ability of a government to manage their fiscal policy. it does not indicate when the risks would increase markedly, we can be sure that without corrective action, we will move the nation closer to that point. u.s. policy must be placed on a stable path and making sure that department is declining over time. attaining this goal should be a top priority. even as we address the issues of fiscal stability the current recovery should not be impeded. avoiding additional head winds for ti recovery is fully kpa

compatible. >> keeping long-term interest rates low would improve performance today. through the careful design of tax pauolicies and spending problems, our nation's tax and expending policies should increase investments in our workforce, and stimulate private capitol formation and promote research and development and provide necessary public infrastructu infrastructure, we cannot expect the economy to grow its way out of it's fiscal imbalances must try to leave a healthy economy for our children. >> thank you chairman bernanke.

on page four, you said that the current statements of the longer run of unemployment is between 5.2% and 6%. how does that compare to the go, go years of the '90s and you think we will have higher unemployment than in the '90s. >> the unemployment did reach levels below that not only in the '90s but in the 2000s as well. we are concerned that over the past few years that there has been some modest increase in the stainable long-term rate of unemployment. one of the factors contributing to that, the fact that i mentioned in my rouremarks that% of those unemployed have been

unemployed for a long time. in estimating that stainable long rate -- run rate of unemployment, we are in no way saying this is a desirable state of events, state of circumstances. we are only saying that monetary policy really can't do much to bring unemployment in a stainable way below those levels based on the current information, other policies effecting workforce skills and the structure of the labor market, fiscal policy and trade and all other kinds of policies could bring down that sustainable rate of unemployment, and i hope congress will consider ways to address that problem. >> we started to see a revival of the manufacturing sector, 50 thousand jobs added last no. tell us, is there anything that

you would suggest that we do to speed up the return of the manufacturing jobs? >> well the recovery of the manufacturing sector has been an encouraging development. manufacturing has led the recovery very significantly, one reason it's doing so is that american manufacturers have become increasingly competitive on the global stage as emerging markets in other countries grow quickly, they represent a source of demand for our goods and services. so, clearlily maintaining open trade with other countries and maintaining those markets is an important step. i think another area that is important is trying to ensure that the u.s. remains a leader in advanced education, research and development, technology and the like because many of our manufacturing firms, for example, high tech firms are

producing the most sophisticated, most technologically advanced products. that is where we have an advantage in the united states. and maintaining the leadership will be a boost to our ability to export. >> you know the decisions that we will have on make yard on budgetary policy coming up and you know that there were all these attempts to get agreement between the white house and the congress last year that did not make it. there was one plan that a number of us were even held a press conference, i think, some 40 of us in the senate, wanting the super committee to go big with a four trillion cut in the deficit

over the next ten years. would you recommend going forward, since all of that failed, steep cuts that only had hit at a handful of the safety net programs or do you believe that we should place more on reducing future deficits over the long-term in a more way while being fiscally conscious of the recovery efforts in the near term so? >> mr. chairman, i was supportive of being aggressive last summer. a number like four trillion was the cbo's estimate of what would be needed to stabilize debt to gdp ratios over the next decade, which is important obviously. but i would like to urge the committee not to be solely loyal

to the ten year window. most of our problems in the fiscal path arise after the next ten year going out 15, 20, 30 years as our population anyoneud health care costs rise. what i would support is looking broadly and having a broad based discussion, but in particular, looking at stainability over the long run and i think that will take a lot of work on the part of congress. it not my place to make detailed recommendations about specific components of the budget. but, i do urge the congress and i heard many people on this committee express the same feeling that we need a long-term plan to put our debt to gdp ratio, our overall fiscal burden

on a sustainable path. >> thank you senator sessions. thank you mr. chairman, and chairman bernanke, thank you, your remarks have been very insightful and we all have different opinions but i think you are pretty close to what we need to be doing and we value that. i would yield to senator grassly at that time. >> first of all, i want to compliment you on your moveme s think the more you can do that, so there's not the doubt that has existed, but to could it for the purpose of educating the public more about the important role of the federal reserve, you are too important for people to

think that there's a conspiraitorial aspect to what you do. the more you can tell people what your role is important, my question, based upon first of all, if congress fails to act on january 1st, 2013, our nations going to see the largest tax increase in the history of the country and people do not understand this, and that will happen without even a vote of congress, the budget office has estimated the economic kbamimpa of this tax increase along with few other policies, cbo estimates that the unemployment rate could be as much as 2% points higher and that gdp could be as muches 3% points lower. do you agree with cbo that the failure to prevent this tax

inreei increase will have a serious negative impact on gdp growth and unemployment. and secondly if so, at what point in 2012 will the uncertainty of the tax increase begin to hinder growth? >> i have agreed to give a series of lectures at george washington university a class can and i'll i'll be talking about that issue. if no action is taken on january 1st, 2013, between expiration of tax cuts, there will be a sharp change in the stance of the federal government which by itself with no compensating action would indeed slow the recovery. cbo predicts a 1.1% and an increase in unemployment in that

year and that is based on the current law assumptions so they are aassuming that will take place. i want to be clear that i'm in no way stepping back from my strong support of maintaining fisc fiscal sustainability in a longer term. it's important that who ever actions taken thatity combined with a credible plan for on longer term return to sustainability isustain ab ability. this return in a short time would, might slow the recovery. i do not know exactly when the uncertainty would be a factor, certainly as we get closer to january 1st and congress is not giving a clear road map for how it plans to proceed,ing it would effect planning decisions as we

look ahead to the next year. >> my second question and it will have be to be my last one. you announced that the goal of 2%, core inflation stands above the target of 2.2% and you announced that the federal funds rate will likely be held near zero through 2014, this question comes from the point of view that you said if there's a trade off between decision making on unemployment and inflation, at least as i read it. unemployment would have a higher priority, is a fed sending a signal that keeping inflation in check is a secondary priority to achieving full employment and to what extent will the fed act if inflation continues to rise? >> it shows inflation a bit above 2%, as we look forward and

the energy price increase of last year did not reoccur, we are seeing that the inflation target will stay about the same. we have to think where inflation will be not where it been in the past. inflation has been averaged 2% a year over my career as chairman and we expect it to be 2% or below in the next couple of years. so we feel it's consistent with a policy. we say that we take a balanced approach, congress gave us a dual mandate. we work to bring both sides of the mandate back towards the target. the main goal of the statement

was not to announce any change in policy, the main goal was to give greater clarity of how we define the long run objectives but we will be working to bring both parts of our mandate towards desired levels. >> i think it's good that you are going to the george washington university, but if you want to come to the grassroots of america, in iowa, i would arrange it for you. >> it will be stream online, so it open. >> thank you. senator grassly. senator white? >> thank you chairman nelson and thank you chairman better mackey, i want to ask you more about the shocks to the economy that you have been discussing. you talk about the pace of the recovery being slow and particularly for the millions people who are hurting, unemployed, under employed and that all of this really comes together as part of a sluggish expansion that has left the

economy vulnerable to shocks. so i can see plenty of shocks. the payroll tax debate bogging down into a quagmire and talking about two months or another shorte shorte-term effort. we mentioned europe and another one mentioned the question of sequ sequestration and that puts a negative comment out, because in the lame duck 2012 congress, you would see the same sort of flailing that you saw in 2010. my first on the shock issue, doesn't it serve to shock our economic system just to have all this delay and week after week of fighting and inability to get

decisions on payroll taxes and others, isn't that in and of itself a shock to the suspect in terms of what it does to business confidence and predictablity and certainty? >> that is something that businesses complain about, makes it hard to plan. we pace the same problem with regulatory clarity. >> is it fair to describe that as yet another shock to the system, because to me, everything i have been trying to amass about tax reform has been try to figure out how to try to force action early. because when you don't what you are most likely, at a time when you have a sluggish expansion is see these shocks and a reduction in confidence and predictablity and the like, is it fair to say

that delay in this kind of climate when it cops on getting the payroll tax issue worked out and others, that in and offist is a sho -- and of itself is a shock to the system. >> it was a shock and effected consumer confidence and financial markets, more generally loss of confidence that agreement will be reached is a negative for confidence. >> let me ask you about the question, i mean, to me the antedote economic shocks are cushions, the kind that start us to road to predictable more certain kinds of opportunities to promote economic growth and tax reform strikes me to be right up at the top of the list. and as you know, super committee, we have senator portman has done good work on this, did it in the super

committee, a lot of that work has been done now, there are tough, tough political calls to be made,i to address tax reform the principals are clear. clean out the junk and special interest breaks and wouldn't long-term predictable tax reform address the shocks that you are concerned about for the economy? >> that is good and a good tax code promotes growth, most economists agree that a simpler fairer broader base tax code would be constructive for growth yes. >> and to converse of it all, wouldn't piece meal changes where again, we go through another round of temporary credits, temporary extensions.

modification to this provision and that provision, wouldn't that make it hard u grow? >> as you appreciate, politics are complicated, but from an economic point of view, obviously the more comprehensive and clean the tax reforms or spending reforms can be, the more likely they will be good, efficient from an economic point of view and more likely they will reduce uncertainty. >> i think your points are well taken, mr. chairman, my concern is absent the kind of comprehensive reform that i think would be a stronger cushion to the shocks that you are talking about, i hope that the country will see how importanti itit it is to steer from piece meal actions that do

not give businesses and consumers the predictablity they need to generate the growth that you are thank you, mr. chairman. >> thank you, senator. senator, johnson. >> thanks, mr. chairman. thanks for coming here to testify. i don't envy your task. it seems to me you've been given the task of trying to address fiscal mismanagement with monetary solutions, and it doesn't work long term. i think we're seeing that starting to collapse in europe as people have tried to come to the rescue of greece. i'm not sure how far behind we are from greece. the argument in terms of getting the fiscal house in order seems to break down between how much revenue can we raise, and how much can we spend? and to me it's just clearly a spending problem. ten years ago we spent $1.9 trillion. last year $3.6 trillion.

according to the president's budget, he would like to spend $5.8 trillion. tax rates are trying to get us above the 50-year average of revenue from the economy. the long term spending is 20.2%. over the last 50 years we've just run this 2.1% structural deficit. there's an interesting article about maryland's attempt to tax millionaires. when they did it back in 2007 they estimated they raised $330 million by doing that. awe study just produced said they raised $120 million. i would like to get your comments on the ability to distract the 18.1% long-term average in revenue. >> first, on the broad question of spending and taxes, there's a

deep philosophical debate about the size of government and you're obviously quite aware of that. that's something they have to work out. that's what people elected you to do is to figure out the right role of government in the economy. i think it's true that beyond a certain point, higher taxes impose costs and deficiency of the economy and those are trade-offs congress that has to consider in particular a state where people could live in virginia instead of maryland, it's clear that much of the gain could be loss simply by legal avoidance practices. >> as an accountant, as a business manager i'm looking for the key roots of problems and

the key metrics. i think an even more fundamental one. all the control. all the intrusion of government in our live ls. e increased that to 24%. it's increased to 35% by 2035. in the end socialist and communism is a number. the number is the size of government in relation to the economy. do you think 24%, 25% and higher as a metric size of government in relation to the economy, do you think that's a healthy metric? >> senator, under the current plans if there's no change to entitlement ram programs, then the demand for spending. the amount of spending the government is committed to will rise beyond that level. at some point congress has to

make a tradeoff. if you want a low tax economy, which has benefits from an efficiency perspective, you have to make tough decisions on the spending side. if you want to spend more, you have to figure out how to raise taxes and raise the revenues. so i mainly try to urge congress to make sure they're looking at both sides so there's a balance between the two. >> the tough decisions begin with presidential leadership. i've never seen anything really accomplished in washington without strong leadership. i'm afraid president obama has been phoning it in here in terms of the deficit and debt issue. one question i have, and i probably don't have a lot of time for it, is in terms of the uncertainty caused by not senate passing a budget. i realize the budget control act we have deemed a few numbers.

but can you speak to how harmful that is in terms of economic growth? well, the senator made the same question. is uncertainty about the future of the tax code and government programs a negative for growth? i think it is. firms like to have certainly. they like to plan. i would take on the same responsibility as a regulator. we need regulations as clear and as effective as possible. >> thank you very much, mr. chairman. thank you, mr. bernanke for being here. thank you for the conversation on the phone a few weeks ago. i agree that there's efforts, and i'm excited to see that you'll be out in the circuit.

and i'll be anxious. i might tune into one of those to see how they go i'm new here, too. i'm not here to defend the president at all. we're all to blame for the fumgs of washington, d.c. it's not just the president. it's congress that is also part of the problem here. that's what i hear when i go back home. and because of that, and you kind of answered it, and i think i want to clarify or make sure i hear what you're saying and that is because of the inability for this body to figure out and compromise and figure out pathways with long term certainty, it has an impact to the consumer confidence and the business confidence of this country. yes? >> yes. >> so, you know, what i've learned while i've been an executive, an assembly member in this legislative body is -- legislative bodies love to blame the executives.

executives love to blame the legislative body. at the end of the day. there's 100 of us out of 300 million people to make a decision. if we intend to move this country forward to be more certain about the long-term decision, true? that's important. because i know as a small business person from the age of 16 that indecision does not create certainty, and this body has a great habit of indecision, or push it off. so i want to make sure we're all equal in this. there's no one body or another. i'm going through your comments on the other side. the second is i heard -- and i want to make sure i'm clear on this. your response to senator grassley in regards to the bush tax cuts that may expire at the end of the year but isn't there another problem which is that they didn't pay for them?

it's good in the short term but the long term is coming. to pay for it today, you're going to pay for it tomorrow. and you're going to pay with interest. isn't that also a problem to this equation? as you deal with tax policy, you have to pay for it, right? >> yes, senator. i was not endorsing anything -- >> i agree. >> i was saying the cumulative effect of all these things, explace of the payroll tax, explace of the bush tax cuts and other things, ektively would be a sharp change in the near fiscal position. i'm not saying don't pay for it. i'm saying do it over a long period of time but do it seriously. you don't want to push it off tomorrow. you want to make a credible and

strong plan. >> that's right. i want to make sure that's in the discussion. i was one of those that supported the 4 trillion. i think wed noo to be aggressive. if you get an imbalance, you'll you'll have a direct impact. there are good signs. i read the latest peace by bloomberg in regards to how the economy is moving. it's actually moving in certain areas. manufacturing surprised a lot of people. consumer confidence to me is a fretty important piece of the equation here. if they're noft confident, they're not -- i mean, it's amazing how many are still not refinancing today at 3.75% interest rate. it boggles the mind. i think they're just not confident yet. part of our job is to help make them know that we have a plan at