the major servicers requiring them to improve their praksises to have principle points of contact for individual borrowers, to provide more counseling, better controls, so on. there are a whole variety of things to be done. not all of them are congresssi congressional. some of them would require some congressional input. >> thank you. thank you. >> chairman bernanke, the vice chairman of the full is now recognized for five minutes. >> thank you, mr. chairman. chairman bernanke, in your testimony you described the recovery as modest relative to historic terms. i would note for the record that under this administration when you add in those who are underemployed, those who have left the labor force due to giving up the true unemployment rate is 15.4%, half of all americans are now classified by the census bureau as either low income or in poverty, one in seven now have to rely on food

stamps. so from the perspective of my constituents, the use of the term modest is indeed modest. i would like to the subject of our structural debt. one of the major players in our economy has said, quote, the major driver of our long-term liabilities, everybody here knows it, is medicare and medicaid, and our health care spending, nothing comes close. that, of course, our president barack obama. so i would suggest to the ranking member when convenient he first debate the president on the subject before he debates us. and i would ask this simply, mr. chairman, even if we cut the pentagon by 25%, make it 50%, l structural debt crisis in our nation? yes, that's to you. >> you refer specifically to health care. this is an area where costs have

been going up much faster than gdp. the output of the health care industry is not that marketedly better than other countries. so clearly not only for fiscal issues but also for private sector productivity, it's an important issue to address. as a matter of arithmetic, over time, the out lays of federal government will be going to medicare, medicaid, and other health related programs. it is very important to address that. >> thank you. on page 7 of your testimony in dealing with your dual mandate, you say the maximal level of employment in an economy is largely determined by non-monetary factors. in my remaining time i really want to pursue this theme. i certainly agree with the assessment but i question, after three years in the most highly accommodated monetary policy i believe in the history of our nation, the recent announcement that we will continue this policy for two more years. i mean, i note according to your

own statistics, public companies are now sitting on $2.1 trillion in excess liquidity. banks have 1.5 million liquidity which seems to suggest that perhaps monetary policy is not the call leng that we have today. recently the dallas fed president richard fisher made me aware of a harvard business study showing the greatest impediments to job creation would be taxation, red tape, uncertainly. recent gallop poll of small businesses show that roughly half believe that health care and government relations is what is causing them not to marry more workers. you have job creator after job creator like bernie marcus and home depot, saying i can tell you today that the i'm pet mus that the government imposes today is hard to deal with. i would add the voices of just

about every small businessperson i've talked to in the 5th congressional district of texas, that i represent. and so, again, it begs two questions. number one, the limits of efficacy of monetary policy and, frankly, the risk as whelp it was. it was brought up early that we have retirees being squeezed, pension fund savers. you know that community banks are feeling squeezed. many of them are lending out on the risk curve. and i'm very grateful that you've shown your concern and anxiety over the structural debt, but to some extent, you're one of the major players by creating these artificial rights that i would argue mask the true cost of our physical folly and to some extent by keeping rates artificially this low, aren't

you simply postponing and exacerbating the problem, the unintended consequences of another asset bubble. and so do you share these concerns and how do you balance them? >> you raise a lot of good points. first, i do think the monetary policy has been constructive in bringing employment back towards the maximum employment level. congressman frank, ranking member frank, pointed out the sharp movement in the march of '09. that's the date that we began qe-1. since qe- 2, 2.5 mu jobs to be created. i don't claim credit for all of those jobs of course but i think it has been constructed. you're right that in terms of what long-term employment, productivity, gains could be sustained by this economy the monetary policy is not the answer to that. the answer is -- vitally the private seconder.

but partnership with other economic policies ranging from trade to education to infrastructure, to tax code and so on. i am certainly agreeing with you that monetary policy the not a fancy in cha it will help stuff set cyclical fluctuations. >> thank you very much. mr. moloney? >> thank you. and welcome.\. moloney? >> thank you. and welcome.s. moloney? >> thank you. and welcome.. moloney? >> thank you. and welcome.. moloney? >> thank you. and welcome.. moloney? >> thank you. and welcome.s. moloney? >> thank you. and welcome. thank you very much for your public service. in your testimony you had some points, specifically in january the private sector gained over 250,000 private sector jobs. and we've seen over the past 23 months a steady gain in private

sector employment. over 3.7 million new jobs gained. i believe your chart that the ranking member pointed out is very graphic. we were losing 700,000 jobs a month when president obama took office. and we have been moving forward with economic recovery. and i thank you for your leadership. really, your brave and innovative heard ship during this time. but we are facing have many, many challenges. including the challenge of the long-term unemployed which seems to persistent and deep and strong. over 40% of those that have been unemployed have dn so over six months. i would like to know if you feel this is trustructural or if you think we can address it with our conditions of the overall economy. i am deeply concerned about the fact that we are facing the

largest income disparity in the history of our country. and that the gap seems to be getting larger and larger and the challenges for the middle and moderate and low-income people become stronger for them to make progress. the administration has announced their number one priority is creating jobs, growing our economy, and one of the things that we could accomplish in order to stabilize and our economy and create the conditions that would improve the opportunity for more job growth. i obviously believe in the dual mandate. and specifically, do you think that at this point in the cycle that we need the kind of budgetary tightness or shrinking of the government that my friends on the other side of the aisle are advocating for?

doesn't it make more sense in terms of our pra jill economy to have more fiscal stimulus, to pass the transportation bill, to help create jobs and improvements in our economy? and, again, thank you for your service. >> thank you. it's a very worrisome problem. as you say, 40% plus of the unemployed have been unemployed six months or more. highest so far in the post-war period. i think that happened because the decline in the economy has been so sharp and severe in 2008 and 2009 that firms in a panic-stricken mode just cut many, many workers. and many of those people have not found work and now may be three years. this has a lot of potentially serious long-run consequences. we know for individual worker it is you lose a job and you're out of job for a long time and you find a new job it will typically be a much lower paying job, for

example, or much less secure job. concern in particular is out of work six months or more will start to lose skills. lose attachment to the labor force. they won't know what's happening to their field or industry. that's the one reason for urgency is to get the jobs created and bring the numbers back to a more normal labor market. there's obviously no easy solution here. you asked about fiscal policy and i've tried to, i guess, have make three points about fiscal policy. one as we've already talked about that achieving long run sustainability and providing comfort to the public in the markets that deficits will come under control over a period of time. that's very important for confidence and for and creating more support for their recovery? at the same time, also have to protect the recovery in the near term. under current law, this is going

to be a massive fiscal cliff of large spending cuts and tax increases. so attention should be paid to the -- >> but mr. chairman, if i could, my time is running out. in some ways monetary policy has replaced fiscal stimulus. and wouldn't the recovery happen faster if we had a better balance between the two? could you comment on the need for a more fiscal stimulus? i believe we need more. >> i think that -- if you do that, it needs to be part of a two-handed plan, so to speak. i mean, the actions that you take in the short run, whether they be infrastructure or education or tax reform or whatever they may be, i hope that they are, you know, considered and wisely chosen. it's also important that we keep

in mind the long term necessity of making fiscal policy sustainable. so you need to think about those two things together, i think. >> thank you very much. >> thank you. the chair at this time recognizes the chair of the subcommittee on financial institutions. and ms. biggard, who has actually done some very good work on housing issues in our community, on housing, actually. >> thank you, mr. chairman. i would like to return to house for a moment. today through fha and rhs and fannie and freddie, the federal government and taxpayers back nearly 100%. it's in the 90% right now. is this healthy for the economy and what are the barriers in the lending and secondary market for home loans? >> you're correct that government supported agencies

are now pretty much the entire securitization market. they don't make all the mortgage loans but they do securitize and buy most of the mortgages in the economy. that obviously is not healthy. we would like to have a more diversified system with greater private sector participation. we're not seeing that. the reasons are not certain. i think in part the private label, so-called mortgage markets are still recovering from the shocks of the financial crisis. there's still a lot of uncertainty about where the housing market is going and, therefore, the uninsured securities that are put to the by a non-gse securitizers are not yet as appealing as they were before. there's still uncertainty about the framework that regulatory and legal framework for securitization in the future, so there are a lot of reasons. we want to have a more

diversified system. >> does dodd-frank help or hurt the re-entry of the private capital into the market? >> well, i think it's important to create more certainty. we're not there. there's still a lot of discussions. for example, the federal reserve and other agencies are still thinking about risk retention requirements, for example, and those have not been specified. it will be helpful, i think, to get greater clarity. i know -- i think it also would be helpful to get greater clarity about what the long-run mortgage market structure will be. there has been plenty of discussion in this committee and gse reform and covered bonds and other types of structures but there's still a lot of uncertainty about which way it's going to go. >> thank you. and then i go on to another question. the dodd-frank effective date for the volcker rule is july 21st. and we've heard that regulators think that this is a daunting task to complete by that.

do you have any plans to phase in i'm me men tap implementatior rule? >> yes, we will certainly be giving institutions adequate time to adjust and adapt to whatever, adapt to whatever rule that's put out. >> okay. thank you. and then i've heard from some of my constituent insurance companies that fed staff has been we pldeployed to insurance companies. what's the purpose of their presence that given that the insurance companies are regulated by the states? is the fed simply increasing its insurance expertise or does dodd-frank give the fed authority to regulators first? >> no, we don't have any authority to regulate insurers

unless, in the future, a systematically critical insurance company is so designated by the fsoc. that hasn't happened yet. it would be there's been some discussions just to give ourselves a better insight into the industry. >> what i'm alluding to is that there's been insurance companies where they've been -- ten of your staff has kind of moved in and taken up residency and they don't know exactly why they are there. >> i will find out and i will xun indicate with you. >> i appreciate that.with you. >> i appreciate that.cwith you. >> i appreciate that.owith you. >> i appreciate that.mwith you. >> i appreciate that.mwith you. >> i appreciate that.uwith you. >> i appreciate that.nwith you. >> i appreciate that.iwith you. >> i appreciate that.awith you. >> i appreciate that.tewith you >> i appreciate that. with you. >> i appreciate that.cate with >> i appreciate that. >> what kind of discussions are you and your staff having with the federal insurance office, which is designated to be federal insurance expert. >> we've been interacting with them on the fsoc, financial stability oversight counsel and we've been interacting in that respect. on your previous question, it would be that the insurance companies in question are thrift holding companies because they

hold thrifts. in which case we would have actually some oversight. >> all right. thank you. i yield back, mr. chairman. >> thank you, m. >> while credit conditions for small businesses have improved over the last past year, the number of small dollar loans, loans of $250,000 or less remains below pre-recession levels. and as you know, this is the type of loans that are important to early stage and start-ups. do you think credit availability for these loans will ever fully rebound to the high watermark set in 2007? >> well, i think there are a number of reasons why the number of loans being made is lower. first, given that the economy isn't that strong, demand for loans is not quite what it was. secondly, of course, lending

standards have tightened since before the crisis. and some of that is appropriate because as you know, credit standards were ahold of too easy before the crisis. so there are some reasons why lending has fallen, which no doubt will improve over time. but i think it's still the case where we're a little bit too far on the side -- the pendulum has swung a little bit too far. we're working with bank, particularly small banks, and i would reiterate this point, that it's incredibly important for banks to take a balanced approach and examiners to take a balanced approach so that they make a safe loan and they're so important for our communities and our economy to recover. >> if you look at the types of loans that banks are making. there is the big loans because they are the profitable ones. so in that regard, this is why

we pass this small business lending bill, where the feds were lending community banks money that they used to pay t.a.r.p. money back but then they made the loans that we were expecting for them to make. so given that scenario, do you think that it is still important and meaningful role for the federal government to play in providing lending programs that will fill that gap that exists from the private sector? >> well, we've had a good relationship -- the fed has had a good relationship for the fsb, small business administration. there was a crisis that gave them more flexibility and more funding. that might be an area worth looking at. >> under your leadership, the fed has significantly increased its commitment to transparency.

holding more press conferences and releasing interest rate forecast for the first time in its history. while this policy tools are good for the financial markets and wall street firms, they are of limited use to the general public. would you consider releasing guidance for households and small businesses after open markets committee meetings and what changes to monetary policies mean to them? >> that's an interesting idea. we have, of course, many speeches and i'm here giving the report to congress about monetary policy. i don't know what that would look like but obviously we are trying to communicate to the broad public. i've been on some tv programs and the like. as a matter of fact, later in the spring i'll be giving lech churs at george washington university which will be available to anybody online about the fed and the financial

crisis. we are working to improve our communications and your suggestions are more than welcome. >> thank you. thank you, mr. chairman. >> thank you. >> we have a talk about the reform bill and we will continue to. i would just like to point out for the record the bill is so bipartisan it's called dodd-frank. mr. bernanke, thank you for being here today. in your testimony and in your written remarks there are some things, coming from michigan, very hard hit state that is struggling to come back in this stagnant economy. there are some things that bear repeating. on page, i believe, 2. the economy appears to have been growing during that time frame at or below itting long-term trend. continuing to improvement in the

job market is likely to demand stronger growth and production. the job market remains far from normal. the unemployment rate remains elevated, long-term unemployment is still near record levels. and the number of persons working part time for economic reasons is very high. go on. fundamentals that support spending continue to be weak. we have house hole and income and waeltd were flat in 2011. credit remained restrictive to any potential borrowers. consumer sentiment which dropped last summer rebounded but remains relatively low. now, two questions and then i'll be quiet and listen. the first is, in terms of the credit still not getting to potential borrowers, what specifically do you think the reason for that is? and what do you think to be specifically done about it if not by you, i can understand why you can't discourse on that.

and finally my concern is that just a question about how this operates. it says here on page 6, the target range for the federal funds rate remains at 0% to 25%. now, when that type of rate remains in effect, does that have an affect on the personal savings, interest rates that individuals who bank get, and if that is the case, somehow that, let's say, stops them from getting a higher rate of return? would that not constitute them essentially subsidizing the operations to try to give money to, say, the banks, or to other people who are not giving the credit which then leads to the horrible things which i started my remarks with. >> on the latter point, you know, we are certainly paying attention to the effects of low interest rates not only on savers but on other financial institutions and the like. the banks complain about the low

interest rates. they say it reduces their net interest margins so it's not a profitable thing from their perspective. i would say from the point of view of savers though, for most savers, i think on average something less than 10% of all savings by retirees is in the form of fixed interest instruments like cds. remember, people also own equities, they own money market funds, they own mutual funds, they have 401(k)s in a variety of things. thosess are assets whose return depends on how strong the economy is. we're helping savers by making the returns higher. as we can see it's happened in the stock market, for example. >> excuse me, that's a very important point. so i don't subscribe to the fact that it's 10% that that means it was okay to have their rate of

return artificially lowered. i think what you're saying then is is that, yes, they are subsidizing this but in the long run it's better for them because you believe this will lead to economic growth. although, again, and we'll get to the second part of my question, that very much remains in doubt, doesn't it? >> well, the economy has been recovering and i believe monetary policy is set appropriately to help the economy recover. again, you can't get good returns in the economy unless -- unless you have growth. the other thing that we're doing, as you notice notice, we have set an inflation target and we're committed to keeping inflation low and stable and that, of course, is good or savers because it's the inflation adjusted return that matters in the end. >> i can and we can skip the first part of the question because they're interrelated. in short, it's almost as if you've decided you're going to invest what their potential interest rates return would have been into your recovery for the economy. and again, it may be recovering but by your own admission it's

either at or below long-term trends. we still have trouble getting money down into the hands of people with credit, people who can grow this economy and get jobs back, and the long-term prognosis is not particularly good for any time soon. it doesn't necessarily say it's a very good investment if i'm saving and you're spending my money on your recovery. i have -- >> we're not spending anybody's money. it's arguable that the interest rates are too high, that they're being constrained by the fact that interest rates can't go below zero. we have an economy where demand falls far short of the capacity of the economy to produce. we have an economy where the amount of investment and durable goods spending is far less than the capacity of the economy to produce. that suggested the interest rates should be lower rather than higher. we can't make interest rates lower. only down to zero. a healthy economy with good returns is the best way to get savers, you know, get returns to savers. on providing credit, i guess i

would just make one observation which was the news this morning that bank lending increased last quarter the fastest rate since the recession. >> thank you. thank you. we also, housing market declined in i think 19 or 22 major markets. we are seeing some signs of deflation. mr. watt? >> thank you, mr. chairman. i just wanted to let my friend know that the protocol has been to name bills after the people who head the committees of jurisdiction, which is why the bill was called dodd-frank. we had the majority in the house and the senate when it was split, it wassarbanes-oxley, which he doesn't like any more, i guess. oxley was a republican because we were in the majority, the

republicans win the majority in the house. we're following the same protoc protocol. >> the gentleman will yield. >> the gentleman obviously -- >> of course, you know, we didn't vote for it, either. >> chairman, yield. >> the name of the bill is voted for as part of the bill. you know, you lost that vote, so -- and nobody has reversed it yet. anyway -- if the gentleman would yield. >> let me get on to what we're here for. chairman bernanke one of the problems setting the horizons out so far is when you set in an accommodative policy horizon late in 2014, the private sector starts to expect that.

and if circumstances change, crawling back off that limb could be very difficult from a private -- private sector perspecti perspective. what if -- what if really things do change substantially in a different direction? i assume the fed has given itself enough leeway here to say we can go back to a more aggr s aggressive, less accommodative policy, i presume. is that correct? >> yes, sir. the policy is a conditional policy. it's based on what we know now, this is where we think we want to be. of course, if there's a substantial change in the outlook we will have to adjust accordingly. >> good luck if it does. i know how the private sector relies on accommodative policy. but i won't -- we don't