this morning -- we are waiting for the arrival of mr. bernanke, he is expected to arrive in the room in a moment. we will get started in a moment t transportation bill is being worked on, it will set is policy for the next couple of years. the bill has been stalled drug negotiations over unrelated amendment s senators agreed

yesterday to deal with contraception coverage. a vote on that amendment is expected some time tomorrow. you can see live coverage of the senate on our network c-span 2. the house is gathering in, they will be debating a bill on changing water distribution in california. ben bernanke is making his way into the room.

this hearing are -- will come to order. we meet to hear the semiannual report to the conduct of monetary policy and the state of t the economy opening statements are limited to the ranking chair and chair and ranking minority member of the sub committee on domestic monetary policy and technology, for a period of eight minutes on each side without objection, all members' written statements will be made a part of the record, for purposes of opening statement i recognize myself for five

minutes. in my opening statement today i'm going to avoid making any since i do not have a crystal ball, nor do you, mr. chairman. instead, i'm going to address two subjects. the need for long-term entitlement reform, and the federal reserves dual mandate, for the last three years we have operated in a low interest rate environment. which is artificially lowered the cost of debt servicing. this temperature respite will not last forever. ed? thank you. let me start -- the last three years we have operated in a low interest rate environment. which has artificially lowered the cost of our debt servicing. this temporary respite will not last forever. chairman bernanke, in each of

your appearances before the economy we have discussed the danger to the economy posed by the debt and the need for entitlement reform. we have discussed how the restructuring of the program will have clear benefits for our economy today and will give our country a greater chance of success in the long-term. ufr unfortunately and sadly too few people seem to be listening. let's have order in the committee and respect all the members, that will go for the staff too. we have discussed how long-term restructuring of the entitlement programs will benefit the economy today and will give our country a greater chance of discuss in the long-term unfortunately and sadly too few in washington seem to be listening to this discussion. your appearance is yet another

opportunity for us to have this important dialog and it's my hope that congress and the white house will join together and address entitlement reform. this is not something that the federal reserve can do, you kept interest rates low, it has given us an opportunity, but it's not an opportunity that will last forever. your appearance is also an opportunity for us to have another important dialog, this one on the federal reserve's dual mandate. and you discuss this in opening statements. the federal reserve's conduct of monetary policy through the manipulation of interest rates and it's control of the money supply implies a certain management of the economy cfrom the government. this makes the public and me uncomfortable at times, there's need for an independent central

bank to set monetary policy. if one examines the federal reserves dual mandate, it quickly is apparent while the first part of the mandate involves monetary policy, the second is largely a function of economy policy. you acknowledged this chairman bernanke in your testimony for today's hearing, when you state that "while maximum employment stands on an equal footing with price stability as an objective of policy, employment is largely determined by nonmonetary factors that effect the structure and dynamics of the labor market." by giving a mandate, it's fair to ask whether we have given up too much control over the economy to a government agency and whether that mandate is more

centrally focused on monetary policy would be a better approach. s in other words federal reserve would not have responsibility or the burden, and really, you are don't have the power to control economical events. indeed for the first 65 years of your existence, the federal reserve did not operate under a dual mandate. it was only in 1977 that congress passed a law requiring the federal reserve to promote maximum employment. it may be needed to refocus the fed on its core mission of other matters that constitute monetary policy. the congress on the other hand could focus on employment and --

because it is and continues to be our responsibility to focus on jobs. we look forward to your testimony, and i recognize gentlemen frank. >> i accept your invitation for a civil debate on the subject. let's begin with deficit reduction, which i agree is a great requirement. but i disagree on your comments on entitlement reform. before i reduce social security to elderly people and those that want to reduce the cost of living increase, so that an elderly person would get less money, i think we should withdraw from afghanistan. i support the president's decision to withdraw troops from

iraq and note thoi note that mae republican side are critical of that. we have to reduce spending, but we spend far more as a favor to the rest of the world on the military than i need to. with before i will impose costs on elderly americans, i will state that social security and medicare is two of the greatest accomplishments of 20th century. there are areas where there can be greater efficiencies, but the notion that that is the major place you get savings, when we continue to spend 5.4% or more or less, but around that of our gross domestic product on our military and our nato friends spend 1.4% and get a subsidy

from us. it makes no sense. i think the withdraw from afg n afghanistan should be done more quickly. i fear more social security and medicare, because to do that would require cuts that go far beyond efficiencies and reduce what goes to people in the upper income bracket. secondly, i would welcome this debate on the dual mandate, because with i think there's an ill logic in in way it was just stated. it's true that the federal reserve has more direct control of the monetary policy than it does over employment, but the point is that monetary policy, the level of interest rates has not effected unemployment, that notion that they are not kked is not the case. chairman did not say that but that is the implication.

we had a debate on mortgages that were given that should not have been given. one argument was that we should have deflated the bubble by raising interest rates with a negative effect on unemployment and other things. many of us believe that the federal reserve under the previous -- should have prevented the bad mortgages, that is there should have been more targeted efforts to deal with it. we do have a serious employment problem, it's to bernanke's credit that he has taken seriously this dual mandate. i think that people forget that mr. better knarnanke whose work greatly admire was one of the top appointees for bush

administration, he is an example of bipartisanship. what i find is that a lot of colleagues like it in principal but never found an example of it that they want to tolerate. mr. bernanke's concern for inflation and employment is a very good one and the notion that we should say, okay, to the reserve, you do not pay attention to the employment we will handle that and you should simply try to prevent inflation invites them to impose an interest rate regime that would be unfortunate. the european central bank, until recently, with their mandate of inflation. i think that frankly the fell reserve's record in trying to deal with the balanced economy has been a better one and to some extent the european central bank has improved because they have been toing t in-- they hav

polling the model of the u.s. federal reserve. to cut social security and medicare, to the exclusion that many colleagues want to spend more on the military and the notion that that the federal reserve a powerful economic entity should set interest rates without regard to the unemployment is wrong. >> i thank the gentlemen. you know, i have a son that served in the marines -- >> if we are going to get into that, i responded to what you said, and you are representative of a large group that talks about entitlement and the military comes up as an after thought. >> it needs to be a grand bargain, we discussed that and i think we agree on that. and everything should be on the

table, without entitlement reforms -- >> are we going to continue debate after our time. >> for three minutes you are recognized. >> thank you mr. chairman, and welcome chairman bernanke. you know, i guess over the last 30 or 40 years i've criticized the fed on occasion but the congress deserve some criticism too. the federal reserve is a creature of the congress and if we do not know what the fed is doing, we have the authority and we certainly have the authority to pursue a lot more oversight which i would like to see, so although the fed is on the receiving end and i think rightfully so, when you look at the record. if fed has been around for 99 years. and 99% of the dollar value is gone from the 1913 dollar, so that is not really a very good

record. we are witnessing the end stages of a experiment, yes, they have been debasing currencies for hundreds of thousands of years, they always end badly. and they also run to gold and simple. this experiment is something different than what we had before, it started in 1971 where we were actually given an opportunity in many ways to be the issuer of the currency and we had too many benefits from that then people realized. but it's gone on for 40 years and people keep arguing from the other side of this argument that it's working, it's doing well. and yet, from from my viewpoint and the viewpoint of the free market economists, all it's doing is building a bigger and bigger bubble and the free market economists are the oneses that predicted the housing bubbles and nasdaq bubbles.

we never hear the bankers saying, watch out there's a bubble out there, there's too much credit and too many problems there. there's a housing bubble, we have to deal with it. usually we get reassurance from the fed on that. but i believe there's a logical reason for this because the federal reserve has given a responsibility to protect the value of the dollar. that is what stable prices are about. we do not have a definition of the. we ask about the definition of the dollar and it's whatever it will buy. ev every day it buys less than the next day. it's like having a planning, like a builder with a yardstick that changes every day. it was a suspect designed to pyramid debt. we have a debt-based system. the more debt we have and the more debt the federal reserve buys the more currency they can print and they monatize this

debt, it's worldwide, no wonder we are in a debt crisis. it's something we have never experienced before and i think the conclusion will be a vindication for sound money. or if you say, you can do it. in a few years we will know -- of course i'm betting that the market is smarter and commodity money is smarter, nobody is smart enough to have central economic planning, so, i'm anxiously waiting for this day for the conclusion because reforms have to come. they are talking about it, when when you see robert zolick talking about monetary reform and gold, our time has come for serious discussion on monetary reform. thank you mr. chairman. >> thank you, dr. paul, for that statement and mr. watt is recognized for three minutes. the gentlemen from north

carolina. >> i appreciate the opportunity to substitute for my friend lacy clay, the ranking member of the sub committee because he is unable to be here because of a conflict. and i'm glad to see my friend president paul back from the campaign trail. this seems to be like dejavu all over again, since i was the chairman of the monetary policy sub committee and he was the ranking member. and i got to go back-to-back with him quite often. since i'm substituting i think i can do something out of the order today and that is praise the work of my good friend, chairman bernanke, for doing his job. and really not bowing to the political pressure of either the

right or the left or political pressure of republicans and democrats since the federal reserve is supposed to be free of all of those influences and i just are think he has done a magnificent job be and the fed has done a magnificent job of navigating us through some very, very difficult times even as we will, i am sure experience in today's hearing, in the midst of criticisms about the dual mandate, which the chairman has already raised, which i'm sure the federal reserve certainly cannot do anything about. we gave them that mandate. they can't refuse to do it. criticisms about inflation, fighting policy, steps required for recover of the economy,

interest rate policies, quantitative easing and the european union and the rest of the world, involvement with the imf, there will be plenty of criticism to go around today, so i'm pleased to have this opportunity to say ha on behalf of my -- to say thank you on behalf of myself and hopefully other members of the committee and certainly members of private enterprise who believe that the fed has stayed steady, and followed a course of action that has saved our committee rather than leading us into the kind of defaults and problems that we could have experienced in these turbulent economic times.

i say that and i yield back, mr. chairman. >> thank you, mr. watt, i think you gave a thoughtful statement. i will pick up on what mr. watt said and thank you for being here chairman bernanke. you do have a difficult job. you have tremendous challenges that face the country and the chairman has informed us that he will need to leave at 1:00 p.m. which is a gracious acommendation. mr. bernanke you'll now be recognized for your opening statement. >> thank you.

i'm happy to present the monetary policy report to the congress. let me begin with a discussion of current economic conditions and the out look and then i'll turn to monetary policy. the recovery of the u.s. economy continues, but the pace of expansion has been uneven and modest. after minimal gains of the first half of last year, real gtp increased in the second half. the limited information available for 2012 is consistent with growth at a pace close to or somewhat above the pace that was registered last year. we have seen positive developments in the labor markets. private payroll employment has increased since the middle of last year and and nearly 260,000 jobs were added in january. the job gains have been widespread. in the public sector, layoffs by

state and local governments have theed. the unemployment rate hovered around 9% and has moved down since september, reaching 8.3% in january. new claims for unemployment insurance benefits have also moderated. the decline in unemployment rate over the past year has been somewhat more rapid than might have been expected given that the economy appears to be growing at or below the longer term trend. continued progress in the growth market will need more demand in production. the job market remains far from normal. the unemployment rate remains elevated and long-term unemployment is near record levels and a number of persons working part time for economic reasons is very high. household spending advanced moderately in the second half, boosted by a fourth quarter of

vehicle purchases. however, the fundmentals that support spending continue to be weak. real household income and wealth were flat in 2011 and access to credit remained restricts from any poe he poe borrowers -- in the housing sector, affordablity has increased as a result of the decline of the house prices and low interest rates on mortgages. unfortunately many buyers lacked down payment and credit history to qualify for loans and others are hesitating to get loans because of their employment, and future path of house prices. on the supply side, 30% of recent home sales have consisted of foreclosed properties. more positive side, the pick up

in construction of the multi-family sector and increases in home builder feelings. manufacturing has decreased 15% and has posted solid gain since the middle of last year. supported by recover in motor vehicle supply chains and increases in exports and business investment. spending rose at annual rate of 12% over the second half of 2011. a bit faster than the first half of the year. reexport growth, while remaining solid, slowed somewhat as foreign economic activity accelerated particularly in europe. the members of the board and the presidents of the federal reserve banks projected that the pace will be expanding at or above the pace of last year. specifically the projections for growth in gpd this year have a

central tendency of 2.2%. a number of factors that played a role. first, the annual revisions to the national income and product accounts released last summer indicated that the recovery was slower than what was previously estimated. fiscal and financial strains in europe have weighed on global economic growth and problems in u.s. housing and mortgage markets that continue to hold down not only construction and related industries and household wealth and confidence. looking beyond 2012, growth will pick up supported by a continuation of the stance of monetary policy. with output growth projected to remain close to the longer run trend. further declines were not anticipated over the course of

the year. looking beyond this year, participants expect the unemployment rate to edge down slowly towards levels consistent with the committees statutory manda mandate. in light of the signals received from the labor market and final demand and production, will be important to register the pace of the economic recovery. participants agreed that strains in global markets posed risks to the out look. investors concerns about fiscal deficits and the level of debt in a number of european countries have led to increases in borrowing costs and stresses in the european banking system and the availability of credit in the euro area. to prevent strains from spilling

over into the american economy, european exposure is being monitored. a number of constructive policy actions have been taken of late in europe. including the program to extend three year collateralized loans. most recently a n lly a new pan measures -- a new package of measures by greece was agreed on. ho the resolution of the euro zone will require action on the part of european authorities. further steps will be required to boost growth and competitiveness in a number of countries much we are in contact with our counter parts in europe and will continue to follow the situation closely. as i have discussed in my july testimony, inflation picked up during the early part of 2011.