strategies in place and current account balances, i do not believe europe's problems are as threatening to us as they once were. the greater threat to our economy is that europe will successfully confront their debt crisis and we will not successfully confront ours. although the dollar remains the world's reserve currency, we are beginning to see some chinks in that armor. although our economy still remains the flight to safety, the question is for how long. interest rates remain historically low due to the feds trip lipg its balance sheet but this massive intervention is just masking true market interest rates that are making it easier for the administration to service the debt on the nation's first, second and third trillion dollar plus deficits. everyone knows our debt is unsustainable and as herb stein once famously observed, if something cannot go on forever, it will stop. beyond the unsustainable debt, the administration has stated there are some encouraging signs

in our economic recovery and i agree. but after three years, there continues to be too many discouraging signs. unemployment has now exceeded 8% for 37 straight months, the longest span of high unemployment since the great depression. when one adds in the people who have simply given up and left the labor force, those who have part-time work yet seek full time, the true unemployment rate should actually be considered to be 15.2%. according to the world bank, the ease of starting a business in the u.s. has now fallen from fourth in the world to 13th. according to the census bureau, almost half the nation is classified as low income or living in poverty. gas prices have doubled. if this too slow and too weak recovery had achieved the average growth rates of the ten previous post-war recessions, gdp per person would be $4,528 higher and 13.7 million more americans would be working today. the american people know we can

do better. perhaps more importantly is they see europe grappling with their debt crisis. they see no evidence we are confronting our own. since the president took office, the national debt has increased 45%. from $10.6 trillion to $15.4 trillion debt held by the public -- gross debt, rather. in the budget the administration just released a few weeks ago, they would add ear $37 trillion on top of it. what is most ironic is we convene a hearing that will largely focus on the european debt crisis is that when you look at the numbers, the u.s. has a worse debt-to-gdp ratio than does the eurozone. there is no greater threat to our recovery than our own fiscal trajectory. unfortunately, the president's approach to europe appears to be do as i say but not as a do. now, the president knows what the cause is. he has said, quote, the major driver of our long-term debt is medicare, medicaid and our

health care spending. nothing comes close. i agree. but there is nothing in his budget to reform, save and secure thee programs and i'm not the only one to take note. the los angeles times says it's past time for the administration to lay out a credible plan for bringing the deficit and debt under control. sadly obama's budget proposal shows he would rather wait until after the election to have that reckoning. the boston herald said president barack obama has apparently decided he is not going to be a part to the nation's enormous deficit which would make him, yes, part of the problem. as we discuss issues facing the eurozone, i want to make two things exceedingly clear. one, we cannot continue to ignore our own unconscionable and unsustainable debt. secondly, u.s. taxpayers should not be expected to and cannot afford to bail out foreign countries. i am encouraged that the administration has stated that it does not plan to seek additional funding for the imf.

but the imf has announced its intention to further expand its lending activity through bilateral loans. when it does, u.s. taxpayers will be increasing leexposed to greater risk as the u.s. has a 17.5 equity stake in all imf loan operations. the imf is venturing into uncharted territory. never before has it lent money to countries on the scale that it has to greece, ireland and portugal. in our discussion today the secretary will shed light on what we can expect the administration to pose on a long-term plan that will prevent the united states from being on the road to becoming the next greece. mr. secretary, i look forward to your testimony. i will yield back the balance of my time. at this time the chair recognizes the ranking minority member for five minutes. >> i am pleasantly surprised that in the last 30 seconds of his statement the chairman managed to talk about the subject of this hearing. but most of it was a, i think,

somewhat inaccurate attack on the general fiscal policy of the united states, and i remember a time when there were people on the conservative side who accused liberals of taking a blame america first strategy and saying everything was america's fault. apparently that practice has switched sides because we have a situation in which, as mr. bernanke said, and people sometimes forget ben bernanke was the single most important economic appointee of george w. bush. and mr. bernanke has agreed with president obama that the european situation is one of the major threats to our being able to continue our recovery and at a time when it is generally recognized by economic analysts that america did a better job of dealing with the crisis than europe and where america has been helpful in trying to get europe to move but where there were still serious problems, the chairman says, no, it's america's fault. that europe should be apparently the example for us. even though if you look at

developed world economies today, america is performing far better than any of the european economies. the european economies are not doing nearly as well in economic growth as we are, but the chairman would rather make a partisan attack on the administration. when he does get to the international situation, it does seem to me he gets it very wrong. he does acknowledge that there is some impact from the european debt crisis, but he is somewhat critical of our efforts to tede with it, particularly the imf. the notion that we should use our voting power on the international monetary fund to keep them from participating in an effort to deal with the european crisis is economic self destruction. the fact is that the imf is playing a very important role. it has been somewhat successful so far in helping. and the decision today that america was going to prevent any

imf participation in an effort to stabilize the financial situation in europe would have a disastrous effect on the american economy. now, a disastrous effect on the american economy would also have a negative effect on the president' chances for re-election. perhaps that mitigates the negative economic effect. but the notion that we should try to block the imf from constructive participation is economic mindlessness. and then we did talk about the deficit. an again the chairman seems oddly blaming america first when he contrasts the european's view on debt and their actions to ours. well, the europeans have one great advantage with regard to trying to cut their debt. they have outsourced their defense to the united states taxpayer. if the european nations, our nato allies, the eu members were spending a percentage of their gdp comparable to ours, their debts would be far greater. conversely, if we were to be able to reduce our gdp spending on defense to being only, oh,

maybe twice what the average european one is, we would be making great progress. the chairman quotes the president as saying medicare and medicaid are the greaters drivers. i don't recall in what context the president said that, but i think that's wrong. i think that the excessive military spending, which in some cases has done more harm than good, such as the war in iraq and which is showing increasingly futile in afghanistan, but the united states taking over, as it has since world war ii the defense for japan, the defense for germany, the defense for other wealthy nations, that's a major factor. so to talk about the europeans as models of how to deal with their debt and denounce america for higher debt and ignore the fact that a major part of that is that we are carrying their defense, let's join on cutting that. i am having a hard time reconciling my republican

colleague's that it's important to cut the deficit to go into syria and get more militarily involved earlier with inner, with the criticism of the president talking about withdrawing from afghanistan. for the criticism of the president for getting out of iraq. i do not understand how many of the republicans who are critical of the president for not spending tens and tens and perhaps hundreds of billions more on the military over the next few years than he is predicting reconcile that with the notion that we must cut the deficit. and i'll close by getting to the subject. we have a very important issue here. there is a debt crisis in europe that is threatening america. we have the best performing of the developed world economies but it's not doing good enough. one of the major threats to that would be the crisis in europe. i support what the administration and federal reserve have done to deal with that and that includes support for the imf. >> the chair now recognizes the chairman of the subcommittee on

international monetary policy and trade for three minutes. the gentleman from california, mr. miller. >> thank you, mr. chairman. secretary, gts to have you here today. it's been a while since we've seen you. there's just a concern today. i know you recall when we went through our crisis that europe was very cautious in staying over there and that was an american problem. we're very cautious in that way too. the imf has been very good in giving technical advice an direction on what they should do to resolve their exposure to the european crisis, but we're concerned that it's not transported over to us. now, we understand the nexus between trade and financial service sectors that we have between our countries, but this hearing today is very important because we need to really understand where we're going, where the administration is going and where we end up. we don't want to end up with their debt in our lap and the american taxpayers are very concerned about that. that's not an accusation, just a genuine concern. i've said all along this

european problem is a european problem. we need to insulate u.s. taxpayers. there's a huge interconnectedness between trade and the financial markets and i hope you can give us your objectives and share your insight on where you think we're going on that. there's a serious concern raised in congress that imf resources will be used in the eurozone and if that happens and we're their largest shareholder in imf that that's going to be used as a bailout for europe and the burden will fall back on us. i hope in your comments today you can address that, because that really is a huge concern for us. we're just trying to come out of our crisis, and i'm going to restate again. when we were going through our worst time europe -- and you dealt with it, europe was very concerned that was not a european crisis, that was a u.s. problem and we need to resolve it ourselves. this committee has the same belief. yes, we're concerned about europe and we're concerned about their crisis. we want to assist them in any way we can, but the financial

burden should not fall back on this country to resolve their problems over there. some of the major regulations the administration is imposing will have the effect of imposing that burden on us, we believe, especially in our financial sectors because they're not adopting similar policies to what we're adopting over there and it will put us at a really financial disadvantage. there's not a european country that seems to want to comply with the regulations placed on our companies. if they don't, what position does that put the american companies at a disadvantage to the european companies in the future. if we're ever going to get out of the situation we're in today and we're moving slowly in recovery, we cannot put the financial services sector at a disadvantage and i believe the volcker rule will do exactly that. i hope the administration looks at that and says if impositions of requirements on financial

sectors in the united states are not being looked at in the same way as europe and our companies are at a disadvantage, then something wrong is occurring and i hope you'll try to help american companies and i see my time has expired. i yield back. >> the chair recognizes the dez ig knee. >> i'm down here, mr. secretary. thanks for coming today. i'm eager to hear your perspective on the situation in europe and in particular the threats that that situation poses for the recovery here in the u.s. i have really two main questions. first is can greece be put on a sustainable path forward. greece has had austerity measures imposed on it and currently its current fiscal path is unsustainable. at best, the benefits of these structural reforms are long term. can greece get over it in the short term i think is the question. they have very incredibly

difficult decision, political decision to be made as to whether or not they can and should impose more austerity and what the costs might be to the political situation. we've heard the reports this week about political dissent in europe. as a member of the eu, greece doesn't have one of the main tools that most countries otherwise would have, which is to devalue its currency to sell outside of the country and respond that way. so they seem to be caught in a bind. they have the worst of all worlds. they have the austerity imposed on the people and yet they don't have the ability to grow out of it with the devalued currency and so i would be interested in your thoughts on that. the second concern is the implications of a prolonged crisis on the united states and in particular the exposure that u.s. banks have to credit default swaps, greek debt and that type of thing. we've had other discussions in this committee and other venues

about that question and i'd interested in your view of that and also be interested in knowing your thoughts to the extent of the reforms of dodd-frank and how they have improved our ability to understand those risks and to mitigate against them. dodd-frank as you know was designed to promote transparency, monitor systemic risks and ensure that u.s. financial institutions can withstand shocks to the system. the question is simple, have these reforms enabled us to do that? have they given us more information? do we understand the exposure and systemic risks that exist for major u.s. financial institutions and markets? again, i want to thank you for being here today and look forward to hearing your views on these particular issues. >> i yield back. secretary geithner, welcome back to the financial services committee. without objection, your written statement will be made a part of the record. you'll be recognized for five minutes to summarize your

testimony. the chair wishes to announce for the benefit of all members that the secretary has a hard stop time of 12:30. please observe the five-minute rule and plan accordingly. mr. secretary, welcome again. you are recognized. >> thank you, congressman. thanks for giving me a chance to come before you today and talk about in particular developments in europe but i'll be happy to answer any questions you have about the united states or the broader global economy. europe is of course a key strategic and economic partner of the united states and we have a huge stake, huge economic stake, huge national security stake in the success of europe's efforts to contain its crisis. our economy, as you acknowledged, is gradually getting stronger, but we still face a lot of tough challenges ahead as a country. as you know in early 2009, the u.s. and the global economy were facing the clear and present danger of a second great depression. we acted with the federal reserve and with congress to

pull the u.s. and the world economy back from the edge of the abyss. we successfully stabilized the financial system and restarted economic growth. over the past two and a half years despite the crisis in europe, despite the rise in oil prices early last year, despite the disaster in japan, despite the huge damage to confidence in the united states caused by the threat of default on the u.s. government's obligations for the first time in history, despite all those challenges, our economy has grown at an average annual rate of about 2.5% over the last two and a half years. the private sector has added nearly four million new jobs. private investment and exports are expanding much more rapidly than gdp as a whole and we're seeing quite broad-based strength across the american economy in agriculture and energy, manufacturing and in high tech. but looking forward we still have a lot of work to do to repair the damage caused by the crisis.

unemployment is still very high as you all know and the housing market is still very tough. we still face a challenging and very uncertain global economic environment with europe still facing a long and very difficult crisis and the risks surrounding iran, which are adding to upward pressure on oil prices. in that context, the context of oil markets, i want to welcome very much the statements made by the saudi authorities the last couple of days that they will take further action to increase the supply of oil to global markets, a very constructive signal. china's exchange rate has appreciated significantly in real terms against the dollar. not just over the past five years, but over the past 20 months or so. and although they still have some way to go in achieving a more market oriented exchange rate that better reflects economic fundamentals, we're seeing very substantial growth in u.s. exports to china. we have acted with the rest of the world to significantly strengthen and reform the international financial institutions over the past three

years. imf, the world bank and others. i want to express particular appreciation for the support of this committee, the bipartisan support of this committee in those efforts. we're making a lot of progress and i'd be happy to talk about it in more detail in strengthening global standards for financial reform, global standards and oversight over the global financial system, so that u.s. firms who compete in those markets face a more level playing field, even as we put in place tough reforms here in the united states. now, a few things on europe. over the past few months with our encouragement and support and with the support of the imf, europe's leaders have been making some progress in putting in place a more effective, comprehensive strategy to deal with their crisis. this strategy has had four key elements. the first are economic reforms in the member states to restore fiscal sustainability, to restructure their banking systems and to improve their competitiveness, boosting their longer term growth prospects. the second are institutional reforms, including what they

call a fiscal compact that establish stronger disciplines on the fiscal policies, the budget policies of the member t deficits, and the level of debt is assured gdp. the third is a coordinated strategy to recapitalize the european financial system alongside some guarantees for bank fundings. and the fourth piece is a firewall of funds, of financial funds to provide financial support to governments undertaking reform so they can borrow money at sustainable interest rates. now the european economies caught up at the scepter of this have put in place really tough reforms over the last 18 months or so. these have been aided and assisted. reform with a more active ecb to

calm financial tensions. it's very important for us all to recognize that europe is still at the initial stages of a long and difficult path to reform. and that path of reform of crisis resolution presents risk to the american economy still. the policymakers in the euro area have to carefully calibrate the mix of financial support they're providing and the pace of fiscal consolidation they're embarking on. that's important to recognize. the economic reforms will not work without financial spouppor that allows the government to borrow at affordable interest rates. if every time economic growth disappoints, if every time economic growth is somewhat weaker than anticipated, if governments are forced to cut spending and raise taxes immediately, then that would create a defeating negative

spiral of growth os terty. the most important unfinished piece of this is to build a stronger european financial fire wall, again as a backstop for the governments upside taking reforms. they are now in the process of review i reviewing options for the two funds to make it clear to the financial markets that they have the resources available on a scale commensurate with the needs they may face in the future. the imf has played a very important role in europe. they've provided advice for reforms public monitoring of progress, and financial support for the programs in greece and ireland and portugal, in partnership with the europeans, which are assuming the majority of the financial burden, as is appropriate.

it's very much in the interest of the united states that the imf is able to continue in europe. they can help supplement the resources europe mobilizes on its own. they played a major role in every post war financial crisis, while consistently returning to the united states and other imf members any resources they've drawn with interest. we've never lost a penny in our engagement with the imf. that's because it's backed by very substantial set of taped guards, including a substantial amount of imf gold. over the past 18 months as you know, the european crisis has hurt the american recovery. it's been a drag on growth in the united states and around the world. but europe has pledged to do what is necessary to contain this crisis. they're making progress on this path. but they're going to need continued support and

reinforcement. and then this process is going to take a lot of time. thank you, mr. chairman. i would be happy to respond to your questions. >> thank you, mr. secretary. the chair will yield to himself. i remain somewhat confused, though, because two years ago there was an agreement the first question is if you do not plan to seek additional funds now, do you have a timetable in which you will? they reached a global agreement in that time of emergency. and then subsequent to that, we

reached an agreement on a set of reforms that would change the government structure of the imf, adapt a bit to better suit the challenges facing the world. and to shift the balance of the resource between the quota source and the supplemental reserve fund. we'll come at the appropriate moment to request authorization for those reforms to take place. those proposals do not increase sources available to the imf. in the present context the imf still has $400 million of resources available to respond to the challenges of its members. we don't see the case for asking the imf shareholders to agree to another increase of resources to

lessen the burden on europe. europe is a rich continent. they have the capacity to solve the problem. we don't want to see the imf's role substitute for -- >> mr. secretary, if i could, i thank you for that. as you know we have limited time here. i would like to get onto my next question. sometimes what i consider obvious around here is not obvious to others. we have disagreements with the administration. with agree the appointment was unconstitutional. we'll set that debate aside. it also appears obvious to many of us that if the administration changed its mind and wished to increase contributions to the imf, our belief is you would have to come to congress to do that. so i my question is, does the administration have a differing view, do you have legal authority outside of coming to congress to increase the imf

contribution? >> no, under the laws of the land, and i fully support this, i think it's good for this country. we cannot loan money to the imf without coming to congress to authorize that increased contribution. >> the next question then, mr. secretary, setting aside the federal reserve's liquidity swap arrangements, in your opinion does the administration have any other legal authority outside of the imf quota? to provide any type of grant, loan, loan guarantee, or any other financial assistance to the european countries? >> i do not believe so. you're right to reserve to the fed authority. they provide other forms of assistance.

outside that, it's like any matter of spending under the constitution. you get to decide. and you control the authority. there's one other exception, which is congress has given the president a -- what's called the exchange stabilization fund, where we hold the foreign reserves to the united states. not really relevant in this context. they are not requesting additional funds for imf. obviously the imf has announced their intentions to engage in a number of bilateral agreements. which does not require -- would require a 50% vote of the imf. won't the increase in the

bilateral borrowing from other countries to the tune of $500 billion stubstantially increase? >> it would fend on how the resources are used. as you would expect, we could care a lot if they were done on terms that woud not disadvantage the u.s. financial position and the imf. >> thank you, mr. secretary. the chair now recognizes the ranking member for five minutes. since the question came up, i would like to say i do agree there was a gross violation in the constitution about the refusal by the republican senators to allow a confirmation to take place. they did not have an objection to any individual nominee. they were going to hijack the process to extort a change.