address this recession. we all want to deal with. several republicans have likened the fiscal situation of the united states to that of greece. and the u.s. financial situation to the sovereign debt crisis. they argue that social safety net in this country, as we know it, which provides critical support to the nation's 99% should be tossed aside. those republicans have used the european crisis to justify arguments for draconian austerity in the united states, as it is now being imposed in greece. chairman bernanke and secretary geithner, can the financial situation of the united states be reasonably compared to that in greece? just curious. >> as i responded earlier on this, i think a direct comparison is not appropriate.

greece has a much higher debt to gdp ratio. they're a very small economy. they don't have an individual central bank, a separate monetary policy. there are lots of differences. that being said, i think everyone needs to acknowledge -- and i'm sure you do -- that in the long run every country, including the united states, has to have a sustainable fiscal path and we need to pay attention to that. >> i agree. would you agree with that, secretary geithner? >> yes, of course. it's very important for us to contrast. the additional policies we have to agree in the united states to bring our deficits to a more sustainable level over the term is completely in our capacity to do without asking the economy to suffer without dismantling our safety net or without abandoning commitments to retirees. the gap between where we are today, we're expecting to be in and what's sustainable in economic terms is roughly 2%,

2.5% to gdp, a relatively small comparison to what other countries are starting to face. and the benefits we give our retirees is very, very modest. no one could call them excessively generous. we ask americans to bear the much larger portion of risk in retiring than most of the other countries in europe in that context. i see no comparison. we're a much stronger country, much better position fiscalily and financially. and even with all of our challenges -- we have many challenges and fiscal stability is one of them. we're in a very strong position as a country to address those challenges. >> greece failed to have a firm understanding of what is -- 2009 greece reported a deficit of about 7%. a month later this figure was revised to 12%. again later to 15%. when greece's sovereign debt was

reported, it had no explanation as to how such a monumental error had taken place. i cannot imagine the u.s. failing to have a firm grasp of what our debt actually is. would you agree with that? >> well, our debt obligation is complicated. we have unfunded liabilities with respect to our entitlement programs and so on. but, yes, i have confidence in our government's accounting system. in greece, there were obviously questions about whether or not the numbers were being accurately reported. that clearly made things much worse. >> now, in greece, any monetary -- mitigating financial must be channeled through a third party. european central bank. and we had agreed to by several -- must be agreed to by several other nations in the euro zone. is that right? >> i'm sorry.

repeat the question. >> in other words, the monetary -- in greece, any monetary stimulus aimed at mitigating financial stress must be channeled through a third party, the european central bank, and be agreed to by several nations within that -- in the euro zone. is that correct? >> that's correct. there's one central bank for the whole euro zone and it makes decisions based on the whole euro zone and not one situation. >> i guess that would make their situation more complicated than ours. >> it does. >> to deal with the deficit, spending and whatever? >> the main difference is that both the united states and europe have a single monetary policy, but in the united states we have a federal government and a national fiscal policy. in europe they have 17 different national policies. >> thank you very much. >> you're very welcome. >> the gentleman from pennsylvania, mr. kelly. >> thank you, chairman. and secretary bernanke, thank

you very much for being here today. i know you're in a difficult position. i've been in that same position myself many times. my question deals more with prime rate and where prime rate goes. if you go back to '47 around 9.5 to 9.8. right now we're 3.28. i remember, with not really pleasant memories, in the early '80s where it went to 21.5% for prime rate. some people tell me, are you out of your mind? that couldn't possibly happen. the reason i remember is because we paid 1% over prime for our floor plan. so, borrowing money to buy cars at 22% made it a little crazy. that meant we were paying 2% for month that sat on the lot. not to have too many cars on the lot was the idea then. what i worry about is our dollar starts to drop in value. as we start to pump more money into the equation.

we just negotiated a new loan to build a new building. it was certainty that the banks came to us, and we came up with what we thought was a real attractive package. but, again, the driver for all of us that own a small business is the certainty of what the markets are going to be or, as we look into the future, how we plan our purchases, our equipment buys, employee hires and everything like that. what do you see happening right now, dollarwise, our value of the dollar? it does drive what lenders will ask for us to give back. if r me it became very difficult because the covenance changed every quarter, the fact that we had singular purpose building. yo your collateral is not what it

was before. risk is the key that drives everybody. we're looking at great risk in europe and the con tantagion of. i look at us as mountain climbers, climbing on the same rope. once it starts to come down, it will bring us all down. prime rate, some certainty for the very near future. where is it going to go? >> well, first -- of course, the federal reserves policy has been to try to keep interest rates low to stimulate our economy. in that respect, auto dealers and auto purchasers have benefited from low-cost funding. so that's part of the plan to try to get your economy grow in with respect to the dollar there are two definitions. one is the value of the dollar

in terms of other currencies. which may matter. the other value of the dollar is the inflation rate, relating to gas prices. we haven't had the problem of the inflation since the '70s, as you were referring to earlier. i think our policies are achieving support for the economy without damaging the value of the dollar. over a period of time, don't know exactly how long, as our economy strengthens, obviously, interest rates will go up to some extent. the dollar will react to the change in interest rates and

react to expectations. we think that meeting our mandate of maximum employment and price stability is the best way to get a strong dollar in the medium term. that's what we're trying to do. >> i would agree with you. when it comes to auto sales. but, again, the 16.5 million units, attrition. i got to tell you, when i'm on the lot or in the showroom, when i look across the desk at people, it's the uncertainty of where they are going to be three, four, five years down the road. that drives their decision to make a purchase or not make a purchase. the stability of our economy recovery is so critical. i look at energy prices and watching the value of used cars drop almost daily. especially cars that are deemed to be gas guzzlers. you can lose 35%, 40% quickly as the price point goes up.

as i've watched it happen before, and we're very quickly reaching that tipping point again. about $4 where all of a sudden the whole world stops and we start to go on a rapid decline. i appreciate you being here today, what you try to do. mr. chairman i yield back. >> i thank the gentleman. now we go to the young lady from new york for five minutes. >> i thank the gentleman. i would like to ask unanimous consent to place in the record quotes and articles from -- secretary geithner, the president of the united states, simon johnson, former imf chief economist, all that say that europe is working hard to address the problem and has the ability to handle the problem. i think it's an important statement. >> without objection. >> thank you very much. i would like to come back to the stress test that came out last week, chairman bernanke. and 15 of our largest banks examined have sufficient capital

to withstand a crisis, according to this test. and by calculation, that is roughly 78% of all the banks tested. and i would call this overall positive news, although our banks do need to be -- do more. would you agree? >> yes. there's been a very substantial increase in capital and ability to withstand stress. >> i have a specific question that pertains to the european situation. what should we be doing here at home in order to ensure that american banks stay well positioned to manage their exposure to europe and the european financial situation? >> well, as supervisors, the first thing we look at is capital. the capital situation is much improved. the stress tests mimic, to some extent, an intensification of the european crisis on the united states. beyond that, though, we are looking more specifically at the exposures they have, how they're

managing those exposures. we talked about credit defaults and other kinds of insurance. we're also looking at liquidity and other types of aspects of bank safety. so, again, we've come a very long way in the last couple of years. and although a blow-up in europe, to be clear, would be very costly and create a lot of problems for our banks and for our economy, i think we're much better prepared to meet such a challenge today than we were a couple of years ago. >> thank you very much. you've testified before the financial services committee specifically on february 29th. you testified, expressed concern about sharp spending cuts that would take place next year, due to the inability of the super committee to reach an agreement on a plan. i would like to place in the record some of your statements. because there is a debate now before congress on the stimulus versus austerity. may i place that in the record,

the chairman's statements before the financial services committee? >> i -- >> you can look at them. >> i'm assuming this is his opening statement? >> no, no, no. it was in response to questions. no, it was in his opening statement. >> of course. without objection. >> secretary geithner, i would like to ask you basically do you think the u.s. government would be worse off instead of passing the stimulus package in 2009 it passed an austerity plan? and would you consider, since we now have before us a blueprint of how we're going to go forward with the budget, proposed budget that congressman brian put out yesterday and it's the equivalent of a severe -- severe and damaging austerity plan. his proposed plan cuts even more than the final agreement with

the super committee. and i want to know if you agree with this statement in "the new york times" when he stated, and i quote -- the truth is that if you were -- if you want to know who is really trying to turn america into greece, it's not those stimulus for our still depressed economy, it's the people demanding we emulate greek-style austerity. even though we don't face greek-style barring constraints and, therefore, plunge ourselves into a depression. would you agree with this statement? and what is your response to those who demand that our nation take austerity menl measures that have not particularly worked well in other countries? >> if the united states had not, in the early part of 2009, put

in place $800 billion in tax cuts and emergency spending increases, then our economy would have been dramatically weaker than it has been and we would be in much worse shape today. the estimates, of course, as you know, are recalling in the last quarter of 2008, the economy was shrinking at a rate of 90%. those actions combined with those of the fed to stabilize the financial system. we had growth resume really, really quite quickly. as you know, we have some very fundamental disagreement with the president's opponents on the fiscal side. the ryan plan, as i understand it, would not just cut spending too deeply and prematurely in the short term but would dramatically erode our capacity, seniors in medicare and dramatically erode what is already a very weak system and without the ability to fund critical investments in

education or innovation, which we think are essential for our ability to grow in the future. we would not support those policies, do not bvened states and do not believerespsible to where the economy is still healing from a deficit crisis. >> thank you for your incredible service at a pretty tumultuous time. i want to go back to this question. i'll start with you, mr. bernanke. we're having a debate, as you know, in congress with the level of t d we ould be pursuing or should it be investment, putting it in broad terms. and on the investment side have it be something where, in the short term we try to maintain low interest rates and rebuild

our economy, but have a long-term plan to make for a sustainable fiscal future? on this question of austerity, the budget that's recently been introduced, i think it has implicit in it two assumptions. one is that austerity will be beneficial to growth and the budget that's been proposed in the house for our consideration would cut spending across the board in many of the domestic nondiscretion -- the domestic discretionary areas. infrastructure, housing, medical research, education. it would fence off the pentagon. in fact, sequester cuts would be avoided. so, number one, the implicit assumption is that austerity is the path in this budget, the path to progress and growing. the second assumption in this budget appears to be that if we reduce taxes on folks who have

substantial incomes, that likewise will lead to growth. my question to you is, is there any evidence that either the assumption about cutting tacks on high incomes in these economic circumstances does lead to growth, number one? number two, is cutting some expenditures in these items i mentioned, medical research, education, is there evidence to indicate that that will also lead to growth and a lower debt? >> i think the general approach without talking too much about specific policies, again, is a balanced approach which works to achieve financial stability and fiscal sustainability in the longer term while being respectful of the need to maintain the recovery at the current stage. i think that's a balanced approach that can be managed.

on the other issues, i think it's also important not just to look at the size of the debt or the debt to gdp ratio but ask ourselves, what is the quality of the fiscal programs being undertaken if we're making investments? are they a bridge to nowhere or a type of infrastructure investment that will improve and protect the investment being made? on the tax side, is it smart tax policy, broadening the base of lowering rates and achieving a fair and more efficient tax code? so, on both of those things, a balanced approach to fiscal sustainability, but also looking at the programs with the eye of trying to achieve healthier long-term growth is very important. >> thank you, secretary geithner. do you have anything to add on that? this is the central debate in the house, certainly. >> the fundamental debate we have to face and things that happened at the end of this year require congress to confront these things, a huge incentive to deal with them now.

the choices are how fast should we cut our deficit? be careful not to do it in a way that would undermine the economy in the short run and long run. what mix of cuts and tax increases is the most appropriate for the long run? what should be the role of government in helping support investments and infrastructure, returns over time? and what commitments should we leave in place for our retiring seniors? in education so that we're growing over the long run and maintains a commitment made by republicans and democrats for decades in this country to guarantee our seniors a retirement security and health care security any their

retirements, and those are things we can afford to do and we can't put off fiscal challenges indefinitely. this is unsustainable in the long run but that is not an argument to go in dramatically erode the capacity of this country to maketo make the economy stronger by more opportunity over the longer run. >> thank you. i recuse myself to a second round and will try to be brief and get you out of here before 12:00. chairman bernanke, you alluded to how much of the budget, how much of our deficit. i apologize. how much of our sddebt is not really on budget. if you take our on-budget debt, our inner government debt and our off-budget liabilities, contingenof liabilities roughly what is our debt? >> i'd have to get back to you. i think the biggest component of

off-balance sheet is the unfunded medicare liabilities. 75 years a tremendous number. more than $20 trillion, something like that, according to the medicare trustees assumes continuation of increased costs we see in health care delivery out to the indefinite future. >> so at 100% of gdp on budget, we could be at 300% or 400% of gdp included what's -- >> as i said if we don't make any changes to our current fiscal trajectory it's definitely not sustainable. >> secretary geithner, and i'm only entering this subject because he brought it up, talked about these costs being small, but isn't it true that america already spends a bigger percentage of gdp than our european allies do on health care? in other words, we already are more generous in health care in the sense of what we spend? maybe not what we get for our money, secretary's absolutely

right. more than half of all health care is paid for outside of government, but it doesn't mean that what's paid for in government isn't already larger than what kacanada pays for heah care in government? isn't that right? >> it's true the united states spends more total on health care as a shared gdp than other industrial countries. >> i'd like to ge on looking at that for a couple of reasons. a lot of discussion about austerity, and this kind of brings it back home a little bit. i'm an art laugher economic guy. but i think we can all understand, i knew that was good for a laugh here -- we can all understand that all economists tend to believe there's probably a sweet spot. in other words a right balance of public and private spending. a right balance and so on, as we talk about austerity in greece or in portugal, in any country,

we talk about austerity here and particularly, mr. secretary, aren't we agreeing that we're trying to get to the same position, whatever that sweet spot is of promoting growth through not taking it all to the government, and that we're only debating when you talk about this, the rate of austerity, we're not debating where we need to get to. where we need to get to so that the private sector flourish is probably very similar to where we're telling the countries of europe to get to. so that the difference of the austerity we ask for others and the austerity with plead to get to may be about how much time we have to get there more than it is about where we need -- what we freed to achieve. isn't that true? >> that's probably right. the fundamental reality, the fundamental constraints we all have to live with, get the deficit down to a point where the debt stops growing as the share of the economy starts to climb and you have to stabilize it at a level that's -- that's

acceptable. >> and i want to follow-up with that for the record. >> the difference, your first question, is it's partly a debate about how fast, and what's appropriate, but it's also a debate about the composition, and the composition, if you look at what divides the -- >> the left and the right will never agree on where government should spend/invest. so we'll assume that part is probably very much ours. chairman bernanke, you'd already, i think, provided a little bit of a miyaand -- mea culpa, but you put out what banks should do. if you don't mind i'd like to follow-up to the great extent ever the ranking member. in your paper, again, your representative from richmond, virginia and others may have chastised over this. since it's out there in the record, one of the things in the white paper had to do with the

possibility that a bank should essentially flip their properties into rentals. that that was an element, and that the ranking member very disciplined, talked about principle reduction. when we're looking at, at what is best for people who find themselves in homes that they could not originally afford. i mean, principle reduction in these low interest times assumes that they can no longer, or could not when they bought the home, afford what they bought. when we look at the potpourri of options both for the freddie and fannie and fha and for the banks in their roles, would you comment further for this committee on the record to try to understand why these alternatives of perhaps you can't afford the rent for this home for a period of time, perhaps that's the best transition. perhaps it's best for the community. that's an element that has not been discussed, if you will, by

the left or the right, and you did put it in your paper and to the extent that it exists, i'd like to have it fully vetted. >> the -- the theme was that we need to attack the housing issue at different points. obviously, if we can avoid unnecessary and uneconomic for closures we should do that and there are multiple ways of doing that. we didn't come down in favor of any specific approach. it depends on the situation. we noted that no matter how hard we work and the country's been working pretty hard on this issue there be going to be still a number of foreclosures that occur. people who lose their homes or leave their homes, investors who abandon their properties. and it's bad for the housing market. it's bad for neighborhoods for empty houses to stand, you know, in a row, on a street. so we still think that we should be looking at ways to avoid

unnecessary and uneconomic foreclosures, but another part of the sprob problem is we have so many houses overhanging in the supply pushing down prices and reduces construction. so there are various possible approaches to that. one of them is roe to rental, we described and talk about in our paper. other things for houses in bad condition. land banks can purchase them and perhaps bulldoze them if necessary. so our point is only that loan modifications have a role to play but there's a whole number of different things that can be helpful in the housing market. >> i'll give the ranking member additional time if he'd like it but i want to follow-up with one more. this is much more broadly in your per viurview, both of you. a number of cities and states have found ways to extend dramatically the amount of time it takes for foreclose on somebody that isn't paying. in brooklyn where we were they basically got it out to three years, if your papers are all in

order between the time someone stops paying and perhaps stops maintaining the home and the time that the institution can take possession. in the case of illinois, i'm sorry, the gentleman's not here right now. they tried to have freddie and fannie during the foreclosure process, maintain the home on batch of the homeowner who's not maintaining it on behalf of the community. i don't want to presume your answer. would you say these are probably not helpful to either the long-term credit market or the, because of center, or to the process that we're trying to get beyond and get to where we have a positive market and positive neighborhoods and feel free to answer as you think is princhts think delay for the sake of delay is not constructive. it, the homes deteriorate. the process drags on, and the