>> -- you can't control what's happening in banks in europe. is that correct? >> i cannot, no. >> and we can't do a stress test. timothy geithner can't run over there and do a stress test. but the we're asked to help with the situation in europe, what assurance do you have or can you give us or can you tell us that we can give the american people that we're doing that due diligence, or is that help just not available? is that one of the things that's just not on your -- within your realm of being able to help? >> well, i think is u.s. government's position has been recently that europe is a rich region and that they have the resources necessary to achieve stability. i think the main problems over there are political rather than economic. there's 17 countries involved, a lot of different interests. so, you know, i'm not sure what's the right thing to do

other than be supportive and try to provide whatever advice, you know, and verbal help that we can do. but -- >> we can send them a get-well card. >> send them a get-well card. what the federal reserve is trying to do is try to protect our own country, and we're doing that by strengthening our financial system, by making sure -- or at least by monitoring on a regular basis the exposures that our financial systems have, both direct and indirect and how they've hitched. we've done the swap, which was i think a useful thing, that helped stabilize the money market -- the bank funding markets over there. i think the main thing that we have not done yet but could do if financial conditions got sufficiently severe would be to use our authority through the discount window to lend to financial institutions against

collateral to make sure that lack of liquidity was not a reason they would collapse or at least stop lending. so i think that's the main tool that we obviously have in reserve that we could use, that we will use if financial conditions call for it. >> are there any u.s. banks whose capital could be seriously jeopardized by what's happening in europe that then could push a lehman-type scenario to the forefro forefront? >> well, as i said, we've been monitoring the direct exposure, and for the most part our banks are far less exposed to european problems and european financial institution debt than are the european banks, which is why there's such a difficult interaction between the sovereign debt problems and the banking problems in europe. that being said, if there is widespread contagion, hard to predict, operating through financial marks, operating through the potential problems of a large european institution, whatever that might be, that we

can't really foresee or guarantee that there might not be serious stresses on some u.s. financial institutions, in which case the federal reserve weather the experience that we had in 2008, is certainly going to do what's necessary to try to mitigate that problem. but i don't mean to be representative saying that there is no problem. there is a risk. and all we can do is prepare for it as best we can. >> thanks, chairman. i'll yield back. >> representative hinchey. >> well, thank you very much, mr. chairman. mr. bernanke, thank you very much, for everything that you've done and all the things you're engaged in and for also being with us here today to talk about these issues. i think that, you know, we've come a long way considering the financial meltdown that occurred back in 2007. but we've still got a long way

to go after that. i still think there are some things that congress must do to ensure we do not go down the same path of our european counterparts. and i think that that's an interesting set of circumstances there. the end of the recession, our economy has steadily improved. we're still working hard on that. we have created 4 million private sector jobs and unemployment has steadily decreased to 8.2% now. president obama, i think, deserves enormous credit for turning the economy around. if it had not been his action and those of the democratic majority, i have no doubt our country would have fallen into a deeper economic depression. so, we obviously have a long way to go, but the president is on the right path. the fed's aggressive action and monetary policies that have stimulated the economy have also been instrumental to getting our economy back on track, but we have a long way to go.

europe, on the other hand, has been a total disaster. europe has clearly proven that austerity was the wrong policy to pursue during a recession, if you look at the situation they're dealing with there. greece and spain, 20% and 24% respectively unemployment in those two countries. britain has shown zero economic growth over the course of the past year. so naturally, i'm surprised with such strikingly different recoveries occurring between united states and europe, that so many united states lawmakers will continue to support the same types of policies that are utilized by europe. what do you think are the key lessons that we should learn from europe's failed monetary poli policy, particularly austerity? what do you think the united states is most at risk in the context of that situation of repeating? >> well, i think in fairness you

have to agree that there are structural differences. you have 17 different countries on a single monetary policy, essentially a fixed exchange rate. there are, in fact, some very serious fiscal situations. greece, for example, probably has no alternative but to try and cut its deficit. so there are some important differences. i think, though, that the main message i would take is the one i've been trying to sell here for the last couple hours, which is that a sensible fiscal policy is one that takes into account both the short-run needs of the economy not to lose fiscal support sharply and rapidly during a period of fragile recovery, while tame combining

that with a medium-term lan plan to -- i mean, we do have to address these fiscal sustainability issues. i don't think it's inconsistent to do both of those thing, and that -- that's where i would differ with at least a few of the countries in europe. but, again, the situation is much more complicated. the countries that have capacity to expand their budgets, for example, like germany have much less need than the countries like greece, which have very little capacity to spend more of or borrow more. >> germany is another example. but the other things are negatives examples that we have to deal with and we have to be acting i think in a very positive way, according to with what you've been talking about. also, after congress and president obama acted in 2009 and 2010 to turn around our economy, since then, since that happened, the house has basically done nothing

significant to revive our economy. as a result, the fed has moved to lead the efforts to help get our economy back on track. however, we have nearly exhausted all the fed's tools to nurture our economy back to health. i don't think needs to step up to the plate. clearly, our actions back in 2009 and 2010 turned things around, but more needs to be done. more needs to be done effectively and strongly. we can't allow the european austerity model and allow growth to just continue to fail and have it fail on us. the american jobs act is a prime example, unfortunately, of stalled legislation in the house that would inject nearly $450 billion worth of tax cuts, jobs, business opportunities, all of those things into our economy very, very positive and very, very strong, if it were put into

place. i think it has been a major mistake to sit on this legislation when it could be helping so many people. so do you think congress has carried its fair share of the burden with regards to stimulating economic activity? and do you think legislation such as the american jobs act is important to help the fed stimulate job growth and economic activity? >> well, i certainly agree, as i've said before, that monetary policy cannot carry the burden by itself. we need good policies over a range of areas from congress. now, you know i'm not going to endorse a specific -- a specific program, but i hope that congress can work together to address, you know, their problems across the economy in a number of different sectors. and i hope that, you know, congress will work collaboratively to try to address some of those problems. >> thank you. >> representative duffy.

>> thank you, mr. chairman, and good morning, mr. chairman. i want to talk to you about too big to fail. we had all heard two years ago when dodd/frank passed that this was going to be our silver bullet to address this issue of too big to fail and to make sure that the taxpayers wouldn't hold the bag should one of these large institutions fail to make sure that it doesn't roll our whole economy. and i guess i would argue that dodd/frank hasn't fully and completely addressed the issue of too big to fail and it still exists. i think it's come up more recently as we look at what's happening in europe. but here at home it's come up with regard to jpmorgan, and they experienced a $2 billion loss, it might go up to $4 billion or $5 billion. and some have argued that the volcker rule would have addressed, had it been implemented -- and that's going to come shortly -- had it been implemented, it would have addressed this massive loss from jpmorgan. one of my concerns, though, is

when you look at the volcker rule and you look at these trades, it becomes very difficult to determine what is prostrating and what is macro henl i hedging. if you sit in the classroom, it might be easy to work through the volcker rule, but in practice, isn't it very difficult to use the volcker rule to stop the issue of jpmorgan? >> let me say in the specific case, we're still vetting it and i don't want to talk very much about the specific case. but in general, yes, differentiating proprietary trading from legitimate hedging activities and market-making activities the inherently very difficult, and regulators are looking at 19,000 comment letters and trying to figure out how to do that as best as possible. one comment i would make, which my colleague made yesterday, one requirement of the volcker rule is there be very extensive documentation and explanation to

the supervisors in advance for complex hedges as well as auditing and appropriate insensitives for the executives involved in the activities of the traders. so at a minimum, if the volcker rule would have been in place, we would have known a lot more about this whole situation, and that might have been helpful. >> in the classroom theory, i agree with. i'm not opposed to it. i'm concerned about the implementation. but isn't really the silver lining here that there was no taxpayer loss here? jpmorgan had the appropriate capital requirements. that's what you'll talk about later on today with basel. isn't the real issue here not thousands of new rules and a 2,000-page bill but really increasing the capital requirements of our american banks, making sure that they have more skin many the game, and that the taxpayer isn't going to bear that loss but investors in those banks are going to be responsible for the loss of the bad trades? >> i agree with you entirely. the reason for high capital

requirements -- and we're looking to greatly increase capital requirements -- is because we're not going to be able to anticipate everything that could happen. and the good news here is that j.p. mohr gpmorga jpmorgan's losses are very small fractions of their substantial capital base. there have been losses to the shareholders, as you say, but there's not any risk that the firm will fail or the taxpayers will be in danger in any way. so, yes, capital is extremely important, and i agree with you 100% on that. >> so in essence we increase those ratios. and i don't have much time, but you would agree with the surcharge making sure that our larger banks are required to hold more capital? yes? >> yes. >> okay. just quickly, sometimes -- and i know you have to do this, but when you sauk to us, what you say can be open to interpretation. you do a very nice job of that. but as we're talking about the cliff, as we're talking about taxes specifically, are you

telling us if we allow nothing to happen and we see all of these taxes increase, the bush tax cuts, the obama tax cuts go away, there is going to be a direct impact on economic growth and job creation? >> i'm looking not just at the taxes but also the sequester and the end of the payroll tax and everything else, yes. i mean, i think that -- i mean, of course, economic forecasting is an imperfect science, but everything we see suggests it would be a short-term effect, yes. >> and you're not here to advise us, but if you were, you'd tell us extend now? >> i'd tell you to try to avoid a situation in which you have a massive cut in spending and increase in taxes all hitting at one moment as opposed to trying to spread them out over time in some way that will give -- create less short-term drag on the u.s. economy. >> i appreciate that. i yield back. >> thank you.

senator lee. >> thank you very much, mr. chairman. and thank you for joining us today, chairman bernanke. what are some of the risks that accompany quantitative easing? can you walk us through those and help us understand the risk factors you consider as you approach a decision like that one? >> mm-hmm. well, i think a preliminary thing to say is since we have less experience with quantitative easing, our estimates are understanding of its efficacy and exactly how much is needed and so on are less than the traditional monetary policy. but in terms of potential side effects, a number have been identified, but i think the two we would pay most attention to, first, there are some who believe that greatly expanding our balance sheet would make the exit strategy nor difficult and that therefore inflation is more likely and that might lead

deflation expectations to go up. i want to be clear we are confident that we can exit in a timely way from our balance sheet strategy and that there is, in fact, no justification for such a concern, but nevertheless, some people might have that concern. so that is one issue. the second issue -- >> no justification for which -- >> concern that inflation will rise acceptably because we can't get out of our balance sheet position. >> okay. okay. so go ahead to your second point. >> the second one has to do with financial stability. the question is does the prospect of very low interest rates for a long time, does it create problems for certain types of firms like life insurance companies or pension funds? does it induce successive risk taking? does it lead to effects that could be counterproductive in the longer term? there we do extensive monitoring, extensive analysis to try to identify any such problems, but it's always

possible we might miss something. >> okay. and it sounds like you're not -- you're not discounting -- you're not refuting the possibility that it can happen, inflationary effects. you're just saying you think you can time it in such a way that it is less likely to? >> there are to separate issues. one is our timing of when we take monetary policy back to a more normal stance. in any monetary policy easing episode, there's always the question of whether the fed gets it exactly right, too soon, too late, and it's always the case that if the fed takes too long to remove monetary accommodation you could get some inflation effect. what i'm talking about here is the question of whether it is technically possible to undo the balance sheet expansion in a timely way. we are very confident that we have the technical tools to bring the balance sheet down to a more normal level, to bring the amount of reserves in the banking system to a more normal level at the appropriate -- you know, when we decide it's time to tighten monetary policy.

so the technical side we think we're quite comfortable with. it's always the case, no matter under most normal monetary policy, that the timing of withdrawal of stimulation is difficult. and it's always possible that you could either undershoot or overshoot and that's unavoidable. >> with treasury yield rates being at all-time historic lows, i think it becomes difficult to dispute that at some point in the next few years we'll start to see a normalization. we'll start to see yield rates return to their historic averages perhaps above. do you have any sense, can you offer us any insight into when we might expect to see that happen? >> we've indicated that we expect to keep short-term rates low until late 2014 at least. but even then, longer-term rates might be rising if, in fact, we

are removing short-term rates, reductions at that point, since long rates include expectations of short rates even beyond that window, you could be seeing some movement by then. we do expect, of course, rates to normalize over time. but the exact timing is very difficult to judge because it depends very much on the recovery of the economy, and while we see the economy moving in a moderate pace in the right direction, you know, the point at which we are comfortable that it's time to withdraw monetary stimulus is obviously quite uncertain. >> is there a risk of a sharper rebound the longer you keep the rates low? >> i don't -- i don't think so. it is true that the quantitative easing measures have pushed down so-called term on longer-term

rates, and if those were to normalize quickly, that would make the increase in rates a little faster than might otherwise be the case. but we have both our economic models and our financial portfolios -- i mean the financial portfolios of financial institutions, and we don't see at this point any serious risk either to economic recovery or to -- to financial stability of that return of interest rates to more normal levels, but it's obviously again something we need to pay close attention to. >> okay. thank you, chairman bernanke. i see my time's expired. >> thank you very much, chairman bernanke. thank you for your testimony, for the members, the record will remain open for five business days to submit either additional questions or, of course, a statement. and we are adjourned.

[ gavel ]

president obama is on the west coast today for a combination of fund-raisers and official events. this afternoon the president heads to nevada for a speech at university of nevada, las vegas. the white house says the president will push congress to

prevent student loan interest rates from doubling the end of the month. live coverage of his remarks. starts at 3:50 eastern here on c-span3. and the annual radio television correspondents' dinner is tomorrow night. house speaker john boehner and emmy award-winning comedian wayne brapdy the featured speakers. live coverage underway tomorrow at 9:00 eastern on c-span. mr. gorbachev, chatear down this wall. >> sunday night on american history tv, mark the 25th anniversary of president ronald reagan's 1987 speech from the brandenburg gate in west germany. also this weekend on c-span3, our series the contenders. 14 key political figures who ran for president and lost, but changed political history. this sunday at 7:30, james blaine, american history tv, this weekend on c-span3.

remarks now from commerce secretary bryson on the ocean's role and the u.s. economy. good morning, everybody. welcome to the 12th annual capitol hill ocean week. it's wonderful to see many familiar faces. it's equally wonderful to see many unfamiliar faces. capitol hill ocean week has grown over the years. i want to invote those joining us for the first time. my name is jason patless, president of the foundation. to kick off the month, president barack obama officially declared june at national oceans month the other day and as he seems to do year in and year out he once again foreshadowed a lot of the things that we will be discussing over the next few days. in his proclamation the president asked us to, i quote,

celebrate our heritage as a seafaring nation nap is what this year's challenge saul about. highlighting how we are fundamentally amaretime nation. from our earliest origins to today, whether we look at our culture, our identity, our economy, our heritage, our demographics, our national identity and our daily lives, they are shaped by the ocean. we are in sum one nation shaped by the sea. and through this year we pose the question, how will we define the future of america's relationship with our ocean? we will explore this relationship and answer this question over the next three days here in this building, and on a fourth day friday at the capitol visitor's center beginning with our opening keynote presentation by secretary john bryson and closing with a roundtable on thursday, and then continuing at the capitol business center on

friday. national marine sanctuary foundation is proud to host capitol hill ocean week. the foundation's mission is to connect people to the underwater places that define the american ocean. and this is one of the ways we do it. one of the individuals who does it better than anyone else is mr. fred keely. mr. keely is one of the newest trustees of the foundation but a longtime champion of the ocean. he hails from california where he currently serves as treasurer for the county of santa cruz. thee timed elected to the general assembly pioneering the act, the associated press called at the time the most significant investment in ocean policy in 50 years. additionally, mr. keely authored two of the largest park and environmental bonds in our nation's history totaling it'ses 4.7 billion. even from his perch in california, mr. keely commands a national perspective on ocean

environmental issues. the university of california at santa cruz hosts election seats in honor of fred keely which itself speaks volumes because an honor like to is usually awarded posthumously. if mip eyes don't deceive me, mr. keelsy right here in the front row. speakers include dr. earl, with us thursday. bruce babbitt and current administrator of noaa. it's my great honor to recognize a longtime public servant and a lifelong lover of the ocean, the honorable fred keely. [ applause ] >> thank you. good morning. thank you very much for all of you being here today. mr. secretary, thank you, sir, for literally gracing us with your presence. it's my honor this morning to thousand up to the 37th commerce secretary of