chinese prospects on net are enough to be concerning for the united states, particularly since there some offseth factors, notably when china slows, that tends to bring down oil prices and that's actually a positive for the u.s. economy. the greater concerns are still coming from europe. even as the situation is still being managed, we're seeing, of course, as you can see every day, the volatility and large movement in stock and asset prices and the uncertainty that generates.

so that is a concern. >> i would also like to ask you a question about the so-called fiscal cliff we confront next year if current laws governing taxes are maintained and the bush tax cuts expire, also the payroll tax cut expires, the federal unemployment insurance expires and the automatic spending cuts mandated by the budget control act would take effect. cbo tells us that this will cause the economy to fall into a recession. it also tells us that if we continue all current policies, we can avoid a recession but that our long-term budget situation will continue to deteriorate. certainly neither of these outcomes are satisfactory. my question is, what would happen if we failed to achieve a budget agreement in the lame duck session and all the fiscal

cliff priority kicked in? >> i agree on the analysis, and notify action were taken and the cliff were to kick in, it would be very likely the economy would begin to contract or possibly go into recession and unemployment would begin to rise. so that's obviously something we want to avoid if possible. at the same time, i'm not advocating with undoing of these measures and ignoring the future. i said before we need an accommodation of sensible policies that allow the economy to recover with a long-term credible plan for putting our budget on sustainable path. >> thank you. my time is expired. >> thank you. representative burgess. >> thank you, mr. chairman. dr. bernanke, welcome to our

committee again. i want to pick up senator demint used the word quagmire, senator coats used the term stall speed, and i'm concerned about these things. the vice chair of the fed yesterday at the boston economic club described adverse shocks that could push the economy into territory where a self-forcing downward spiral would be difficult to arrest. i'm not an economy economist but that sounds bad. >> if growth is not sufficiently strong it wouldn't take too much to put us back into either a recession or significant slowdown. >> so, i won't admit to having trouble sleeping every night but what does bother me is lehman

brothers. i don't know what the next lehman brothers will look like or whether it well be in this country or europe but she summed up well, and i must admit when they played that clip, it really got my attention because this is one of the things that has bothered me since september 2008. i have seen a lot of parallels with the summer of 2008, and gas prices moderated so perhaps you can move that off the table a little bit, but similar situations, presidential election year coming up, and the economy in tough shape, hasn't recovered, and we see all this stuff happening in europe. so you said on page three of your testimony at the bottom of the page, you prefer to take action as needed. can you outline for us briefly what the top three steps are in that "action as needed" item you have there? >> sure. first of all, we are already taking some actions, important

actions, notably we are working to ensure that banks have adequate capital and liquidity, and as i noted, banks are now much better capitalized than prior to lehman, which is helpful. >> you're talking about our banks, our domestic banks. you can't control what is happening in banks in europe. is that correct? >> i cannot, no. >> we can't do a stress tess. timothy geithner can't run over there and do a stress test. if we're asked to help with the situation in europe, what assurance do you have or can you give us or can you tell us we can give the american people we're doing that due diligence or is that help just not available? is that one of the things just not on your -- within your realm of being able to help? >> well, i think the u.s. government's position has been, reasonably, europe is a rich region, and that they have the

resources necessary to achieve stability. i think the main problems over there are political rather than economic. there's a lot of different -- 17 country involved and a lot of different interests, so i'm not sure there's much the united states can do other than be supportive and try to provide whatever advice and verbal help we can do. but -- >> we can send them a get well card. >> send them a get well card. what the federal reserve can do is try to protect our own country, and we're doing that by strengthening our financial system, by making sure -- or at least by monitoring on a regular basis the exposure that our financial institutions both direct and indirect and hour they hedged. we have done the swaps, which was i think a useful thing we did helped stabilize the bank funding markets over there.

i think the main thing that we have not done yet, but could do if financial conditions got sufficiently severe, would be to use our authorities through the discount window or the 133 authority to lend against collateral to make sure that lack of liquidity was not a reason they would collapse or at least stop lending. so i think that's the main tool we obviously 1/2 reserve that we will use if finance conditions call for it. >> are there any u.s. banks whose capital could be jeopardized by what is happening in europe that could push a lehman type scenario to the forefront? >> we have been monitoring direct exposures, and for the most part our banks are far less exposed to european sovereign debt and european financial institution debts than are the european banks, which is why

there's such a difficult interaction between the sovereign debt problems and the banking debt problems in europe. that being said, if there's i wouldspread contagion, it's hard to predict operating through financial markets, operating through the potential problems of a large european institution-whatever that might be, then we can't really foresee or guarantee that there might not be sufficient serious stresses on some u.s. financial institutions, in which case the federal reserve, with the experience we had in 2008, is certainly going to do what's necessary to try to mitigate that problem. but i'm not -- i don't mean to be representative saying there is no problem. there is a risk. and all we can do is prepare for it as best we can. >> thank you, mr. chairman. i yield back. >> thank you very much, mr. chairman.

dr. bernanke. thank you very much for all the things you have done in for being with us here tied to talk about these issues. i think that we've come a long way considering the financial meltdown that occurred back in 2007 but we still have long way to go after that. there's still some things that congress must do to ensure we do not go down the same path of our european counterparts, and i think that's an interesting set of circumstances there. the end of the recession our economy has steadily improved. we're still working hard on that. we have create four million private sector jobs and inemployment imcreased to 8.2%. president obama i think deserves enormous credit for turning the economy around. if it had not been his action and those of the democratic majority, i have no doubt our country would have fallen into a

deeper economic depression. so, we obviously have long way to go, but the president is on the right path. the feds' aggressive action and monetary policies that have stimulated the economy have been instrumental to getting our economy back on track, but we have long way to go. europe, on the other hand, has been a total disaster. europe has clearly proven that austerity was the wrong pursuit during a recession. greece and spain, 20-24% unemployment. britain has shown zero economic growth over the course of the past year. so, naturally, i'm surprised that with some strikingly different recoveries occurring between the united states and europe, that so many united states lawmakers will continue to support the same types of policies that are utilized by europe.

what do you think are the key lessons that we should learn from europe's failed monetary policies, particularly austerity? what do you think the united states is most at risk in the context of that situation of repeating? >> well, i think in fairness, you have to agree there are structural differences. you have 17 different con -- countries on the same policy. there are in fact some very serious fiscal situations. greece, for example, probably has no alternative but to try to cut its deficits. so there are some important differences. i think, though, that the main message i would take is the one i've been trying to sell here for the last couple of hours, which is that a sensible fiscal

policy is one that takes into account both the short-run needs of the economy, not to lose fiscal support sharply and rapidly during a period of fragile recovery, while at the same time combining that with a medium-term plan -- we do have to address these fiscal sustainability issues, so i don't think it's inconsistent to do both of those things. and that's where i would differ, at least a few of the countries in europe. again, the situation is much more complicated in the countries that have capacity to expand their budgets, for example, like germany, have much less need than the countries like greece, which have very little capacity to spend more or borrow more. >> germany is another example but the other things are negative examples we have to deal with and we have to be

acting, i think, in a very positive way in accordance with what you have been talking about. also, after congress and president obama acted in 2009 and 2010 to turn around our economy, since then, since that happened, the house has basically done nothing significant to revive our economy. as a result, the fed has really led the efforts to help get our economy back on track. however, we have nearly exhausted all the feds' tools to nurture our economy back to health. congress needs to step up to the plate. clearly our actions in 2009 and 2010, turned things around. but more needs to be done. more needs to be done effectively and strongly. we can't allow the european austerity model and allow growth to continue to fail and have it fail on us. the american jobs act is a prime

example, unfortunately, of stalled legislation in the house that would inject nearly $450 billion worth of tax cuts, jobs, business opportunities, all of those things, into our economy, very, very positive and very, very strong, if it were put into place. i think it has been major mistake to sit on this legislation when it could be helping so many people. do you think congress has carried its fair share of the burden with regards to stimulating economic activity? and do you think legislation such as the american jobs act, is important to help the fed stimulate job growth and economic activity? >> well, i certainly agree, as i've said before, that monetary policy cannot carry the burden by itself. we need good policies over a range of areas from congress. now, you know i'm not going to

endorse a specific program, but i hope that congress can work together to address their problems across the economy in a number of different sectors, and i hope that congress will work collaboratively to try to address those problems. >> thank you. >> representative duffey. >> thank you, mr. chairman, and good more than, mr. chairman. i want to talk to you about "too big to fail. " we all heard when dodd frank passed this was going to be our silver bullet to address the issue of "too big to fail" and i want to make sure the taxpayers don't hold the bail should a large institution fail. i would argue that dodd frank hasn't fully and completely addressed the issue of "too big to fail" and still exists and has come up moricely as we look at what is happening in europe but here at home it has come up

in regard to jp morgan and they experienced a $2 billion loss that might go up to four or $5 billion and some argued the voelker rule would have addressed -- if it's -- this massive loss from jp morgan, my concern, if you look at the rule and look at the trades, it becomes difficult to determine what is prop trading and what is macro hedging so as you set in a classroom it might be easy to work through the voelker rule, but in practice isn't it difficult to use the voelker rule to stop the issue of jp morgan? >> well, we can say in this specific case we're still investigating it and i don't want to talk about the specific case, but in general, yes, differentiating proprietary trading from ledge jet mitt --

legitimate activities is difficult and regulators are looking at 19,000 comment letters and trying to figure out how to do that. one comment i might make is one requirement of the voelker rule there is be very expensive documentation, explanations the supervisors in advance, for complex hedges and auditing and appropriate incentives for the executives involved in the activities of the traders. so, at a minimum, if the roker rule was in place we would know more about the situation. >> the classroom theory i agree with it but isn't the silver lining there was no taxpayer loss here. jp morgan had the appropriate capital requirement to cover their loss, which is what you're talking about later. isn't the real issue here not

thousands of new rules and 2,000 page bill but increasing the capital requirements of american banks banks and making sure they have more skin in the game and the taxpayer isn't going to bear the lost but the investors in the banks are responsible for the losses of bad trade. >> i agree with you entirely. ...

sometimes, and i know you have to do this, but when you talk to us, what you say can be open to interpretation. you do a very nice job of that. but as we're talking about taxes, specifically, are you telling us if we allow nothing to happen and we see all of these taxes increase, the bush tax eskimo bomb attack tax cuts go away there is going to be a direct impact on economic growth and creation quiet the back and looking not just at taxes, but sequester in the end of the payroll tax and everything else, yes. but that of course extra now make forecasts miss an important science, but everything we understand about this kaposi suggested to short-term effect,

yes. >> or not you should buy this but if you are u.s.a. to extend them? >> i would tell you to avoid a situation in which you have a massive cut in spending and increasing taxes on hitting hitting up one moment is supposed to spit in a matter a tent in some way that will give -- create blaster jacket in the u.s. economy. >> i appreciate your testimony. i yield back. >> senator leahy. >> thank you, mr. chairman. thank you for joining us today, chairman bernanke. can you ask us to quantitative easing and help us understand the risk factors you as you understand? >> the pulmonary vein to say is that we have less experience our estimates understand that this advocacy and exactly how much is needed and so on are less than

the monetary policy. in terms of potential side effects and never identified and pay most attention to our sons e balance sheets would make the exit strategy were difficult and that lay the two a problem. i want to be clear that we can extract at timely way from our balance sheet strategy and there is in fact a justification for such a concern, but nevertheless some people might have that concern. that is one issue. concerned that inflation will rise excessively because we can't get out of our balance sheet position. >> the second one has to do with financial stability. the question is, does the prospect of very little interest rates for long time, does it

create problems for certain types of firms like life insurance companies or pension funds? does it induce excessive risk-taking? does it lead to effects that could be good in the longer-term to redo extensive monitoring and analysis to identify any problems but it's at least possible we might miss some paint. >> and it sounds like you're not discounting or refuting the possibility they can happen. you just say you think you can tan in a situated in that less likely. >> via two separate separate issues. one is timing when you take it to a more normal stance and any monetary policy e-zine issue is when the fed get it right and it's always the case that it equates to want to remove monetary accommodation you could get some inflation effect.

what i talk about here is the question of whether it is technically possible to undo the balance sheet expansion in a timely way. we are very confident we have the technical tools to bring the balance sheet to a more normal level and bring to the heirs of the bank this into a more normal level when we decide that time to tighten monetary policy. so on the technical side we are quite comfortable with. it is always the case, under most normal traditional policy that the timing of that draws, stimulation is difficult and it's always possible you could either undershoot or overshoot and that's unavoidable. >> with treasury yield rates at all-time historic lows, i think it becomes difficult to dispute that at some point in the next few years will start to see normalization and see yield raised to return to their historic averages, perhaps

above. you have any sense and can you offer us any and 92 when we might expect to see that happen? >> well, we have indicated that we expect to keep a short-term rates low until late 2014 at least. and longer-term rates might be rising if we are removing short-term rates reduction since long rates include expectation beyond that window, we could see some movement beyond that window. we did expect to normalize over time. at the exact time and it's very difficult to judge because it depends on the recovery of the economy and what we see the economy moving in the right direction, the point at which we are comfortable that it's time to withdraw monetary stimulant is obviously quite uncertain.

feedback is very risk of a sharper rebound the longer you keep the rate low clicks >> i don't think so. it is true that the quantitative easing measures have pushed on this called term premium rates and if those were two normalize quicker that would make the increase in rates a little faster than might otherwise be the case. but we have stress tested out their economic models and our financial -- i mean come the financial portfolios of financial and touche in. and we don't see, i disappoint, any serious risk either to economic recovery or to financial stability of the return of interest rates to more

normal levels. it is obviously against something we need to pay close attention to. >> thank you, chairman bernanke. i see my time has expired. >> thank you for your testimony and for members to record will remain open for five business days to submit either additional questions or for statement. and we are adjourned. [inaudible conversations]

>> they are often referred to as the conscience of the congress and not here have been working for almost two years, i can't think of a better name. it is really the heart beat of the people.

it is designed to ensure that members of congress who are african-american can come together on issues that are plaguing the community at large, issues that may be plaguing districts where they can find commonality. to really come together to discuss legislative solutions and proposals to the dance the causes of people that don't have a voice. >> at a pentagon news briefing

today, general martin dempsey discussed his recent trip to asia. he also discussed serious and ongoing operations against al qaeda and the taliban in pakistan and afghanistan. this is a half-hour. [inaudible conversations] >> good afternoon, everybody. i am flying so low today. good to see you all. well, most of you know that last night i returned from my first lengthy trip to southeast asia. at least i think it was last night. as you know, those of you who live in a part of world can you know what they challenged us to trace it is to trace it back and forth, but we did have a great series of visits in particular his counterparts in singapore, philippines and thailand. i also participate in the shangri-la dialogue where the

key defense officials from 10 asia-pacific nations. i was there a secretary secretary pineda and commander of the u.s. pacific command, admiral locklear and speeches and discussions be laid out the context and rationale for why we've been describing as if we balance to the region, a region that is a strategic consequence to the entire world. economic, demographic and military trends may not prosperity and security will increasingly depend on how that expansive region evolves. i want to note that the rebalanced obviously involves much more than just military matters, but that happens to be my own particular area of expertise, so that's what i'll talk about. and it involves more than just bringing additional hardware to the area. repositioning our forces is not the essence of rebalancing. rather, it is but a thinking of

the three morris. more attention, more engagement and more quality. more attention needs greater investment of intellectual capital. for more than a decade, our military has been focused on war. we are still fighting there were of course we will ourselves to be did from the effort, but we get more of our attention to the asia-pacific. second, more engagement is made possible by forces in the region being more available. engagement is how we build trust and it is how we prevent misconceptions that can lead to conflict. so will strengthen our traditional relationships and develop new partnerships by expanding both the scope and scale of our interactions throughout the region. for example, multilateral exercises at rotational deployments and continued personnel exchanges and dialogue with their counterparts. third, more quality is an evolution in our priorities. what we decide to bring to the region matters as much, perhaps

more than how we bring. as the rebalanced ceballos will make available enlisted man ships, fifth-generation aircraft in the very best of our missile defense to knowledge he has to work with their partners. even more important than hardware though, we will learn to bear our human capitalist invention. in my discussions over the last weekend that nothing but positive feedback on this approach. leaders i spoke with welcome our commitment to look forward to working together towards a more secure and prosperous future. i share their optimism. i see far more opportunity than liability and i look forward to your questions. let's start there. >> mr. general, and this is i read chad with hong kong's phoenix tv. i want to know if you had a meeting with the philippines president aquino and the south china sea and if you're going to

discuss it at any information you could ask for us. >> well, we actually had a more expansive conversation i just the south china sea, but again, it was first and foremost about the meaning of our rebalancing to the pacific, which by the way your president or president aquino and my counterparts in the philippines welcome and so we discussed that. of course the south china sea came out then we discussed the fact that it is in our interest that we assure freedom of navigation, maritime security, that we did not become involved in territorial disputes, but that we certainly called on all claimants to resolve these issues through existing international fora and without coercion and that was an important point. >> general dempsey, to take you to af-pak for a minute.

do you have any update on the event in lowgar province can watch president karzai says 18 afghan civilians were killed yesterday? and more bradley about al qaeda in that region. a year after the moments that al qaeda has suffered a number of setbacks lately, what is your assessment of the remaining strength of al qaeda not only inside pakistan, but also inside afghanistan? >> the incident in lowgar is under investigation as he became a letter to about 48 hours ago, pursuant to a conflict in a troops in contact call there were some buildings in a particular village that were struck with aerial delivered fliers. at that time, there were two civilians who came forward declaring they had been wounded in action. we did a sweep of the area and did not at that time finding any civilian casualties, but

subsequent to that, someone a particular leader of the province came forward and did say that in further searching i found civilian casualties. we don't know at this point the scope and scale of it. as you know, we do our very best to avoid civilian casualties that the investigation will try to determine if there were civilian casualties and then we will take the appropriate actions. but you asked me about al qaeda. you know, al qaeda -- we caught qaeda senior leadership has been significantly affect the. most of those who 10 years ago we began tracking are no longer part of al qaeda. they are no longer part of any organization. to that extent we've been very successful. there have been others that have taken their place. al qaeda remains the fact you're

both inside of the federally administered tribal area of pakistan. to a much lesser extent inside afghanistan. all i can tell you as free men of with al qaeda and we will confront them wherever we find them. let me take another question. >> hi, general. my name is set to, washington correspondent with liberty times in taiwan. we know there is no security mechanism like nato. a dialog in her trip to asia, defined as security mechanism is forming within the asia country within the u.s.? effect on questioning of the u.s. u.s. is looking for, and other hardware, in other countries to cooperate so the u.s. ship can have cooperation in the future. do you think i'm a strip another potential country will be able to facilitate? >> yeah. your point about a regional

organization or mechanism, of course asean exists today. and during the shangri-la dialogue today and the bio labs with combat did on the margins of shangri-la and our travels we are encouraging asean to be a unified voice for security issues in that region. so we do support that. they haven't actually taken a decision as a group to do that, to be more vocal. but as you probably know they work on a code of conduct for maritime issues in the south china sea and we think would be a positive thing if they could do that. as far as for poor calls, yeah, we have found that most of our maritime partners in the region are interested in having a dialogue about national presence, poor calls and things because they think there is a genuine -- we certainly believe that we are -- their presence in

the region as a presence for stability and we have found that most of our partners do as well. >> back to pakistan for a moment. earlier today secretary panetta compared the u.s. relationship to the indian relationship with pakistan. obviously after years of fighting in wars. can you give us an idea for you see the relationship of pakistan right now? and the death of abu yahya al-libi this week. does that further strained the relationship with u.s. and pakistan that these drugs are continuing to strike in fata? >> as you know i did work in the u.s. relationships in earnest in about 2005, so i'm seven years years deep in a pen i would venture to say that it's always surprising to me. you know, we do some things very well. we have some entries on which we call a grade on lost without

question and there's other issues where we just have not been able to find common ground. the presence of afghan taliban in the fata is one of those areas and it is our view that those haqqani, the haqqani network is the big of a threat to pakistan as it is to afghanistan and to us, but we haven't been able to find common ground on that point. so that's been very frustrating. as far as the death of abu yahya al-libi, that is a significant loss for al qaeda because he had -- first of all, he has long-standing credibility and yet operational skills that are tough to grow overnight. and so, that will be something that affects bob's question, the al qaeda network globally, not just in south asia.

as far as has been straightened her relationship with pakistan? their friction points points in a relationship with pakistan and those that dvds are one of those friction points. but we continue to work on any number of things, whether it is that six or safe haven or activities, kinetic activities in the five top because pakistan is an important partner. but there are some important things we have to keep after. please commissary. >> hi, general. my name is fengfeng wang with china's xinhua news agenc. there are worries that when u.s. helps countries like philippines develop their capacity to become bolder and prone to more provocations in the handling of disputes such as in south china sea. actually secretary panetta was asked about this question in the

shangri-la dialogue. during their meetings with filipino officials, have you conveyed -- have you discussed it from such worries are encouraged them to be more restrained in their future behaviors? >> well, when we enter into agreements with partners to build capacity, there is always a strategy behind it. you know, there's plenty of things but all nations in the region should be interested in. in the pacific in particular. certainly maritime security, and maritime domain awareness, counter piracy, transnational organized crime. those are issues that they should and i think are of common of everyone. when we build capacity for that, there doesn't seem to be any concerns. the philippine casino in particular has been inward focused on its internal terrorism and urgent issues for some time, for decades really.

there's limited capability to project power and influence activities around it. and we think they need some of that in maritime security. i think that is the conversation i can assure you that is a conversation we had with all of our partners as we enter into agreement on how to build their capacity. tom. >> sort of to follow him not, one of the stories for maritime and the philippines is about your visit to a discussion about the combined joint special operations. this is highlighted the work of god another task forces, hoa in djibouti and against the dollar may. can you speak loudly about how the small footprint missions fit into your new strategy and looking ahead, d.c. places in the world we want to sign up other task forces? >> than you speak about the joint task force in mindanao.

it is a joint team, servicemen and women from every service. active guard and reserve built around a core, c-o-r-e a special operating services who have been over time capability of the philippine armed forces to counter the ji and asg threats that exist. and honestly successful. what i took away even more impressively was they are not only assisting our philippine counterparts in how to conduct network offensive kinetic operations, if you will, conference urgency, but also civil military operations. so they are out there through the philippine art counterpart philippines, building schools, helping when it small local

economic projects and that is beginning to happen is that you would expect over time is that people are beginning, and the philippine military is beginning to rise in stature with people who are here before but not allowed anywhere near the neighborhoods. one example was quite remarkable. to operating forces in the gtf were killed in 2010 by an ied on the way to a school project. the people of the village have now petitioned the government of the philippines to allow them to name the school after those two american soldiers. so you know, and i think those kind of gtf says he put it, small footprint through partners committed over time certainly are the mark of what will make work.

to your point about other places, i'm sure that if i were traveling around to try to gauge the interest to gauge those kinds of missions. yes. >> as you know, syria still be the most pressing issue in the region. i have three quick questions. >> i'll give you one. [laughter] >> okay first. >> no, not first. this is your question. >> you think the diplomatic and economic measure has failed in stopping the syrian regime from killing its own people? >> for me answer the question. i think certainly it is moving at a pace that is slower then we -- that anyone would want. the continued massacres are just

deplorable. the plowshares being brought to bear are not having the person we intend. yes, sir. >> to follow on bob's question. you refer to the secretary yesterday as the usd and more in the fata. is it time for the u.s. to acknowledge it is at war and packets and? and what should the message be to the pakistanis, dare take away from the secretary's embrace of india and the desire to deepen relations? >> let me make two things together. one is the question earlier about al qaeda. we are at war with al qaeda. nsa said, we will pursue wherever we find them because they are network that has the intent of frightening our homeland. so we are at war with al qaeda and al qaeda is in the fata.

but let me make it back together something else. the relationship we have with pakistan. pakistan is with us in fata. make no mistake about it, although we are extraordinarily dissatisfied with the fact that pakistan, we are also mine though they are conducting military operations come at great loss, also ran north waziristan and not been beaumont province, mohmand agency. so pakistan is at war in the fata with us in some cases, not within the u.s. military personnel, with definite sense that they are trying to diminish the effect of those insurgencies on that side of the border. on your question about an year, we have for sometimes do that we

aspire to a closer relationship and greater engagement with india. they are apparently the second and soon, depending who you believe, the largest question the world. they sedated dermis geostrategic locations of the lines of communication from the mideast into the pacific or they are the world's largest democracy. we have for as long as i can remember and seeking greater engagement with them. the makeup of this site and i'll come right back to you. you were to happen, right clicks okay, you can have one. >> hi, betty lin world journal. what are their concerns and what is effect enough to deal with addressing the threat? >> i missed the first part. >> the countries in the region, what are their concerns? >> welcome the countries they

visited -- i haven't visited all of them, but the countries i've visited have two questions. one s., are you trying to come back to establish bases? and you know, a permanent presence. on the second one, as are you coming back here with the intent of containing china? of the first of those two questions, i don't carry around a backpack with american flags and run around the world planting them. in fact, quite to the contrary would want to do is inconsistent with their new strategy. we want to be out there partnered with donations and how the rotational presence that would allow us to build up comment capabilities for common interest in the region because that will be stabilizing. we think of fact the opposite. our absence will be the destabilizing influence. and i assured anyone that shows

just into question, our new strategy and rebalancing of the pacific is not intended to contain china. it seems to me to be somewhat avid and that the strategic challenges of the future, whether those are economic challenges, whether they are military challenges are migrating to the pacific. it is also by virtue of the size, scope, scale of populations and economies is the region of the world were we all have to be engaged and we all have to be engaged with the intent of avoiding confrontation. the way you avoid confrontation is by being transparent and in my view presents are you don't create that's the message we carried into the pacific. >> together a couple of pakistan issues. panetta said they're losing patience with the ability to blunt cross-border issues.

direct u.s. over the border operations are well? >> i think next time you have the chance to a secretary panetta ui to ask him a question. i won't answer for him. but that he say what it seems more important now than maybe it was a year ago. remember now, we read a point where we've got capability beginning to come online with our afghan security forces. last year we were focused on the southern part of afghanistan, rc south and southwest. this year we are focused on rc east because we have always known it will be the hardest transition. that is where haqqani has. so the urgency, i suppose, is increasing for two reasons. one s., we've got to get rc east and the economy influence reduced in order to meet our timelines for the transition we are moving toward at the end of 14.

so that's number one. number two, haqqani has come more active. the haqqani network is directly attributed to the attack last year in kabul and haqqani has attributed to the attack on forward operating base salerno. so with the hard intelligence to suggest that the haqqani network is responsible, they are rising in importance in our view and that is, i think i'm the think i'm the best way to think about why is this becoming more prominent now? and then they go right here. >> what you believe is a good first step for china to take to improve transparency? >> well, i don't want to make it sound like there's not already some steps being taken. you know, i milton no engagement is moving along. we would like to see it move a little faster, but especially service to service is actually moving along quite well. the transparency is one of those words that is potentially in the eye of the pulitzer.

we would like to have ongoing conversations about our rebalancing on about their growth of military capability. i think the mayor will be the condition under which those conversations have meaning. and so i don't want to suggest that we don't have -- we do have a relationship with china. we certainly inspired to increase the relationship over time. >> here is part 2 of the question. >> are you guys a tagteam? [laughter] >> give us some idea of how the military operation is required to stop killing civilians in the area. >> i can't do that. i can't do that because i'd really have to be -- the military typically takes the information presented in an outcome. i have to know what the outcome is. if you tummy with the upcoming second that you plan to achieve the outcome.

certain outcomes you might expect -- let's go back historically. tell me what regime change in iraq and i can build you a planned and i know how many divisions, air wings and i know what it takes. tell me that following that regime change you want me restore order, do nationbuilding, stability operations and i know what that looks like. so anything at this point vis-à-vis syria would be hypothetical in the extreme and i can build that plan unless i understand the outcome. please. >> thank you, general. for a question on china, the 2012 green path will be held in hawaii d. from june 29 through 22 quang tri's will join, but not china. i am wondering if it is because china was not invited for china refused the invitation. and how could china be included

in military mechanisms so that the two countries and the carnegie endowment. >> first of all, i don't know if they were invited to rimpac. first of all, they were invited to shangri-la image of any delegate, but they didn't, the level of most of the rest of us. but they are in transition. they are getting redder for their transition, just as we have a leader in this calendar year have a political transition of our own. i think that is probably the reason. i don't think he was in any way intended to make a statement about the shangri-la dialogue. i can find out if they were invited to rimpac. i just don't know. >> following up on your trip, does the military want to enhance or increase its presence in the philippines, particularly

at subic and clark could >> i wouldn't say specifically subic and clark. we did talk about that with my counterpart, not on the political side, but with my filipino chief of defense counterpart. you know, i think a way to think about this though is to let me answer the rest of the question. why would you want to do that? for the last 10 years -- the me put it this way. where the finest military in the world today, maybe of all times. partly because of the equipment we have in the organization design and the level of train we are able to achieve, but also because of our people. what we have done over the past decades, but it's manifested itself in the last 10 years, as we've seen that invest in people pay off so we have the most adaptable leaders in uniform on the planet. the reason we are so interested

in engaging after iraq and afghanistan as i do when i take these incredibly gunmen and women who have had responsibilities that are beyond belief at a very young age in the back to places like kampuchea for fort polk, louisiana and have them sit there, you know, for two or three years at a time. i went out and about into environments that are new and different and unpredictable an uncertain soda they learn how to adapt to unfamiliar circumstances picketers the investment in our people who ultimately make us who we are and this strategy is built on that. but if i were doing it. one more. >> my name is ichiro kabasa. to my understanding it is against the constitution the philippines for them to a foreign military presence in the country. you just mention the presence.

>> well, i'm not a constitutional scholar even in my own constitution to tell tell you the truth, but it would not surprise me that your constitution says that. but i would also tell you that he would not do anything to violate -- we would not recommend anything that would violate your law. i would recommend that web it says its foreign troops in the country and that is never our intent. our intent is rotational, exercise and exchanges that are episodic and temporal. and they move on to take an exercise. i've got to go. thanks very much.

>> the b-52, you know, everyone think back to vietnam. they think linebacker operation. they think of the history of the b-52, cold war. so there is a different kind of power associated with the b-52 as opposed to other long-range bombers. >> these are two common union and confederate to knew each other prior to the civil war, the fight against each other at the battle of the rich in 1862. here there at age 100 sitting on the front porch, talking about the old-age. we have one at the gate to the westmark 903. and they really reflect our

reference the moment of the bomb, which was at 902. >> attorney general eric holder text or the house judiciary committee where he was asked about the fast and furious programmer smugglers were allowed to move guns into mexico. he also discussed the justice department's enforcement voting rights and a variety of other issues in this three hour and 45 minute hearing. >> the judiciary committee will come to order. but that objection, cherries

able to declare recess at any time. i recognize myself and then the ranking member for an opening statement. welcome, attorney general holder to today's oversight hearing at the department of justice. regrettably, the obama administration has shown a disregard for the cost of tuition and rule of law in an effort to impose their agenda on the american people and very many examples. efforts to block congressional inquiries about the administration's actions undermine the balance of power on which to foreign nation is founded at the department of justice still has not provided enough information about "operation fast and furious" said the american public and conference can judge when the department bears responsibility for decision that led to agent brian terry's death. the justice department refuses to comply with congressional

subpoenas summation of light on why this program is authorized and who had knowledge of the inappropriate tactics. the department of justice also has failed to provide relevant information that would have revealed the extent of justice kagan involvement in the affordable correct when she was solicitor general. if she did give counsel on the health. though, which was her job, then she should recuse herself rather than evaluating the law as a member of the supreme court. the justice department has refused to let us interview her former assistant. neglecting to enforce or defend the laws enacted by congress is another violation of the assertions can't do to show obligation to the american people. under this president, he justice department has engaged in a pattern of selective enforcement of the law and order to advance its own partisan agenda. for instance, the obama administration has sought to

prevent state and local authorities from enforcing immigration laws. at the same time, the justice department has refused to bring cases against sanctuary cities that violate federal law by prohibiting their officials from communicating with the department of homeland security that illegal immigrants they encounter. such sanctuary cities directly challenge the federal government's authority to enforce immigration laws. the administration's unwillingness to uphold immigration laws has led to industries and even death. the administration refuses to defend the defense of marriage act, a law enacted by congress and a signed by then president, bill clinton. this is a significant piece of legislation that is approved by a vote of 342 to 67 in the house and 85 to 14 in the senate. regardless of how one feels about the substance of the bill,

the department of justice has an obligation to defend the lives of the land. efforts by the administration to override election laws enacted by state also raised constitutional concerns. instead of acting to prevent voter fraud, the department of justice has challenge, and voter i.d. laws that require voters to identify themselves before they are allowed to vote. the department of justice recently moved to block implementation of voter i.d. laws enacted to legislators in texas and south carolina. the texas proposal was based on a similar law passed by the indiana legislature, which was appareled or the supreme court in 2000 name. the justice department challenged the law, ignore supreme court precedent that it seems to enact laws to protect the integrity of its elections. the department of justice threatened to sue florida for trying to remove ineligible

noncitizens from his voter rules. why would the department of justice not want states to remove ineligible felons, knowledgeable noncitizens and the dead from their voter rolls? the administration's actions are just wrong. they are arrogant, undemocratic and an insult to the rule of law. the administration's disregard for the constitution and rule of law not only undermines our tea, it threatens our national security. this justice department has not taken the initiative to prosecute leaks of national security secrets. recent links about a foiled a cyberattack against iran are in the words some intelligence chairman, dan finds time, quotes, very detrimental, very concerning and hurt our country, end quote. for the past three and half years, decide in this nation has

an age in a pattern of obstructionism, unaccountability and partisanship. the american people should have confidence that the department of justice barely enforces laws. that confidence is lacking today. this hearing will explore how that confidence can be restored. that concludes my opening statement and the gentleman from michigan, the ranking member of the judiciary committee is recognized for his. >> thank you, chairman smith. and while come, attorney general holder. the opening statement is an opportunity for both of us to set the tone for this hearing. but neither in the career of chairman smith as the chair of

this committee how i heard so many erroneous statement and having never heard them before, i can assure him and you that i will be going over his statements and help him arrive at a more factual and impartial conclusion. having said that, we welcome you once again to the house judiciary committee. this, by my account come is the eighth time this congress, that the attorney general has made himself available for questioning. on this level of access is extraordinary, particularly when we compare your record to that of your immediate predecessors. now with respect to the continuing investigation into

"operation fast and furious," i want to thank you for your patience and diligence. today, the department of justice has provided over 7800 pages of documents to the congress. he made additional law enforcement sensitive materials available to us and doesn't the briefing. you permitted us to question senior department officials inhering and transcribed interviews and new year so hot there. before the committee once every six since the controversy became public. i hope that the tolls that today's discussion reflects the many courtesies that you and the department of justice have shown us in the past months. i also want to commend you and the department of justice on a series of important accomplishments in the field of

civil rights and voting rights. a couple of issues that i paid special attention since i first became a member of the house judiciary committee. enforcing section five of the voting rights act, the department has aggressively enforce section five, which insures it stays at the history of discrimination can't create additional barriers to minority access to the ballot box. the department has already sought discriminatory voter ids bossing tek says, south carolina and i would encourage you to look at others and miller traveling laws taking effect across the country. stopping illegal purges of the voting roll. last week, the voting session go

to the state of florida demanding that they cease and desist from purging voters from the rolls are deprived this was not submitted to the department under section five that would not have been approved if it had been. protect in the rights of members of the armed service in terms of their fighting, the department has secured court orders and dissent treason 14 jurisdictions to better enforce the military and overseas voter empowerment move. restoring the integrity of the civil rights division after the office of the attorney general and the office of professional responsibility completed their review of the legal partisan and hiring partisan hiring crack

says under another administration, their final report included recommendations for improved transparent hiring process at the civil rights division at those. under the leadership of assistant attorney general tom perez, the decision has fully adopted each of those recommendations and is now predominantly standby attorneys with actual experience in the field of civil rights law. enforcing the fair housing act and the equal credit opportunity act, the department's $335 million settlement with countrywide financial last december compensated families who were charged higher fees and interest rates because it airwave or national origin.

this enforcement action makes clear the department will not hesitate to hold financial institutions accountable for amending discrimination. there are of course areas which we hope the department will improve. but today, four years after the worst economic upheaval since the great depression, we are still looking to hold some of those wall street barons accountable. according to one -- let me conclude. my time has ended. i thank the chairman. and yet, what we want to do here today is have a fair discussion and i'm going to ask the our colleagues on this committee conduct themselves in a manner

that is worthy of the attorney general's present appearance here. i think the chair. a yoga balance of my time. >> thank you, mr. conyers. on february 3rd, 2000 name can attorney general laura blair was sworn in as the 82nd attorney general of the united states. attorney general holder has enjoyed a long career in the public and private tours. first one in the department of justice to the attorney general's honors program in 1876 he became one of the department's first attorneys to serve the newly formed public integrity section. he went on to serve as a judge of the superior court in the district of columbia and u.s. attorney. in 1997 mr. holder was named by president clinton to be deputy attorney general. prior to becoming attorney general, mr. holder was litigation partner at covington

and turlington l. e. wash d.c. mr. holder, needed of new york city's graduate of columbia university and columbia law school. mr. holder, we appreciate your presence today and look forward to your testimony and please begin. >> good morning, chairman smith, ranking member conyers and distinguished members of the committee. i appreciate the chance to discuss the key, schmidt had distinguished the departments were throughout this administration meant well lennar plan to build upon this particular record of achievement in particular, the work done by the department's 116,000 employees as well as our government and law enforcement partners worldwide to help fulfill the promises they made before the same committee two years ago. surely after he became attorney general at place to strengthen department's efforts to protect american people from terrorism and national security threats to ensure every decision and every investigation and every

prosecution would be guided by the facts, by the law and nothing else. it also reaffirmed my commitment to move aggressively to combat violent crime in financial fraud and seek justice for vic dems to protect the most vulnerable among us come to safeguard the environment and uphold the civil rights of all of our citizens. in each of these areas the department has made tremendous and in many cases historic progress. nowhere is this more evident than in our national security affairs. in the last three years the department has secured convictions against dangerous terrorists. we have identified and we have stopped multiple plot by a foreign terrorist groups as well as home-grown extremists and we've strengthened essential surveillance and intelligence gathering capabilities in a manner consistent with the rule of law and our most treasured values. just last month we secured our seven conviction in our article iii civilian courts and one of the most serious terrorism cases that our nation has faced since 9/11.

cannot qaeda sponsored plot to conduct coordinated suicide bomber attacks in the new york city subway system. roughly two weeks ago retained a guilty verdict in the case of a former member of the u.s. army who intended to bomb u.s. soldiers in a restaurant in texas. on the same day at texas man sentenced to 20 years in prison for attempting to become a part of al qaeda in the arabian peninsula. in addition to national security success the department has made meaningful strides in protecting americans from violent crime. through innovative programs such as defending child had initiatives in youth violence prevention we have developed a comprehensive collaborative approach to address the causes and remedying consequences of violence among them directed towards our nation's young people. by forging and strengthening partnerships with communities these attorneys offices in federal state local and tribal international law enforcement officials, we are combating gun, gang and drug fueled violence

more effectively than ever before. alongside key law enforcement allies and counterparts in mexico and other countries we've orchestrated a series of court nato strikes against rocher tells him resting thousands of cartel members and seasons billions of dollars of assets. we're implementing strategic desperately needed plans to address a shocking rates of violence that plagued american indians and alaska native women for tribal communities. we are using every resource and tool at our disposal including the power of research and scientific analysis to protect our nation's enforcement community to which in recent years has seen an unfortunate and totally unacceptable bias in the line of duty death. many of you are to raise awareness about the tragic fact that violence against law enforcement officers is approaching the highest level we've seen in nearly two decades. as attorney general and as a brother of a retired police officer, i am proud the

department has responded to the recent crisis with resolve and robust action. last weekend that what the major city chiefs police association at a summit meeting to discuss the ways we have developed and implemented a host of important programs such as the landmark valor initiative, which is providing law enforcement partners with the latest training tools and resources as well as the bulletproof partnership program hoping more than 13,000 jurisdictions purchase life-saving bullet and stab resistant equipment in order to help protect those who risk their lives to keep us safe. put simply, our commitment to officer's safety has never been stronger and its recent achievements prove, same can be said of our resolve to protect americans dimmers. sort of the administration the justice department has signaled an unwavering commitment to preventing and combating a wide range of financial and health care fraud crimes.

we've taken bold steps to address the contributing factors and consequences of the recent economic crisis and this work is paying dividends. at last to allow the department's consumer protection branch working with u.s. attorneys offices across the country can 95% contention refers to kerry more than $900 million of criminal civil fines or restitution and penalties and obtain sentences totaling more than 130 years of confinement against more than 30 individuals. cooperation with her as the department of housing and urban development and the bipartisan a 49 state attorney general's where we achieve $25 billion settlement with the taxation services, the largest federal state settlement in history of the united states of america. the efforts of the president's financial enforcement task orders launched in 2009 we've obtained prison sentences up to 60 years in a variety of fraud cases including multimillion dollar ponzi schemes and the largest hedge fund of insider

trading case in the history of the country. we've established working groups to enhance civil and criminal enforcement of fraud and to bring state authority together in investigating misconduct by financial institutions and organizations from securitization and servicing that contributed to her financial crisis and we continue to make gains in health care fraud. and the last fiscal year cooperation with health and human services and kathleen sebelius by utilizing a third is provided under false claims that we've recovered nearly $4.1 billion in the cases involving fraud and federal health care programs. that is the highest amount ever recorded in a single year and for every dollar we spent combating fraud we have returned on average $7 to the u.s. treasury and medicare trust fund and others. the department is also taking

crucial steps forward in protecting the most honorable member of the society and assurance of our rights of all of our citizens over the past three years our civil rights division has filed more criminal civil rights cases than ever before, including record numbers of human trafficking cases in an effort to ensure over places and military bases and housing and lending markets in schools and places of worship in immigrant communities and all americans are protected. around the world and beyond our borders established global lines necessary to combat trained national organized crime as outlined in the president's strategy. this includes combating intellectual property crimes, child rings, criminal networks and criminal facilitation of terrorist activity. they partners of members of congress to advance changes in

policy, legislation and landmark hate crimes legislation to the reduction of the unjust and unfair, cracked powder, sentencing disparity. this goes on today to help ensure a bad weekend critical of that is transformed our nation's against women and enhance our ability to achieve justice. it goes on our strong support for the renewable civilian act amendments of 2008. and it endures in our determination to build upon the extraordinary crime, fraud and other threats to a new level. i am proud of these in the department and the other achievements i hope to spend most of our time today discussing how we work to build on this progress.

other to briefly address the ongoing investigations into the ats gun trafficking operations along the southwest border. as a result raised by atf agents, we now know several arizona-based investigation that occurred under this administration in the previous one were an appropriate type eggs were used in an attempt to stem the flow of illegal guns across the southwest border. although these one-person operations are focused on a laudable goal of dismantling illegal gun trafficking networks, verify both in concept and execution. i share your concern about how these operations were developed and how they're implemented and that is why justice congressional leaders have called for answers, i asked the department's inspector general to conduct a comprehensive investigation as well. i also put in place new leadership at atf, which has taken steps including implementation of a strict oversight procedure for a second investigations with broad

tactics employed in these operations. many of the key enhancements implemented by the department that out in the deputy attorney general dated january 27 of this year. even since the date and would continue to refine the title iii process. for example, enforcement operations that require before it accepts requests for a wiretap intercept from the united states attorney's office supervisor of the relevant u.s. attorney's office must approved that request. i would be remiss if i did not point out that atf agents to testify before congress have also asked one person to be provided with tools that any to effectively combat gun trafficking on the southwest border. i want to reiterate my community working with congressional leaders to meet the needs of our law-enforcement providers and security challenges on our borders. finally, i want to make clear that we welcome the recent

engagement of congressional leadership in the departments continued efforts to satisfy legitimate course of congressional oversight while at the same time preserving integrity and independence of the department's ongoing criminal investigation of prosecution, leadership and the promising step towards reaching a resolution as it accomplished two things. first it started document still in dispute between the justice department and house oversight committee. sakic has identified the specific questions that remain of concern to leadership. we are confident the constructive discussions occurred can result in a mutually accessible resolution. without this episode grateful for your support and i'm happy to answer any questions you might have. thank you. >> thank you, mr. attorney general. that mayor may members the attorney general surface until 1:30 this afternoon in order for all 40 members of the committee

to deal to make comments and ask questions, we are going to need to adhere strictly to the five-minute rule. i will recognize myself for questions. mr. attorney general, the foreign intelligence surveillance act to amend and, which help protect our country from terrorists expire at the end of this year. do you support the extension of those amendments clack >> would you support them. it is the most important legislative concern that the intelligence community and we hope congress will pass that preauthorization before the expiration at the end of the year. >> let me go to train for mentioning her testimony. he was the highest level official in this administration who did attack decks are being used and i'm talking about tech expedients before the death of asia ryan terry on december december 152010? >> we know the operation began in a field office in arizona

does the atf office fare. inspector general is in the process of examining -- >> to your knowledge, who is the highest-ranking official in the administration who knew about these? >> at this point, i can say it started in arizona and i'm not at all certain to be on that can be said to have been in lost with regard to the use and knowledge of the tactics. >> no one other than atf officials in arizona ewers made you about the tactics used in "operation fast and furious" before december 15, 2010 come as i write? >> knowledge of the attack takes, i don't think anybody asked about the attack takes. >> speaking of tech geeks, when were you first -- when were you first told or became knowledgeable about u.s. officials on firearms to be sold to the drug cartels in mexico?

and a specific day if you can get it to us. >> i got a letter from senator grassley at the end of january 2011. i became aware of tactics themselves in february of 2011 as i've indicated in the seven previous times i've testified. >> it wasn't a letter from senator across lake that she knew about the firearms being allowed to be transferred to the drug cartels in mexico. >> it was not in the letter. the letter directed attention that ultimately led to my understanding and did not mention train for. >> once again, wendy gillette about tactics being used quite >> the early part of 2011. >> several weeks after the death of ryan terry. is that the same date that you find out these firearms connect it to fast and furious were

found at the murder scene of pride in terry? >> i don't know when i found out about that particular fact. i guess it was ultimately sometime in the early part of 2011. >> okay, why was that you think individuals who work for you, who were in this administration would not have made it known to you or others outside of arizona that firearms that were allowed to be given to drug cartels in mexico by u.s. officials, why did it takes a while for you to learn or others to tell you? was there a cover-up going on? what was the explanation for you and your position not knowing or about the tactics? >> the answer is found in your question. no one knew at the time of the discovery. it was not until tacked extra discovered that people started to understand that we had a

problem here. but for those tax decks, "operation fast and furious" was a mid-level regional and i'll report were going unsuccessfully. >> you didn't find out until say six weeks or two months after the death of brian terry, is that correct? >> sometime in february aged terry was killed in december. >> when there's anyone in the white house first informed about the attack takes used under brian terry? >> i don't know. >> did you yourself not inform anyone in the white house about operation fast and furious? >> i'm sure there is contact between staff and the justice department, probably the appropriate people in the white house. i don't remember myself ever sharing that information. >> how would anyone in the white house have learned that? under the normal chain of

command? how would the white house have learned about operation fast and furious but not from you? >> thermostats and interactions with the white house counsel. >> when major staff and from the white house about operation fast and furious? >> i don't know. >> were you ever curious about that? >> my focus was on dealing with the problems associated with fast and furious. >> it seems to me you would want to know -- what white house officials to know and correct the problem. >> minus on tactics and not the knowledge of the white house. >> i understand, but i still think the white house would have been informed. the ranking member is recognized for his question. >> thank you, chairman smith. attorney general holder come as you pull your makeup a little closer, please? you have made restrooms to the

atf's multiple sales reporting program for certain types along the southwest border. this rule is intended that it's the real problem of gun violence, order of mexico. in your view has approved grooved an effective? have we been stop down to saving lives? >> yeah, the rules simply says for multiple sales of certain kinds of weapons including ak-47s and someone dies more than one in four border states that information has to be reported to the atf bettis led to to actually believe. it is a very measured responsible regulation that has been upheld by a court that has considered