before i came over here so i am ,÷@y@z@z@z@z@z@z@z@ the systems toward delivering a same kind of care whether it is male or others that are approved of the line. i can assure you we're taking a careful look at how we can make that not happen in the future. . . governor and the other is commission of insurance. as the governor's background and your current position have you thought about having your

department do all it asking where are the gaps we think are there so there might be exercised that can be done administratively where they can do the internal kind of questions so that they can perhaps by themselves, with some identification in gaps and disparities it can be everything from cdc to medical school, things like that. second is commissioner of insurance i know that there is 50 states and territories and i also know that when i asked the question about antitrust and its role in health costs and other costs in this country, the issue of reimbursements from the federal government to the cost of medical services and doctors

being able to afford protecting themselves through insurance premiums what impact would there be if there were antitrust, if we brought the insurance companies under the federal antitrust law we as the other corporations are? >> and you know i could get my answer in writing if you want but it's still on my mind. i'm not an expert in these areas but it seems like the insurance companies are one player in a lot of these arguments we have about costs and stuff like that. >> well, chris mann, i am not quite sure what the system is your describing for the future but i can tell you that oftentimes there is prohibition

that currently exists with companies collaborating in terms of price fixing, having discussions prior to submitting rate proposals on what prices should be. but there are varying degrees of oversight that currently take place in terms of rules up missions and loss ratios and so i think having as we move forward in health insurance and health reform, one of the issues is can you deliver an insurance package to more americans at a more affordable rate and again i am a believer that not only appropriate oversight is important but competition is very important and i have seen that work effectively in marketplace strategies over and

over which again is why i think having public option side-by-side with the private plans is the way to keep a competitive marketplace and give consumers and employers. >> mr. tiahrt, did you have one more question before we shot down? madam secretary, let me add my voice to their earmarks of congressman mccollum on reimbursement rates. these reimbursement disparities or outrageous people putting this bill together in the end will understand they would make a big mistake if they would take for granted the support of people from states like

wisconsin and minnesota. if this outrageous disparity in reimbursent isn't correct to a significant degree. i were states feel like we have been taken into those outrageous disparities are going to have to shrink significantly if we are going to get a product that everybody can support. with that, thank you for coming. i am happy to see you where you are and we look forward to working with you and we will see you again. the committee is adjourned until 2:00 tomorrow afternoon.

>> the committee will come to order. we meet today to hear the distinguished chairman of the federal reserve, benjamin bernanke, testify on the recession that is plaguing our economy and on the prospects of recovery. chairman bernanke testified before our committee on october 20 of last year, as we searched for ways to mitigate, if not avoid a long recession. the chairman acknowledged then that monetary policy has its limits. without being specific, he welcomed a fiscal compromise. congress had just passed a bipartisan compromise offering $700 billion to dispose of troubled assets, so-called t.a.r.p.

backed by these funds, the treasury, the fed, the fdic have made extraordinary measures to banks and other financial institutions, recognizing what chairman bernanke told the joint economic committee last month, quote, a sustained recovery in economic activity depends critically on restoring stability to the financial system. this is one question we hope you'll address today, mr. chairman. just how strong and how table are our financial institutions. by february of this year it was clear that t.a.r.p. relief was a necessary, but not sufficient, solution. so, congress bassed on a partisan basis an even bigger boost, the recovery and reinvestment act, which packed $787 billion of official simply in the form of spending increases and tax decreases. we would like to know, mr. chairman, whether from the fed's viewpoint this is working. bold action was necessary to head off a collapse of the financial system. but the steps taken also swell

the nation's deficit and the national debt. it's all but impossible to balance the budget when the economy is bucking a headwind like this recession, because what we do to make the economy better is likely to make the deficit worse. yet at the same time we cannot add infinitely to the national debt without facing the consequences of global credit markets or on our future capacity to borrow. one purpose of this hearing is to explore both the advantages and the potential downside risk of our bold and unprecedented response to financial turmoil. should we be concerned that some of our swelling debt must be financed with foreign credit? we hope that most of our outlays are for nonrecurring needs and much of what has been advanced in recent months will in time be recovered, repaid and used to pay down the debt we are incurring. we'd like to have your assessment, mr. chairman, of that possibility. despite, bold, unprecedented action the director of the

budget office told this committee on may 21st that our economy is still running at 7% or more below its capacity or a trillion dollars per year below its potentially. recently there have been signs, however, of a turnaround. business inventories are down. stock market is up a bit and so, too, to some extent is the housing market. my question to you, mr. chairman, is whether these are glimmers of hope or flashes in the pan. to keep this recession from growing worse, the fed has pumped enormous liquidity into the money markets. so much so that some critics even worry of inflations, lurking to be sure over the horizon, but a threat nevertheless. the spread between short and long-term treasuries has widened. we would like to know whether they, salutary signs of a recovery or signs of inflation.

even after the recovery gets under way, the rate of real economic growth is likely to remain below potential for a while, only gradually gaining momentum. the old locomotives that pulled the economy out of the rut in the past, real estate, consumer durables, are unavailing now. this causes us to ask, mr. chairman, what will empower a turnaround in this dismass economy, and when can we expect a return to normality? mr. chairman, as you can see, we've got a lot of grist for our mill today. we thank you for being here, but most of all, we thank you for your service to our nation at this very crucial time. before proceeding to a statement, let me turn to mr. ryan for his opening remarks. >> thank you, chairman. you come before this committee with the financial markets in a better position than in your previous appearance last fall. the economy is finally showing some signs of stabilizing, and that's encouraging.

but despite these short-term glimmers of hope, i've become more concerned about the longer-term implications of our economic policies. on the fiscal side, the treasury is issuing record amounts of debt, over $2 trillion this year alone to support record government spending and record deficits. meanwhile the federal reserve has injected an enormous amount of monetary stimulus into the economy and has even started purchasing longer-term treasury bonds in an attempt to lower borrowing costs and further ease financial conditions. this can be a dangerous policy mix. the treasury is issuing debt and the central bank is buying it. it gives the alarming impression that the u.s. one day might begin to meet its financial obligations by simply printing money and we all know what happens to a country that chooses to monetary its debt. it gets runaway inflation and a gradual erosion of workers' paychecks and family savings. there's an increased discussion in the financial press about the negative consequences of our economic policies. just this week the yield on the ten-year treasury bond rose to a

six-month high, over 3.7%, a sign that global investors are becoming concerned about debt levels and the possibility of future inflation. this is the bond market telling us that there is no free lunch. when i issue record amounts of debt and your central bank has the monetary policy levers at full throttle, red flags begin to get raised and our borrowing costs go up. there are some faint warning bells going off. the value of the dollar has slipped recently. the price of gold is up, and inflation compensation spreads and the treasury bond market have risen to a nine-month high. i realize some of the signs are likely reassuring since the predominant risk over the short term has been deflation and this could be signs of a recovery. but i'm genuinely concerned that the fed will be unable to unwind its considerable monetary policy stimulus in a timely manner to prevent sharp rise in inflation over the medium term. there are a number of technical problems associated with

shrinking your balance sheet and returning to a more normal monetary stance. but i'm more concerned about the political chal lenges the fed will face when you finally have will face when you finally have to make thik@@ try to right the ship and get back on the path to sustainable growth and job creation. that will clearly take a renewed sense of fiscal discipline to rein in spending and budget deficits. but it will also take a clear

exit strategy on the part of the fed and firm commitment to price stability. we in congress are willing to work with the administration to accomplish the former and we trust the fed will work diligently to ensure the latter. thank you, chairman. >> thank you, mr. ryan. now, before proceeding with chairman bernanke, let me as a housekeeping detail, ask for unanimous consent that all members be allowed to submit an opening statement for the record at this point. so ordered. let me further say that the chairman's testimony has been received and will be, without objection, entered in the record so that you may summarize as you see fit. i think it's an important statement full in detail and we would encourage you to -- to plow all the way through, mr. chairman. one very important detail, the chairman has to leave at 12:30 today, so we'll be running the clock very closely and questions that members ask. mr. chairman, the floor is yours. and thank you, sir, again for coming. >> thank you, mr. chairman. chairman spratt, ranking member ryan and other members of the

committee, i'm pleased to have this opportunity to offer my views on current economic and financial conditions and on issues pertaining to the federal budget. the u.s. economy has contracted sharply since last fall with real gross domestic product having dropped at an average annual rate of about 6% during the fourth quarter of 2008 and the first quarter of this year. among the enormous costs of the downturn is the loss of nearly 6 million jobs since the beginning of 2008. the most recent information on the labor market, the number of new and continuing claims for unemployment insurance, through late may, suggests that sizable job losses and further increases in unemployment are likely over the next few months. however, the recent data also suggests that the pace of economic contraction may be slowing. notably, consumer spending, which dropped sharply in the second half of last year, has been roughly flat since the turn of the year. and consumer sentiment has improved. n-m coming months, household spending power will be boosted by the fiscal stimulus program.

nonetheless, a number of factors are likely to continue to weigh on consumer spending, among them the weak labor market, the declines in equity and housing wealth that households have experienced over the past two years and still-tight credit conditions. activity in the housing market, after a long period of decline, has also shown some signs of bottoming. sales of existing homes have been fairly stable since late last year, and sales of new homes seemed to have flattened out in the past couple of monthly readings, though they remain at depressed levels. meanwhile, construction of new homes has been sufficiently restrained to allow the backlog of unsold new homes to deline, a preconditional for any recovery in home building. businesses remain very cautious. on a more positive note, firms are making progress in shed din the unwanted inventories following last fall's sharp downturn in sales.

the commerce department estimates the pace of inventory liquidation quickened during the first quarter, accounting for a sizable decline in real gdp in that period. as inventory stocks move into better alignment, firms should be more willing to increase production. we continue to expect overall economic activity to bottom out and then to turn up later this year. our assessment that consumer spending and housing demand will stabilize and that the pace of inventory liquidation will slow are key building blocks of that forecast. final demand should also be supported by fiscal and monetary stimulus and u.s. exports may benefit if recent signs of stabilization and foreign economic activity prove accurate. a relapse in the financial sector would be a significant drag on economic activity and could cause the incipient recovery to stall. i will provide a brief update on

financial markets in a moment. even after recovery gets under way, the rate of growth of real economic activity is likely to remain below its longer-run potential for a while, implying that the current slack in resource utilization will increase further. we expect that the recovery will only gradually gain momentum and that economic slack will diminish slowly. in particular, businesses are likely to be cautious about hiring and the unemployment rate is likely to rise for a time, even after economic growth resumes. in this environment, we anticipate that inflation will remain low. the slack in resource utilization remains sizable, and notwithstanding recent increases in the prices of oil and other commodities, cost pressures generally remain subdued. as a consequence, inflation is likely to move down some this year relative to its pace in 2008. that said, improving economic conditions and stable inflation expectations should limit

further declines in inflation. conditions at a number of financial markets have improved since earlier this year. likely reflecting both policy actions taken by the federal reserve and other agencies as well as the somewhat better economic outlook. nevertheless, financial markets and financial institutions remain under stress, and low asset prices and tight credit conditions continue to restrain economic activity. among the markets where functioning has improved recently are those for short-term funding include the interbank lending market and the commercial paper macket. risk spreads in those markets appear to have moderated and more lending is taking place at longer maturities. the better performance reflects short-term lending programs. it is encouraging that the private sector's reliance on the fed's programs has declined as market stresses have eased, an outcome that was a key objective when we designed these interventions. the issuance of asset-backed

securities backed by credit, auto and student loans has also picked up this spring and abs funding rates have declined back by term asset-backed securities loan facility or talf as a market backstop. bond issuance by nonfinancial firms has been relatively strong recently and spread between treasury yields and rates by corporate borrowers have narrowed some though they remain wide. mortgage rates and spreads have also bl reduced by the federal reserve's programs of purchasing agency debt. however, in recent weeks long-term treasuries and fixed-rate mortgages have increased. greater optimism by economic outlook and technical factors relating to the hedging of mortgage holdings. as you know, last month the

federal bank regulatory agencies released the results of the superer advisory capital assessment program. the purpose of the exercise was to determine for each of the 19 u.s.-owned bank holding companies with assets exceeding $100 billion, a capital buffer sufficient for them to remain strongly capitalized and able to lend to creditworthy borrowers even if economic conditions over the next two years turn out to be worse than we currently expect. according to the findings of this exercise, under the more adverse economic outlook, losses of the 19 bank holding companies with total an estimated of $600 billion during 2009 and 2010. after taking account of potential resources to absorb those losses, including expected revenues, reserves and existing capital cushions, we determined that 10 of the 19 institutions should raise collectively additional common equity of $75 billion. each of the ten bank holding companies requiring an additional buffer has committed to raise this capital by

november 9th. we are in discussion with these firms on their capital plans which are due by june 8th. even in advance of those plans being approved, the ten firms have among them already raised more than $36 billion of new common equity with the number of offerings of common shares being oversubscribed. in addition, these firms have announced actions that would generate up to an additional $12 billion of common equity. we expect further announcements shortly as their capital plans are finalized and submitted to supervisors. the substantial progress these firms have made in meeting their required capital buffers and their success in raising private capital suggest that investors are gaining greater confidence in the banking system. let me turn now to fiscal matters. as you are well aware in february of this year, the congress passed the american recovery and reinvestment act or arra, a major fiscal package aimed at strength engineer-term economic activity. the package included personal tax cuts and increases in

transfer payments intended to stimulate household spending, incentives for business investment, increases in federal purchases and federal grants for state and local governments. predicting the effects of these fiscal actions on economic activity is difficult, especially in light of the unusual economic circumstances that we face. for example, households confronted with declining incomes and limited access to credit might be expected to spend most of their tax cuts. but then again, heightened economic uncertainties and a desire to increase precautionary saving my reduce households' propensity to spend. how large any follow-on effects will be. the cbo has constructed a range of estimates of the effects of the stimulus package on real gdp and employment that appropriately reflect the uncertainties. according to the cbo's estimates

by the end of 2010, the stimulus package could boost real gdp between 1% and a little more than 3% and the level of employment by between roughly 1 million and 3.5 million jobs. the increases in spending and reductions in taxes associated with the fiscal package and the financial stabilization program, along with the losses in revenues and increases in income support payments associated with the weak economy, will widen the federal budget deficit substantially this year. the administration recently submitted a proposed budget that projects the federal deficit to reach about $1.8 trillion this fiscal year before declining to $1.3 trillion in 2010 and roughly $900 billion in 2011. as a consequence of this elevated level of borrowing, the racial show of federal debt held by the public to nominal gdp is likely to move up from about 40% for the onset of the financial crisis to about 70% in 2011. these developments would leave

the debt-to-gdp ratio at its highest level following the 1950s, the years following the massive debt buildup following world war ii. certainly our economy and financial markets face extraordinary near-term challenges and strong and timely actions are necessary and appropriate. nevertheless, even as we take steps to address the recession and threats to financial stability, maintaining the confidence of the financial markets requires that we as a nation begin planning now for the restoration of fiscal balance. prompt attention to questions of fiscal sustainability and particularly critical because of the coming budgetary and economic challenges associated with the retirement of the baby-boom generation and continued increases in medical costs. the recent projections from the social security and medicare trustees show that in the absence of programmatic changes, social security and medical outlays will together increase from about 8.5% of gdp today to 10% by 2020 and 12.5% by 2030.

with the ratio of debt-to-gdp already elevated, we will not be able to continue borrowing indefinitely to meet these demands. addressing the country's fiscal problems will require a willingness to make difficult choices. in the end, the fundamental decision that the congress, the administration and the american people must confront is how large a share of the nation's economic resources to devote to federal government programs including entitlement programs. crucially, whatever size government has chosen, tax rates must ultimately be set at a level sufficient to achieve an appropriate balls of spending and revenues in the long run. in particular, over the longer term, achieving fiscal sustainability defined, for example, as a situation in which the ratios of government debt and interest payments to gdp are stable or declining and tax rates are not so high as to impede economic growth requires that spending and budget deficits be well controlled. clearly the congress and the

administration face formidable near-term challenges that must be addressed. but those near-term challenges must not be allowed to behinder timely consideration of the steps needed to address fiscal imbalances. unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth. and let me close briefly with an update on the federal reserve's initiative to enhance credit and liquidity programs. as i noted last month in my testimony before the jec i asked vice chairman comb to lead a disclosure of our policies. increasing the range of information that we make available to the public. that group has made significant progress and we expect to begin publishing soon a monthly report on the fed's balance sheet and lending programs that will summarize and discuss recent developments and provide considerable new information concerning the number of borrowers at our various facilities, the concentration of borrowing and the collateral ge