is an important part of this long term plan? the come by neigh of how they feel. >> surely. consumers make their spending plans and employment plans and retirement plans based on what they see in the future. how they expect the economy to evolve and their own opportunities. if you look at the people are saying they don't expect their real incomes to grow. they expect their financial decisions will be flat down in the next few years. that's not a situation that encourages people to buy a house or refinance or start a business or anything like that. >> let me ask you one last request. i come from an energy state, oil and gals. you alluded to a couple issues that the activities in the middle east could have impact to the produce of fuel energy here. obviously i'm a big believer

that we need more of those. can you give me any additional comment on that? >> well, first, as we saw it a modest way early last year it creates inflation, and also because it acts like a tax on consumers. a major disruption that set oil prices up substantially could stop the recovery. that being said, one of the more encouraging things over the last few years is with new processes and approaches that if u.s. is become a more prolific producer of fossil fuels and is also making progress on nonfossil forms of energy. i think there's a chance we can move in the right direction in terms of reducing our exposure to foreign disruptions.

>> thank you very much. alaska wants to be part of that equation. thank you very much. >> thank you. wyoming wants to be part of that also. i want to thank the the chairman for all the information you give at the repeated appearances you do before all the committees in the senate and house. i know it's very helpful and everybody hangs on pretty much every word that you say, which has to be pretty daunting. i appreciate the emphasis that kwouf placed on the bowel-simpson deficit deficit report. i think if it was broken into parts everybody could have voted against the part they didn't like and all the parts would have passed and could have come to senate, and i think in six parts it would have passed too. most enacted os terty programs that reduced government spending and recently sovereigned bond

actions by fiscally troubled companies enjoyed surprising dmapds, this resulted in yields well below expectations. "the new york times" suggested these auctions are a sign that the os terty measures that comforted investors and lured them back into the your roar zone bond. despite the passage of the budget control act, the u.s. federal spending is expected to grow in 2012. do you believe the ugs has really entered a period of os terty as some have suggested? >> in the european case, i think that some progress in some of the troubled countries towards fiscal balance has been encouraging investors. there are other important factors, notably european central banks, large loaning banks that help stabilize the financial system and many banks in turn use the money to buy short term government debt from

greece and portugal and ireland. it's a fairly complex situation. >> let me ask you if they had not passed the os terty budgets -- >> i think the countries like greece and portugal have really no option. they could not borrow. they're excluded from the private market. in order to qualify for funding, they have to restore different balance. they have really no choice. and they are working to try to get to that position. i would say in terms of the united states, i have already described my concerns about 2013. right now i would say that overall fiscal effects on the economy are roughly neutral at this point. we have not taken actions to put the government debt on a

sustainable path. >> switching a little bit here. the federal reserve like any banks takes in deposits, liabilities and lends out the fund by purchasing treasury security assets and the federal reserve remits the profits to the treasury. remittance is more than doubled since 2008 and they estimate $77 billion in 2012. i'm concerned if that's after the 10% comes out or not. they estimate $511 billion over the next ten years. what are the federal reserve's major sources of revenue? and why have your earnings gone up since 2008? >> the federal reserve has remitted in the last three years has remitted $200 billion to the u.s. treasury. i think that does not -- i think that includes the money pay.

the reason that our remittance to the treasury have gone up so much prior to the recent years we rarely admit $25 in a year. so the reason it's gone up so much is part of the monetary policy, we have, as you know, purchased treasury securities, longer term treasury securities and mortgage-backed securities, agency mortgage backed securities. the return on those securities comes to the fed and we take it and pass it back to the treasury. that's where the profit is coming from. in addition, the various programs we undertook during the crisis have turned out to be profitable. we put the money back to the treasury as well. >> thank you. and switching again, how effective do you think japanese efforts were to stimulate the economy during the 1990s? and i don't think their economy

is recovering. we place the emphasis on europe, but i think japan deserves real consideration. >> japan has had a difficult two decades. certainly. there's important differences between japan and the united states. one that i would particularly stress is that japan has had falling prices now for quite a long time. and combined with interest rates that can't go below zero, that creates financial tightness in their economy, which prevents investment in growth. also the japanese are not as quick as the u.s. to recapitalize the banks, as we did in 2009. they didn't have benefit of seeing others deal with it, grapple with it, we learned from them. they continued to provide monetary policy support. i think it's important to note that one other difference is

that japanese demographics are different from the u.s. the workforce is beginning to shrink because of low birthrates and that will keep the growth down in poord to come. >> thank you, my time is expire expired. >> thank you for your testimony. and i wanted to start with the unemployment insurance and the conversation that is going on. and a conversation is going on about how to sustain the 79-week standard and how do you see that piece of the puzzle fitting into the issues that would affect the economy? well, unemployment insurance is

multifaceted. on one hand it provides support for people who are unemployed or who have unemployed family members, and those people will be more likely to spend to add to demand in the economy. it probably on the margin leads people to wait a little longer. that the spells of unemployment may be longer because of unemployment insurance. that, too, is a mixed blessing. the extra time allows people to find a more appropriate job with a higher wage, instead of taking the first thing that they see. there's a lot of interesting ideas out there for redesign of unemployment insurance. are there ways to create incentives nor more training skill building during the period of unemployment as you discussed it it would be useful to look at the design and ask if part of

the payments could be used for training or for skill building. >> thank you. there's many other proposals out there that may be more about stopping the continuation of unemployment insurance than actually improving the way it works. so that's a real concern in this conversation. but i gather from your point is that it plays a significant substantial role during periods of high unemployment, in creating a foundation for demand and the workforce readjusting to the skills of the changing economy. i think i'm restating what he just said, but i wanted to make su sure. >> in europe, for example, there

are some countries where employment insurance is so generous it rates a permanent unemployed class, which we don't want to do. so there are balances you have to strike. those are the conversations. you say it depresses housing demand. and you sent a white paper to congress laying out a number of ide ideas, many of which my colleagues and i have been discussing and made less progress on than we hope. one is trying to enable large group ls of home that are sitting vacant and driving down crisis to reenter the rental market. i would add to that anything we can do to get homeowners back into the homes as well. it seems like on both fronts,

and when that's not possible, getting the homes out of vacancy would be a strong strategy to stop the decline in values and start to restore the housing marke market. >> yes. i think it's an interesting direction. we provide analysis in the background paper that we circulated. right now house prices are still flat or falling. they're down more than 30% in nominal terms. there's a short oafage rental housing. we could move housing from single family to rental, i think that's positive, they have announced a trial program, to see details to be worked out. they've announced a program the related point is the heavy cost of leaving homes unoccupied.

vandalism and neglect will cause the house value to decline significantly. it will hurt the neighborhood and so on. efforts to maintain continuous occupation by an owner or renter is also a positive rental programs do that. but so might potentially alternatives to foreclosure like rent to own or short sales. deed in lieu. >> thank you. >> senator cornin. >> thank you for being here. the unemployment rate in america for the fourth quarter of 2012 according to the cbo they

projected 8.9% for the fourth quarter of 2012. >> 2012 or 2013? >> to this. our forecasts are for unemployment to continue to decline moderately. we see growth as something close to potential. which under normal circumstances would mean that we're creating enough jobs but not making sharp prooichlts on the economic rate. >> i think when the stimulus was first proposed she said unemployment would be down around 6% the first quarter of 2012 obviously that wasn't correct. let me ask you things that might affect the unemployment rate. 8.3% unemployment.

but who do they project the real rate to be? people who are underep ployed? what would that rate be? >> i take your point. it's very important not to just look at the unemployment rate, but there are also a lot of people who are out of the labor force because they don't think they can find work, and that's a significant number of people. there are also people working part time, but they would like to work full time so it understates the weakness of the labor market but all the various departments have been improving. the broader measures are definitely higher.

>> let me ask you about europe. is europe in recession right now? >> well, certainly the southern countries, including the ones that are under fiscal pressure are contracting. it was growing at essentially a zero rate in the second half of last year. so certainly parts are in recession. whether the whole euro zone goes into recession remains to be seen. the ecb itself has predicted a mild recession and has warned that this might occur. so we think it's a possibility. but the severity and length remains uncertain.

>> we have seen decline in exports to europe. exports to europe are about 2% of our gdp. so it's not totally make or break. >> give us an indication of what our economic growth will be and job creation. i would also have to calculate consumer house cold income. it's down the lowest since 1995. is that correct? to your recollection? >> as i mentioned, it was really close to flat over 2011 and because they've actually seen increased costs of goods through commodity prices, food, fuel,

things like that they've seen slight increases from taxes if you combine state, local and federal taxes. they've seen higher health insurance costs. all of those have an effect on consumer spending and gdp, don't they? >> that's correct. the real income numbers take into account all those things except for the health care expenses. >> and then there's well intentioned government policies. the depreciation that expires in 2011 for capitol investment. it expires at the end of the

year we would see an increase next year. businesses would have taken care of that policy in 2011. >> we would expect to see time shifting up. this is one more element of the very big change in fiscal stance that takes place in 2013 that i mentioned. >> so all of those things taken together, lower capitol spending, lower consumer spending growth, declining exports and spinning drag from all levels of government, all those would tend to have a negative impact on it would make it tougher to get jobs rather than easier. >> that's why we forecast a moderate recovery as opposed to one that would quickly undo the

damage of the recession i'm going to follow the sessions rule and save myself to tb end. it's then going to be senator toomey. senator warner. >> thank you, mr. chairman. i appreciate your support for the notion of going big and recognizing we need a comprehensive deficit reduction plan. i personally believe that we should confound conventional wisdom and not pump this until after the next election cycle. i still find as a business guy it would be hard to explain to this my shareholders if my company was in dire financial straits and i said to them we

got a plan and i'm going to get back to you in the summer of 2013. you made the point they have os terty plans. i believe every one of the countries, while they've had cut backs have ls included increased rev news in the mix. that's correct, isn't it? >> yes. and what we've seen as somebody personally who has been very interested, for example, if what's gone on in the uk, do you have any advice for us, lessons learned, if we were to put a plan in place, on a phasing in of whether it's revenue increases or dramatic cutbacks in spending. there are metrics to look at that should be phased in over a time frame or bagsed upon economic recovery metrics. >> well, that's a judgment.

i think the important thing is to recognize that this is a very long term problem. it doesn't have o be done all today. i think the more you can the more you can sustain the, the more flexibility there will be to address near term concerns relating to the recovery over the next three years. but you need both. once again i agree that simply promising future action is risks an adverse reaction in terms of

the confidence and so on. we're looking at a couple more years of recovery. there's nothing that stops us from laying out in some detail what the longer term plan is to address the fiscal problem. whether it's revenue or spending cuts, when they ought to be phased in. let me follow up i agree we have to do more things. one of the interesting points we've got right now, it seems like america's reality cry is at

least we're better than the eu. doesn't seem like a rallying cry. one of the things we have with the challenges is enormous capital coming into the season. have you given any thought? one area ha that there is bipartisan consensus on is that we were dramatically underinvesting in the infrastructure, broadly based. and with private capital on the sidelines, have you or your entities looked at the infrastructure bank proposals out there? we have a bipartisan one that does in the create additional grants, is not a next generation, it's more a loan support modeled after xm.

and that might be able to get some of the capital rushing in off the sidelines from the employment standpoint and long term? >> no, i haven't looked at the the infrastructure bank in detail. and i'm again a little bit leery of taking positions much of the deficit discussion is about total revenue and total spending. is the code efficient, effective, fair, et cetera? we don't want to build useless monuments. we want to make investments that will make a return. you want -- you're much better off making productive investments. >> senator toomey.

>> thank you, mr. chairman. thank you for being with us and for once again your time and your patient. let me start by echoing the sentiments of senator grast lee. i want to compliment you on the the decision you've taken to enhance the fed's activities and operations. i know you advocated this for a long time. i have long shared your view that it's better for everyone involved in the fed operates with greater transparency. u like the fact that you i like the fact that you have a target. we could have long and interesting discussions about what that should be. i want to talk about the dual mandate that you have to contend

with you have said, i think, if i have it right that the fed through monetary policy can control inflation over the long run but cannot control unemployment. is that fair? >> yes. >> so the thing that i'm concerned about, and i'm not asking you to criticize the dual mandate. i know you're going to live with the law of the land as it applies to you. isn't there a real possibility that these objectives will at some point not be complimentary? in other words, it seems very likely that the unemployment rate will stay above the optimal full employment level for a number of years. it also strikes me that at any time inflation could kick up above the targeted level that

you set. it has very recently. it seems to me you have tension between these two simultaneous objectives. you have described that you would take a balanced approach to dealing with this. but doesn't that mean that in the scenario where unemployment remains persistently high and the inflation rate kicks up above the target, wouldn't you have to back off or pursue a policy to tolerate higher inflation than your own target? >> so this is a dual mandated approach. we thought the point of being clear was to give more quantitative information about what the goals were. the situation you're describing is hypothetical. it's not currently the

situation. inflation looks to be at or near. >> at this precise moment, yes. >> let me be clear. we're not going to seek higher inflation in order advance employment. in which case in a way we would turn both towards the targets. but we have to take account of the other part of the mandate. so it could affect the speed at which we return inflation target. but by the same token, if inflation is high, it could affect the speed. so there would have to be intersection with the