specifically the market for interest-rate swaps. apparently, if i've got my number is correct, the notional size, the notional value of this size has grown from $682,000,000,000.1987 to over $400 trillion today, roughly six of the world economy. i recognize that is notional value implies a larger underlining market fell you to this particular market. there was a federal reserve of new york report in march called an analysis otc interest rate

derivatives transactions that essentially said this market was very difficult to measure, very difficult to see, difficult to values of most of the transactions occurred over-the-counter and not on the broad exchange and said the lack of comprehensive transactions data has been a barrier to understanding how the otc derivatives markets operate and as i was reading it struck me that a lot of those words could be used to describe what happened with the mortgage-backed securities collateralized debt obligations issues we had in 2008, so i guess my first question is shouldn't we be concerned about this market and its lack of transparency? >> it's probably one of the most important derivatives markets and we pay a lot of attention to it as to the sec and the cftc who have a lot of jurisdiction over those swaps. i think it's important as a first on the one hand that in

those numbers that you cite greatly understate the actual exposures that the people involved in a the swab are facing. those are just notional values. it's also true that interest rate swaps are typically among the most straightforward and simple to understand of the derivatives so that many of them are vanilla swaps that are pretty easy for the regulators and for the participants in the market to understand it, so in some ways it doesn't pose the risk that the credit-default swaps in the pos for example. all of that being said, i agree with the general trust which is we have seen over-the-counter derivatives can be dangerous and falling the spirit of the financial reform in this congress, we and our fellow regulators are working to put as

big a share as possible of the swaps on the centrally cleared central counterparty exchanges to increase the transparency so the regulators and the purchase will have information so we are working in that direction and i agree it's an important objective does the size of the market if a false impression to the demand for debt 11. they can convert for example a fixed interest rate payment into a floating some indicator. so it is really a way of just customizing were in just received your interest paid one you could have enormous amounts of interest rate swaps based on a relatively modest amount of underlining that with.

i don't think it understates the amount of actual debt in the market. it is a hedging tool for market participants who want to customize the flow of their payments and receipts in the interest rates. some of the risks the larger financial institutions i think that mostly just large financial institutions in this market. they give up but swings in interest rates does that compare your ability to perform your job and to exercise independence and monetary policy will. as bad tall because does because of the underlying instruments credit instruments are still the same. >> i should have said no interest-rate swaps are not traded on the central

counterparties if they are traded over-the-counter the regulators are also working to make sure that there are sufficient margins hosted of this law so if there are rapid changes in the value of the swaps both parties would be protected, and also in fact this afternoon we are going to have a meeting in the federal reserve to discuss which in our discussion will include capital requirements for the market book including derivatives, so in other words even over-the-counter the financial institutions are going to be protected by the capitol that they hold and by the margin that today place when they transact with counterparties, so it's

important for us to take steps to make sure that individual banks are not exposed to unduly to large swings of interest rates for example. the counter example is a ig which was basically taking a one-way bet and when it lost the bet it lost enormous amounts of money which dropped on the company, so we want to avoid a situation like that and that means as much central counterparty trading as possible, and adequate capital margin for over-the-counter transactions. >> thank you mr. chairman. >> cementer klobuchar? >> thank you mr. chairman for being here. i continue to work with a bipartisan group of senators something like 45 of us democrats, republicans trying to come up with a comprehensive solution. we have made some headway and it would be a mix of spending cuts and revenue to get us to that

4 trillion figure in ten years of debt reduction. you've made it clear that you believe we need to do something significant to address these fiscal challenges. i do think a balanced approach would be about the best way to do it with a mix of the spending cuts in the revenue. >> 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 edify s. con. res. 70 on the particular mix of spending tax exchanges, so i hope he will understand that. but i'm glad to see that there is a bipartisan effort involved in trying to address this problem. >> the last time we talked talked at this hearing about how if we fail to act again and went to the brink as has happened last summer with a debt ceiling that clearly created some problems with our economy in the fiscal situation of the country. >> the debt ceiling is a

somewhat separate issue. it's a strange thing that congress can approve the $5 tax $3 not approved the 2-dollar issuance of debt which is implied by the previous decisions. no other country that i know of has anything like the debt limit rule that we have, and the brinksmanship last summer over the debt limit had a very significant adverse effect for financial markets and the economy for example it really knocked down consumer confidence quite noticeably said that as a somewhat separate issue but i urge congress to come to agreement on that well in advance so not to push us to the 12-dollar but again, i think that trying to put our fiscal situation on a sustainable basis is perhaps one of the most important things the contras can be working on. >> when you look at the flashback since late 2008 short-term interest rates have

been held at zero and its pushed over 2 trillion in the u.s. treasury, mortgage securities in an effort to support our economy. did the actions and for you as you go forward in the current economic situation as you made your decision? >> yes, obviously when we began these nonstandard actions we didn't have the benefit of experience except lagat say japan, but we have more actual data and experience and have been able to observe the effect on the financial market crisis. we have some model based analysis of the effect on the broader economy so there's still uncertainty about the effectiveness of the tools and the channels which they work and it's also the case that monetary policies are less effective than would normally be because of the various constraints on lending and so on but also having said

that having that experience has certainly made us better informed and better prepared to use the tools as necessary. >> okay. my state is doing better than a lot of the states at 5.6%, but there's still people hurting and of one of the things that i've noticed when you look at the numbers in past recoveries we have seen a more direct correlation nationally between economic growth and hiring. we don't seem to have that correlation today. what has changed and you think we could be doing more to address that issue? >> i talked about this in my testimony. in fact, the pace of improvement in the labour market from last summer through say march was actually surprisingly strong given the relatively tepid rate of growth in the overall economic activity, and it was a puzzle we were trying to understand and i have a speech about this in march and one

hypophysis is that there was a burst of extra hiring that reflected the reversal of what might have been excess of layoffs during the recession period. the reforms that have laid off too many -- >> if that is true which we do not know for sure because there are other things going on but if that is true, then the implication is that if growth stays going forward and stays near the potential rate of growth say to, to end a half percent, then the improvement in the unemployment rate going forward might be quite limited so that is again as i said before a question that we really have to think about. >> thank you. >> senator demint. >> thank you mr. chairman for being here with. my experience in business politics tells me that most of

the time when we are trying to solve problems we are actually treating symptoms, and i'm worried about that with our political policies as well as monetary policies. it's pretty clear the current tax rates didn't cause the deep recession. as you know, they were implemented during a downturn in the yearly 90's. we had six years of growth. the problem clearly came from a loose credit policy the resulted in the sub prime mortgages and toxic securities and we haven't addressed that accepted appears that we overdressed it from talking to a lot of businesses, home builders, realtors that we have constructed 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. maybe not simple but the fact that we are not addressing that

problem that would allow the flexibility. you know we can't deal with overbilling of housing it's going to take years to do that. but i don't think that we have addressed the true cause or a least a big part of the cause. instead, we have tried unprecedented bank bailouts and government spending, unprecedented monetary activism, and it's not working. and so, i'm concerned about that. the thing i'm concerned about now since 2008 the national debt has increased about 50%, 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 it and 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 is much lower than it would be coming in

a part of my concern now as my colleague just said on one side you appear by these huge turtle mid-market and other things going on to have to keep our interest rates low, and on the other side if you don't keep the treasury yields low the banks are going to park free money that we are giving them in the treasury's. it seems you're caught in a catch-22 you have to work both sides of this to keep interest rates abnormally low and continue to buy treasurys or we will be paying so much on our national debt the fiscal problems we are looking at will complicate overnight. so we are on one side of doing things that don't appear to address the true root causes of our problem we seem to now be in a quagmire that we can't get out of. i'm sure you have a totally

different take on that, but i think he would have to agree that the activism has been unprecedented trip least cause some concern. >> there's been a whole range of approaches and responses to this crisis which of course is 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 will was not to accommodate congressional fiscal policy to keep interest rates is because the degette is to help the economy recover just about faster and keep inflation near the 2% target. those are our objectives for low-interest rates but i would question whether or not the low interest rates are somehow an ailing fiscal deficits. the deficit over the last three years as an over a trillion dollars a year as you know about mine% of gdp. if we were to raise interest rates by a full percentage point

and ignore the fact that most debt is of longer duration and wouldn't reprice the would still only raise the annual deficit by something over $000 million. so, -- >> 3 trillion over ten years that's real money. >> a trillion dollars a year is what i'm saying is that the current deficit is. estimate is the interest cost on that it would be 100 billion a year we are talking a trillion over ten years and we are talking real money. as the mecca chilean there and a trolley in here. >> yes, sir, i agree with that but i am saying is that the situation is -- the deficits are so large going out over the next few years your respective of the interest rates that i would think that the congress would have plenty of motivation to try to address that currently one

and a half percent it just doesn't make that much difference. >> we are creating the pro economic policies with more government spending and that our president is talking about that to the europeans, austerity is bad and on one hand you are telling us that this debt is creating a potential huge crisis yet you are telling us that we need to keep spending with more debt. what is the signal here? >> it's not necessarily more spending. appropriate tax relief would also help in the same way but i've always said in my remarks you don't want to cut short run stuff you want to do long run stuff and ignore the short run you need a balanced program on the back least avoids i would

say the do no harm policies are looking for, at least avoided derailing the recovery in the short term but combine that with a strong credible plan over the medium term that is the best policy it may be difficult to achieve but in principle that would be the best way to go. >> we have a bipartisan amendment of keeping time. >> senator sanders. >> thank you for being with us to the i'm going to be as brief as i can. we have questions we would appreciate answering. number one deals with conflict of interest. as you know, jamie dimond is the ceo and chairman of jpmorgan chase which is the largest financial institution in this country. during the fed bailout if you like when $16 trillion of low-interest loans over a period of time were given out to every financial institution in this

country jpmorgan chase received over $300 billion. the american people i believe he received a conflict of interest when you have among others the of the largest financial institution in america sitting on the new york fed that on the steps to be regulating the fed, regulating the financial institutions. i think many people including myself see this as a situation where the fox is guarding the hen house and that we need real reform in the fed to make sure that it's representing the middle class small business of the country rather than just wall street and big money interests. would to be supportive of legislation that i've introduced which says of representatives of financial and institutions not just mr. dimond, but others get off of the fed and be replaced by folks in the general public? >> you've raised an important

point which is that this is not something the federal reserve created, this is in the statute the congress and federal reserve act said this is the governments of the federal reserve and more specifically that bankers would be on the board. >> six out of mine in the regional banks of the banking industry. >> that's correct and 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 we've taken a lot of actions to negate the conflict of interest and the underdog frank the gao did a comprehensive study has no of our governments and did point out some appearances. >> i wrote that position i am familiar. as the make and i congratulate you. it also found there were no actual conflicts of interest because there is a fire wall so that the bankers do not have any information or ability to influence the supervisory

decisions. i will answer your question though, the answer to the question is that congress set this up. i think that we've made this something useful and valuable. we get information from it but if the congress wants to change it, you know, of course we will work with you to find alternatives. >> thank you. that is something you are quite right that congress established it's time 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 any time in our country since before the great depression that 400 individuals owning more wealth in the bottom 150 million americans got the top 1% owning 40% of the wealth of america while incredibly enough the 60% only 2% of the wealth in america. the last report that i've seen in terms of income not wealth suggest that in 201093% of all

new income from the previous year went to the top 1%. my question is we can talk about economic growth all you want it to the average person doesn't mean a damn thing if all that income is going to the top%. do you believe that we can see an expanding middle class if we continue to have that kind of an equitable distribution of wealth and income >> 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 can strengthen the middle class and how can you make middle class incomes higher and more secure. this has been as you know a trend going on for 35 years related to a lot of factors to the globalization and the technical change which is made with a high school the education and less valuable. so i would be very much in favor of the measures to strengthen the middle class and help

average americans to better and approaching like education and so on and would be very constructive and when. >> they have to gather assets equivalent to two-thirds of the gdp of the united states of america over $9 trillion. we have some folks on the fed and i and others to break up these huge financial institutions with economic and political power of the top six banks, two-thirds of the credit cards in this country and half of the mortgages my suspicion is a teddy roosevelt he would be talking about breaking up these financial institutions how do you feel about the need to finally break of these large financial institutions and have so much economic and political power. >> i first comment that a lot of

these people say they want to break up the banks are not very specific as that and making them a little smaller were making them community banks? i really would like to see a plant that certifies what is meant by that. the dodd-frank act is strategy for too big to fail. it's incredibly to end to big to fail. that strategy involves taking away the advantages of size. it means that the banks will be allowed to fail but there is a method that will avoid the effect on the broader financial market through the order of liquidation of ortiz dodd-frank created for the fdic have tougher supervision and subject to rules i would guess that if the size of the banks was basically motivated by too big to fail motivation is we take that away that market forces

themselves would make it effective for the banks to downsize and rationalize and so on. i've been out in additional tool that we have from dodd-frank is the so-called living will which requires the banks to give information about their very complex structures. one approach would be to ask the banks for the purposes of being able to be brought into receivership if necessary is to simplify the structures to avoid these very complex interconnected types of situations that i think are as much of a problem as ourselves. >> thank you very much. >> senator coats? >> thank you mr. chairman and think you, mr. chairman. on page four of your statement to talk about inflation. use it with regard to inflation, longer-term inflation did indeed been quite well anchored. expectations among investors have changed little on the net

since last fall the product markets will continue to restrain inflationary pressures. that's good news let me ask a question about the reverse of that. that is the deflationary. we've gotten some bad employment numbers not only from the revision of april bad news out of asia it appears the australian manufacturing is in recession. india has posted its slowing of growth in nine years. china is on the verge of the manufacturing downturn. a lot of people are saying the speed here in the united states. the question is what is the risk

spending too much time worrying about inflation than ending up in the potentially deflationary recession perhaps prompted by the shock from europe they can't pull it together, and what are your concerns about that and what is the of thinking about that? is that something that we should worry about? is that something that you are worried about? what kind of guidance can you give? >> when we set our definition of the price stability at 2% inflation, we meant that operated in both directions we don't want inflation of of that but we also don't want inflation well below that. we want to avoid deflationary, and it's one of the principal motivations for the so-called we did in november of 2010 to avoid the deflationary pressures and we were successful and brought inflation back to target. part of your question was about the general slowdown in the global economy, and there are

some signs certainly in europe, china cut interest rates today, some of the emerging markets have seen some slowdowns come so there are certainly some signs of global slowdown we are trying to assess how important those are and what implications they have for the united states. i would say what respect to the deflationary specifically, we think that deflationary is at this point probably a pretty low probability risk, and at the moment inflation seems to be pretty stable close to 2%. we have an indication of the declining inflation particularly when you look at the even on commodity prices were looking at the expectation, so that particular concern right now is not i think very much in our forefront of our concerns. >> what would a shock to the system warned the middle east coming apart what would that do

to that analysis of what you just gave? >> i think it depends with the shock is and how it ramifies. the shock in the middle east would cause the prices to go a lot. that would tend to be inflationary but it would also probably slow the economy further because a would be like a tax increase on the consumers who would have to pay more for gas and therefore less for other things. the situation depends a lot on the situation we hope will not occur in which there's a big escalation of the stretch a would depend a lot on exactly how that happened if increase for example were to leave the year rosellen but the stresses were contained there than the effect would likely be fairly moderate. if the financial stresses were to spread more broadly, then that would create a lot of

volatility in our own financial markets would put stress on our financial institutions and probably reduce lending and debt at a minimum would tend to slow the economy, but again, i don't think deflation is the main concern. i think the main concern is promoting adequate growth to continue to bring down unemployment over time. >> given the kind of state that we're looking at, the fragile world that we are looking at in the economic standpoint in particular the situation of europe as it is unfolding do you sleep well at night? do you sleep well at night? >> i generally sleep pretty well, yes but i have a lot to do during the day and i need to be well rested. [laughter] >> thank you mr. chairman. >> representative maloney. >> thank you mr. chairman and welcome, mr. bernanke. i would like to respectfully speak in opposition to the point

of view that has been put forward by my colleagues on the other side of the all in strong opposition. i believe that the fed should use any tool in your arsenal whenever it is to provide support to our fragile economy and we need to ensure against any downward term but would hurt housing, employment and all the very areas in our economy. i think it's particularly important coming up on the june 17th meeting that you act to help our economy given the fact that china cuttage been smart lending rate and already in response to that, the price of gold has gone up. the dollar has fallen. i would like to hear your comments. will china be buying the treasury notes with this economic downturn what appears to be in their economy and

combined with the news from the past month that the year rose owned debt and banking crisis seems to have deteriorated further in europe? so could you comment further? you have in many ways but even on china specifically and the impact china will have on the impact of our economy? they have been a partner in a financial recovery and your comments on china? ..

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 has been some slow in there. we watched it very carefully, but so far i don't have to change into cheney's prospects on not are enough to be concerning for the united states, particularly since they are our small steadying factors when china slows it brings down oil prices and that is actually positive for the u.s. economy. i think the greater concern for us right now are still coming from europe, even as the situation is still being managed, we are seeing of course guys you see everyday, volatility in large movements in stock prices and other asset prices and the uncertainty that that generates.

so that is a concern. >> i would also like to ask you a question about the so-called fiscal cliff that we confront next year as a current law governing taxes and spending are maintained in the bush tax cuts expire. also the payroll tax cut expired. the federal unemployment insurance expired 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 on current policies, we can avoid a recession, but that our long-term budget situation will continue to deteriorate, certainly neither of these outcomes are satisfied jury. my question is, what would happen if we fail to achieve a budget agreement and the lame-duck session and all the cisco client priorities kicked

down? >> well, you agree very this ebs general analysis there. if no action were taken on the fiscal cliff for two k. can in its full size, i think it would be very likely the economy would begin to contract or possibly go into even recession and on the planet would begin to rise. that is obviously some do we want to avoid if at all possible. at the same time, i am not advocating what they do it all these measures and simply ignoring the distant future. i think isaiah said before, what we need is a combination of sensible policies that allow the recovery to continue over the next year or two but they launch a credible plan for putting our budget on a sustainable path. >> thank you did my time is expired. >> thank you herbert senator urges.

>> thank you, mr. chairman. dr. bernanke, welcome to our committee again. i just want to pick up, senator domenici is the word quagmire. senator coats used the term stall speed. i have to admit i am concerned about some of the same things. the vice chair of the said yesterday of the dice and economic clout described adverse shocks that could push the economy into territory where it's self reinforcing downward spiral of economic week this could be difficult to arrest. i am not an economist, but that sounds bad. is that right? >> the concern she is expressing is that it produces not sufficiently strong to it wouldn't take too much to put us back into a recession or a significant slowdown. >> so i wanted me went admit to having trouble sleeping every night, but what does bother me

as lehman brothers and when i wake up at 3:00 in the morning come and that is what i'm worried about. i don't know what lehman brothers looks like. i don't know whether it's in this country or perhaps in europe, but i think she summed it up pretty well and this is reported on the cnbc's squawk box this morning. when they played that clip it got my attention because this is one of the things that has bothered me since september september 2008. i see a lot of parallels as he cruised into the season with the summer of 2008 gas prices moderated so you can move that off the table a little bit good senders to shoot nations, presidential year coming up and the economy still in touch shape hasn't recovered. and we see all the stuff happening in europe. he said on page three of her testimony at the bottom of the page you prepare to take action as needed. can you outline for us very briefly maybe what the top three steps are that action is needed, the item you have there? >> sure. first of all, we are already taking some action, important

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

region and they have the resources necessary to achieve stability. i think the main problems over there a political rather than economic. there's a lot of different -- 17 countries involved with different interest, so you know, 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 that we can do. >> we can stomach it wild-card. >> what the federal reserve can do is try to protect our own country. we do that by strengthening our financial system by making sure, or the spy monitoring on a regular basis exposures that financial institutions have to europe, direct and indirect and how they are hatched. we have done this lots, which was an useful thing we did to help stabilize the money

markets, the bank funding markets over there. i think the main thing we have not done yet, but could do a financial conditions got sufficiently severe would be to use our authority to the discount window or through our 133 authority to land to financial institutions against collateral to make sure that lack of liquidity was not a present day with collapse or at the stop lending. that is the main tool we have in reserve that we could use and will use their financial conditions call for it. >> if there does come either as u.s. tanks that should be fiercely jeopardized at what's happening in europe could then push limits in air to the forefront >> i said, we've been monitoring them for the most part, our banks are far less exposed to european sovereign debt and european financial institution

that by the european banks, which is why there is such a difficult interaction between the sovereign debt problems and the banking problems in europe. that being said if there's widespread contagion, hard to predict operating through financial markets, operating 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 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 is necessary to try to mitigate that problem. but i don't need to be represented saying there is no problem. there is a risk and how we can do is prepare for it as best we can. >> thank you, mr. chairman. ideal that. >> representative can she. >> thank you very much,

mr. chairman. thank you for everything you have time and all the things you were engaged and on for also being with us here today to talk about these issues. i think that, you know, we have come a long way considering the financial meltdown that occurred back in 2000, but we've still got a long way to go after that. i think there's still some things congress must do to ensure we do not go down the same path of our european counterparts. and i think that it's an interesting set of circumstances fair. the end of the recession our economy has steadily improved. we're still working hard on that. we have created 4 million private sector jobs and unemployment has utterly decreased to 8.2% now. president obama, i think, deserves enormous credit for turning the economy around. if it had not been his action and visit the democratic

majority, no doubt our country would've fallen into a deeper economic depression. so, we obviously have a long way to go, but the president is on the right path. the fed's aggressive action and monetary policies that have stimulated the economy i'm also been instrumental to getting our economy back on track. but we have a long way to go. europe on the other hand has been a total disaster. europe has clearly proven that austerity was the wrong policy to pursue during a recession if you look at the situation they are dealing with their. 20% and 24% respectively in employment in those two countries. not shown here at economic growth over the course of the past year. so, naturally i am surprised that with such strikingly different recoveries occurring between the united states and europe as so many united states lawmakers will continue to support this name 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? and what do you think the united states is most at risk in the context of that situation of repeating? >> well, in fairness you have to agree there are structural differences. you have 17 different countries in a single monetary policy on a fixed exchange rate. there are, in fact some very serious fiscal situations. greece, for example 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 that been trying to sell for the last couple hours 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 both the same time, combining diet within medium-term plan -- i mean, we do have to address these fiscal sustainability issues. so i do not think it is in consistent to do both of these things. and that is where i would differ, with at least a few of the countries in europe. but 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 late greece, which have very little capacity to spend more and borrow more. >> germany is another example,

but the other things definitive examples we give examples we have to deal it and we have to be acting in a very positive way in accordance with what you've been talking about. also, after congress and president obama at it in 2009 and 2010 to turn around our economy, since then, since that happened, the house is basically done nothing significant to revive our economy. as a result, the fed has really led the efforts to help our economy back on track. however, we have nearly exhausted on the fed's tools to nurture our economy back to health. congress needs to step up to the plate. clearly, our actions back in 2009 and 2010 turn things around. but, more needs to be done. one is to be done effectively and strongly. we cannot allow the european austerity model and allow growth

to just continue to fail and how to show en masse. see american jobs act as a prime example, unfortunately, i've stalled legislation in the house that would inject nearly $450 million for the tax cut, john, business opportunities, all of those things into our opportunity very, very positive and very strong if it were into place. it has been a major mistake to sit on this legislation what it could be helping so many people. so, do you think congress has carried its fair share of the burden with regard to stimulating economic activity? india think legislation such as the american jobs act is important to help decide stimulate job growth and economic activity? >> welcome i certainly agree as i said before the monetary policy cannot carry the burden by itself, we need to policies of a range of areas from

congress. you know i'm not going to endorse a specific program, but i hope congress can work together to address their problems across the economy in a number of different set tears and i hope that congress will work collaboratively to try to address some of those problems. >> thank you. >> representative jesse. >> thank you, mr. chairman. good morning, mr. chairman. i want to talk about too big to fail. we had all heard two years ago when dodd-frank pass this to be a silver bullet to address this issue of too big to fail and make sure the taxpayers wouldn't hold the back should one of these large institutions failed to make sure that it doesn't ruin our whole economy. i guess i would argue that dodd-frank hasn't fully and completely address the issue of too big to fail and still access. it is, more recently as we look at what is happening in europe. but here at home it's come up

with regard to jpmorgan and they experienced a $2 billion lawsuit with $4 billion or $5 billion in some of our beautiful cruel would have address had it been implemented and it's going to come shortly. it would have address this massive loss from jpmorgan. limit concerns that was as you look at the full cruel and you look at these trades, it becomes difficult to determine what is marker hedging? so as he said in a classroom at my pc to work through the volcker rule. but it is a bit difficult to use the site bayboro to stop the issue for jpmorgan? >> in the specific case where investigating i don't want to talk about the specific case, but in general, yes, differentiating proprietary

trading and market making it to deduce inherent to it very difficult and regulators are looking at 19,000, letters and trying to figure out how to do that is best as possible. the one comment i would make in which my colleague made yesterday is that one requirement of the volcker rule is that there be very extensive documentation of nations to supervisors in advance for complex hedges as well as auditing and appropriate incentives for the executives involved in the activities and the traders. so at a minimum, if the volcker rule had been in play we would know more about the situation about it than helpful. >> in the area i agree. if they believe the silver lining here that there was no taxpayer loss here. jpmorgan had the appropriate capital requirement, which is what you're talking about today when you talk about russell

three. isn't the issue not thousands of new rules and a 3000 new bill, the capital requirements of our banks, making sure they have more skin in the game? and the taxpayers are going to bear that loss, but investors in the bangs will be responsible for the losses of bad trades. >> i agree with you entirely. high capital requirements is because of all bills to anticipate everything that could happen. the good news is there's not a new miss the firm will fail or taxpayers will be in danger in any way. >> in essence we increase those ratios. and i imagine you let -- i don't have much time, but you agree

with making sure that the larger banks are required to hold more capital? >> yes. >> okay, sometimes and i know you have to do this, but when you talk about what you say can be open to interpretation you do a very nice job of that. but as you're talking about taxes specifically, are you telling us if we allowed nothing to happen and we see all of these taxes increase, the bush tax cuts, obama tax cuts go away, there is going to be a direct impact on economic growth and job creation? >> i'm looking not just at the taxes, but also the sequester and the end of the payroll tax and everything else come a guess. i mean, of course economic forecasting isn't a perfect science, but everything we understand about fiscal policy is a significant short-term requests. >> so you're not here to advise

us, but to expand them? >> i tell you to try to avoid a situation in which you have a massive cut in spending and increasing taxes on hitting up a moment as opposed to trying to spread them out over time in some way that will give -- create less short-term drag on the u.s. economy. >> i appreciate your testimony. i yield back. >> thank you. senator v. >> thank you, mr. chairman. and thank you for joining us today, chairman bernanke. what are some of the risks? can you walk us through those an understand of his factors to consider is your purchase decision like that one? >> well, i think to understand the efficacy and how much is needed and so on are less.

i think the number two would pay most attention to first, there are some who believe expanding the balance sheet would make them more difficult and therefore inflation is more likely which could be a problem. now, i want to be very clear that we are very confident that we can ask it from our ballot sheet strategy and there is in fact no justification for such a concern, but nevertheless. >> no justification for which concern? >> inflation because we can't get out of our balance the position. >> go-ahead to a second point. >> the second one has to do with financial stability the question is does the prospect for a long

time, does it create problems for certain types of firms for life insurance companies or pension funds. if the induce excessive risk-taking? does it lead to effects that could be counterproductive in the longer-term? they redo extensive monitoring come extensive analysis to try to identify any such problems, but it's always possible when innocent name. >> and it sounds like you are not discounting. you're not refuting that it can happen inflationary effect. in a way that it is not less likely to peer >> there are two less issues. we take monetary policy to a more normal stance. in a monetary policies in episode, there's always the question whether the fed gets it exactly right. too soon, too late. and it's always the case to get monetary accommodation u.k. inflation affect. 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 down to a more normal level comedy about a preserves an assistant to a more normal level, when we decide it is time to tighten monetary policy. so the technical side we think we're quite comfortable with. it's always the case under the most dermal traditional monetary policy that the timing of the trial, 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 a normalization in yield rates return to their historic

averages, perhaps the best. you have any sense and can you offer us any insight into what we might expect to see that happen? >> well, we have indicated that we expect to keep short-term rates well into late 2014, at least. but even then, longer-term rates may be rising if in fact we are removing short-term rates, reductions at that point since long rates include expectations of short rates even beyond that window, you could use the building by then. we do expect of course race to normalize the first time. but the exact time and it's very difficult to judge because it depends on the recovery of the economy of always see the economy moving and a moderate pace in the right direction, the point at which we are comfortable that it is time to withdraw monetary stimulus is obvious requite insertion.

>> is a risk of a share of a share for free that the longer you keep the rates will? >> i don't think so. it is true god the quantitative easing measures of pushed on the so-called term premium on longer-term rates. and if those are to normalize quickly, that would make the increasing rates a little faster than might otherwise be the case. do we have stress tested both our economic models and our financial portfolio -- the financial portfolios of financial institutions. and we don't see, at this point, any serious risk either to economic recovery were to financial stability of that return of interest rates to more

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