>> that's roughly what i thought you would say. it seems unlikely they would pursue an extremely monetary policy if it wrpt for the employment mandate. i'm concerned about the consequences of zero interest rates. negative real interest rates. i wonder if you will comment. they are being punished for it at least twice. after sacrificing their lives they get no return secondly, we're encouraging excessive risk taking. certainly the misallocation of investment.

in fact, it's hard not to stee the u.s. treasury group as a bubble now. doesn't this enable the deficits we're running here because they're funded at interest rates? so these tr the concerns that i have from this policy. >> let me first say that single mandate central banks like the bank of england la which is policies similar to the fed, i don't think it would be erratically different things at this point of time we're kuwait aware of the costs and risks. it's one of the reasons for the overall discussion. it's true they reduce what

savers get on their saving. they also hold corporate stocks and a variety of other opportunities. and those dependent on the strength of the economy. so we're helping to improve the returns to savers. part of the reason for the policy to move them from positions slightly more into riskier positions to help promote strengthening the economy. we don't want to go too far. we are going to watch out for problems and to try to address them. and i've been in many conversations with investment companies, insurance companies,

so on. when you're this far away from full enemployment, it's not obvious that the investments being made tr the right investments. there's not enough demand for product. i guess the last comment i would make, well, you asked me before about deficits. i understand the concern. i think the effects of fed policy independent of the other factors is modest. voechly the rates will rise. there's nothing the fed can do to prevent the rates for rising. i trust that congress will understand that independent of the fed's policy, aimed at strengthening the economy, which also helps deficits that it's extremely important to be looking ahead and making plans

to stabilize the department. to chairman bernanke, thanks for your insights today. i want to join my colleagues in kmepding you on the increasing openness and transparency of the fed. i'm going to ask for kwur openness in transparency on the economy. yo see signs of improvement in manufacturing. those are certainly welcomed. you also cited troubling aspects. you said over 40% of people have beenunemployed for six months or more. i would add this is not like any previous recovery. it's certainly going back to the recession in the sense that the jobs rbt coming back vpt we're 5 million jobs down still. 48 months after the recession. at this time after the '81

recession, which was the deepest recession in recent times we had 6 million jobs that had been gone as compared to over 5 million down. 48 months out we were out 350,000 jobs. something is going on that is very different. they said the 3.3% is understating. they are prior to the recession. about 66% participation versus 64%. the unemployment number would be over 10%. so i think we have a more serious structural problem than another business cycle. if you agree with me on that, i would love to hear what to do to

structural changes. you said we are at increased probability of fiscal crisis, as i read your testimony but also the possible of what happened in southern europe. a southern spike in interest rates. so on the tax side, on the energy side as you talked about in the area of health care cost, worker retraining. don't we need a reset of the economy and a more aggressive structural change to the economy, and if so, if you agree with that, you know, along what lines would you suggest? >> well first of all, there's a substantial component in what's happening. this is still quite far below 8.3, of course. so it remains important to

continue to the support the recovery. i talked to you about housing and financial markets and credit markets in my testimony. all that being said, good policy is good policy any time. there's lots of things for the budget reform. i know you're interesting in budgeting and tax coding. that would be constructive. we have very important needs on education and workforce skills. we continue to need support. health care is a major issue both because of the federal fiscal situation. or a major force. but also because the high costs are bad for the efficiency in the living standards of the

economy in general. those are all areas that when you and i were colleagues in the previous administration we talked about the issues. you worked on trade, which is also an area where progress can be made. so they shouldn't be put on the shelves because we're recovering from a deep recession. we had 4.5% unemployment. 1.2% of gdp. things seem like they're going pretty well. obviously they weren't. but we need more of a sense of urgency. from your position and one of credibility and respect on the monetary side and the fiscal size, that sense of urgency is needed. i believe we are looking at

something different this time. if we don't make serious changes we're going to be in trouble. every one of our partners, meaning the developed countries in the world have developed. you talk about inching our tax code to encourage working, to encourage savings and investment, capital formation. everyone has done it except us. if we continue to fall behind as a result in my view. thank you for your testimony today. we look forward to the continued device. truly deal with the second part of your mandate and to get the economy jobs back on track. >> thank you, senator. senator bernanke, appreciate your hard work. i wanted to ask you in a follow-up to what senator port

man framed in terms of the fiscal outlook of the country. and we are over $15 trillion in debt. rising health care costs situations where if you're relying on entitlements like medicare trustees have said that would go bankrupt in 2024 and social security in 2026. when you think about the state of the country and your responsibilities as the chairman of the reserve that keeps you up at night? >> well, you know, i've tried to stay away from individual programs and taxes, but i feel it's within my remit to talk about the overall fiscal situation. and i think it's very clear that on current, reasonable expectations about policy that the u.s. federal deficit will p become unsustainable in 15 or 20 years at the most.

and possiblily the effects will be brought forward by markets, for example. so we clearly need major changes in fiscal planning and in our face call path going forward. and these are concerns i would want to emphasize. these are not just about 20 years from now, but they could have effect much sooner if the markets lose confidence in the nation's ability to stabilize. >> in follow-up. do you believe here in the congress we need a greater urgency in addressing the structural issues? >> certainly you do. in fairness to the hard working people here, i would say there's still a lot of -- there's a lack of clarity. people have conflicting views

about what they want, and everyone wants a lower deficit. nobody wants to lose their own program or tax cut. so it's difficult, i understand. but absolutely we would benefit from action to credibly and strongly articulate a plan to bring the fiscal situations into sustainability over the next couple of decades. >> and does it need to happen immediately in the next year or two? >> as soon as possible. >> i wanted to follow up on questions senator toomey had asked you about. some of the risks that we see right now. two days ago charles schwab wrote a piece in the journal. in addition to the issue that you already addressed to senator toomey, which was the issue of the risk of keeping interest rates low with respect to sav s

savers, he also noted that there's also a concern that he droibed it this way. capital out of europe and into safe u.s. assets, and new business formation is at a record low. he said they're detroying invest and the willingness of banks to loan to anyone but those whose credit is so strong they don't need the loans. can you respond to that? >> i disagree with that completely. i think first of all, one of the goals of our asset purchase program is to take safe treasury out of circulation and push investors intoing situations that are appropriately risky. making loans, buying corporate

debt an taking actions, hiring, investing, they'll expand the economy. they are very hunkerred down to a riskier position positive for the economy. they have to ask, what is the alternative in the alternative is low yielding treasury securities. so with making 2% on the treasury, that's a low bar for making a ten-year loan to a new business. that encourages lending. i think it reduces uncertainty. it increases firms to invest vest. i know my time is up. i would also see the booming of

interest rates to the debt and addressing the issue right away. thank you. >> next is -- >> thank you, mr. chairman. and thank you for calling me here. the economy is the issue on the the fore front of the minds of the american people. i want to thank you for making time to be with us to talk about your views on that. i'm sure it's been asked dm some form today, but i wanted to get at this -- exposure that the u.s. banking system has to the euro zone banks. my understanding is the exposure is down. we could see a crisis on par with what we saw in 2008, 2009. in this country.

i'm wondering for the federal reserve keeps records that they have to the banking system? >> as supervisors, we ask banks to provide the information to help us analyze their exposures they are to the sovereign debts of the weaker countries. they are much reduced. the banks are still exposed to the counterparts. but they've also reduced the exposure. i would like to point out we look at the quality of the hedges, you know. credit to false swap is no better than the bank or the counter party who wrote it. so we've been looking at that as well. so we think banks have made progress in protecting themselves against problems in european sovereign or bank debt. but i would agree with your final observation, which is that if there's a very substantial

crisis or similar problem in europe u, you know, i think our banks and our financial system would still be affected. >> but you do have a way of calculating or quantifying the exposure, and you're confident that that risk is being reduced by banks in the country to a level that i guess you would say is efficient. >> well, it's been reduced. it's difficult to ask banks to eliminate their exposure to a major part of the world economy, which is europe. but, yes, there's been progress made by banks and market mutual funds in reducing exposures and improving hedging. but again, i don't want to be this interpreted as a

complaisant statement. i think that if there were a major problem in europe, the risk of volatility, the uncertainty, all those things would have a powerful impact on our financial system. >> do you think that our -- just sort of broadly speaking is the united states in a fiscal position to withstand another economic crisis? >> well, ironically -- that's an interesting question. so ironically b u.s. dollars strengthened and u.s. interest rates went down during the worst part of the crisis because the u.s. is viewed as a safe haven. it's where investors want to go when the rest of the world is uncertain. in that respect, that actually helps us. if we were to have a significant further downturn in the economy that braug down tax revenues and

greatly increased deficits, that would put stress on an already stressed situation. >> as chairman, you also meet from time to time with the president. in those discussions, in your contact with the president and his advisers, vo you underscored the necessity of entitlement reform in order to get the country back on a sustainable fiscal path? >> i've talked -- you know, i think that issue is well recognized. i certainly talked about it, yes. >> one of the concerns we've had is there haven't been in the present budget submissions any real focus on the issues. and a willingness to confront the challenges with regard to the unsustainable costs driven

primarily by the big three, if you will, medicare, medicaid i assume you agree we need to focus on that? >> i think that is going to be part of broad fiscal reform. it doesn't mean that the system has to change tomorrow. after all, people who are already receiving those benefits, you know, deserve, you know, not to be shocked by radical changes in their benefits. i think most people would agree with that. but once we take action now to propose longer term changes, i think it's interesting that the commission that looked at social security in the early '80s and proposed a phase in of the retirement age that, phase in is still going on today 30 years later. so doing things well in advance actually makes it politically and economically much easier to address them. >> i see my time expired. thank you, mr. chairman. >> and we save the best for the

last, senator sessions. >> well, thank you, mr. chairman, for your pair shens and sharing with us your views on the economy. i would just add that there is -- there are dangers out there in my view. we can't always predict them, what they are. and i believe we're running a debt right now at a level so high that it could cause problems that we can't foresee right now. charles schwab who is not an insignificant figure in american economics, he's not totally happy with the fed. and i would say we probably ask you in 2006 did you agree with these comments, you probably would have disagreed with that. but sometimes dark prognostications urn for tnfort come true. i'm worried about our future from that point of view.

you talked about it, though. very directly and in your remarks today the dangers particularly over a period of years that are entitlements. do you have any concern that the size of our debt already presents a threat to our economy both as some sort of financial crisis that erskine bowles predicted in this room could happen within two years if we don't make major changes in our financial path? and as to the possibility that the current debt path we're on is lowering now the level of economic growth the country has? so if you have any concerns with regard to this, you would share with us how something might play out and could be playing out

that would be damaging to our economy and/or a threat of economic crisis? >> senator, you just pointed out that it's very hard to forecast. now you're asking me to forecast. >> basically, you've had to forecast. you said we don't foresee any danger in the next few years. >> well, i didn't say that. >> what you would say? >> i would say the following. my sense, just my sense, of markets is that they're not reacting to the current level of debt. but they are comparable to the process. in other words, if you think about downgrade of s & p to the u.s. debt in last summer, what they cited was what they felt was the and built of congress to actively work together to achieve meaningful reductions in the debt profile. so my sense is and, of course, i

don't know for sure, but my sense is that a strong demonstration by congress and administration that they understand the issues and they have a plan for attacking them, i suspect it can maintain confidence in the bond market. but, you know, that's just my judgment. >> it's an uncertain world. >> yes. >> do you agree with the idea that rhine heart on developed in their book based on empirical data, not their personal view, that when nations debt reaches 90% of gdp that that could pull down growth from 1% to 2%? so it was going to be 3% growth, it would come in at 2% or lower. do you think that is a sound theory or do you reject that? >> i don't think is a fixed number. but i did say in my testimony that as debt gets higher, particularly as the economy gets to full employment, it will tend

to raise interest rates and crowd out investment and productivity growth. so it is certainly a negative. i, you know, i don't that i was even in their book. i that i was a separate work that they did. but in any case, i don't think will there is a magic number. certainly the higher the debt to gdp ratio -- >> what would you consider to be the debt to gdp ratio? >> well, what is it today? well, the federal debt held by the public relative to gdp is somewhere around 70%. if you add state and local obligations, it might be closer to 90%. then you have to ask how do you deal one funded liabilities way out from the future? >> are you talking about social security and medicare? >> that will put you over 100%. there are different ways of looking at it. certainly, the main concern i have, again, is not the level of

the moment in time but just the fact that we're on a path that's going to not be sustainable. where the amount of debt will cause higher interest rates to cause higher deficits and will continue to, you know, move into the stratosphere. >> there was a quote in the financial times last week, interviewer said well, when a state's debt exceeds 90% of gdp, they will reduce economic potential for the country and then reporter said i suggest that the united states is still comfortably short of that level. but i am swiftly corrected f you count the federal, state debt crucially and add in unfunded debt from the social security system, matters you just mentioned, then he thinks that america's debt level is well over 120% of gdp.

and their paper that they wrote was, indeed, based on the most exhaustive study of financial crisis in nations ever performed. and that's why i got a good bit of interest. thank you for sharing with us. i do believe you're correct to advise us that we should move forward with reform on all fronts sooner rather than later. we could perhaps disagree about exactly whether we ought to start some of the reductions in spending. but personally, i would believe that we shouldn't go a day with inefficient wasteful government spending. every bit of that should be eliminated sooner rather than later and a healthy, lean, productive federal government would be good for the economy also. thank you, chairman, bernanke

and thank you, mr. chairman for your courtesy. i hope our chairman feels better soon. i wish our comrade well. >> beleaguered with an infection today. mr. chairman, i'd like to review a discussion we had in our earlier meeting. i think it's helpful to put the spotlight on the issue. it's the question of health care which is most significant part of the discussion about so-called entitlements. and i begin with the observation that we have very significant medicare liability out into the future and we also have significant medicaid liabilities that are going up. we have private health insurance whose costs are going up just as fast if not faster. hard to judge because they take

away benefits to off set costs. it appears to be going up faster in my view. you have the veterans administration and defense budget, both suffering from increasing in health care costs and indeed secretary gates said health care costs are eating my budget alive, talking about the defense budget. when you fact your all of those different elements to the health system together, you earn 18% of our gross domestic product on health care costs are nearest, our most inefficient, least efficient industrialized competitor at about 12% which puts us 50% worse than the least sufficient country in the world on health care industries. and very responsible views about what the savings are per year are as high as a trillion dollars a year. and sitting on this budget