leahy helps break down partisan lines as of the hearing did underway july 13 for sonia sotomayor to be the replacement to david souter on the u.s. supreme court as the next associate justice. this from this saying, where's my bailout check? joe from clinton, south carolina. what is your take? caller: it is hard to grow an economy when our own president believes week to much energy and the lives in a 6000 square-foot house, talking by consuming energy. looking what union to michigan, and the recent health care bill he wants to exempt union workers on paying the tax on health care. it is just about hypocrisy of liberals. they propose and plans when they themselves to live by it -- like ted kennedy going to do university to medical care. why did he go to a regular health care clinic like everyone else? they want people to live under certain plants and certain ways

of living but yet they exempt themselves, it is obvious everywhere you look. host: one other comment from a viewer who said in this, for years we have only paid cash for what we need, credit cards used rarely. still hurts but we may not feel as much pain as others. thank you for all of your calls and comments on the economy. when we come back, the federal reserve board meeting in washington today and tomorrow. what is next for fed policy? the perspective from john taylor. and in the next hour, senator john mccain and linda douglass from the white house and finally bob schieffer from cbs news all ahead this tuesday morning, june 23. "washington journal" continues.

>> july 4 weekend on "book tv." discover unfamiliar side of the nation's first president as we are live from george washington's mount vernon estate historian and author on the ascent of george washington. join our three-hour conversation sunday, july 5, live on "in debt." >> how c-span funded? >> through donations? >> i think a little bit from the federal government. >> stuff like that. >> may be from sponsors? >> it might get some government funding. >> viewers? >> how c-span funded? 30 years ago america's cable companies created c-span as a public service, a private business initiative -- no

government mandate, no government money. >> there's still time to get your copy of c-span's 2009 congressional directory. with information on house and senate members, the cabinet, supreme court justices, and the nation's governors, plus district maps and how to contact committees and caucuses. it is $16.95, on line act c- span.org/products or call 1-877- on-c-span. >> "washington journal" continues. host: we want to welcome john taylor who served on the bush administration as under -- treasury undersecretary and has a new book "the road ahead." as the fed meets, a lot of eyes on what it is doing or not. your observations. guest: big challenges and doing the steps the undertook last fall and what speed. many are concerned those

interventions could lead to inflation will lead to questions about the fed's independence. so i think it is important for them to lay out a strategy and if you like, an exit strategy over the coming months. it does not have to start right away but just outlined what is going to be. host: i want to share the view of themishkin from columbia university business school -- you of frederick mishkin. s estimate regulator, what is it and how would it work? guest: there are lots of definitions, that is the problem. a lot like that because it takes care of risks out in the system, but it is not defined very well. i think what is most important is to find a way to fill some gaps that were left in the regulation. and if you like, de-conflict some of the regulators. i don't think you need a whole new apparatus for that. some kind of council or a way

for the regulators that exists now to communicate, would be the most effective way. host: how so? guest: if you get the people in the same room in their task is to make sure there is nothing that falls between the cracks, they will be able to work out if they have the right mission. in particular, giving the federal reserve a whole new set of powers raises questions, certainly in my mind. host: i want to share with you and our audience -- and, by the way, the phone lines are open and the numbers are up the bottom of the screen. i want to read just a short part of today's "the wall street journal" editorial, saying bernanke at the creation. they write today that as the federal reserve's open market committee meets today amid a debate over how and when to remove the flood of liquidity that has poured into the economy in the last 18 months, that officials say not to worry. they are as vigilant about inflation as ever. which is itself a reason to worry. we've seen this movie before, when the fed's failure to act in time gave birth to the house in

bubble, credit mania that led to the panic of today's recession. will it make the same mistake now? guest: i think they make a very good point. no question back in 2003 and 2004, interest rates were held a very low, even at 1% when the recession was three years behind us. so the real question is, what will happen going down the road. the stage is set, unless the fed makes the corrections that they say they will to have inflation and a loss of independence. going back to the bad old days of the 1970's when we have high inflation and high unemployment. it very good point to make and it is a concern. in our book, a number of people raise the question with the vice-chairman of the fed, don kohn and he responds sang, don't worry, we will take care of it. but it does not mean people should not worry. host: one thing we like to do is educate the audience of how the government works and specifically how the fed works. how does it work? what is its role?

guest: its role is to maintain low inflation in the economy so you did not have the value of the dollar deteriorate over time, to maintain confidence in the currency, and it creates the building so that we don't have big recessions and that we have long expansions, that as its ultimate responsibility. host: of the first up is ricky from louisiana on the independent mind -- in the first up. caller: good morning. the statement he just made sure is laughable. they are in business to maintain low inflation and stability in the economy, they have failed. i want to know, there is a bill before congress right now that has 336 backers. hr 12 07 -- hello? host: go ahead. caller: hr 1207 to audit the

fed. considering they have not been audited since 1913, considering they have taken trillions of our dollars and refuse to tell us where they are at, sir, i want to know two -- signs of things, and want to stay in line and i know your disingenuous answer will not answer my questions. one, do you back 1207 come auditing of the fed, and, two, i would like to know why we need the fed. they simply have taken the right to print our money and they learned back to us at exorbitant interest rates that a loan shark would love to have and not one penny that we paid in and come tax goes to one single service but pays for the debt that they are laying on us 40 owning us our own money. so, sir, could you answer those two questions? i would like to stay online because i would like to come back after you did not answer this one.

guest: i would be very happy to try to answer both. i think the idea of having more transparency, if you like, however you would want to do that, through auditing or just providing affirmation i think it is very important. i think the federal reserve could provide more information about its portfolio, about how it is making its decisions in these unusual times and how its programs are working. but there is no question, in my view, we do need to have a fed, we do need a central bank. its role should be very clear to people, it is to keep inflation low and to maintain the purchasing power of our currency and to try to make the economy stable. that is its goal. the more it can do that goal, the better. " cut the answer your question? caller: they felt that what he just said. if he said that their goal is to go ahead and maintain stability and keep low inflation, they have failed.

guest: let me answer that. that is another question is, have they failed. as i was talking to steve a few minutes ago, there were some problems in keeping interest rates way low, and that accelerated the housing boom and led to the bus and i think that was part of the financial crisis. there is no question, in my view. although we are still debating the cause of the crisis. i think the lessons from that is don't do the same thing again. make sure that you do take care of the threats of inflation, make sure the actions are taken and i think we will be much better off as a result, and in fact, we did have good economic performance in much of the 1980's and 1990's, long expansions and very short, relatively speaking, recessions, so i would like to go to that period when the fed was quite credible. host: -- unprecedented policy regime, which in? guest: at interest rates are effectively zero, quite unusual.

it has expanded the money supply and major amounts. in one measure, it increased by 100 fold and it has done that in order to purchase more the securities, in order to make loans to aig, in order to support the treasury, buying intermediate treasurys. so that is what is unprecedented. we have not seen it before. and i think everybody agrees we have to get out of that mode before too long. host: from your perspective, we have seen this boom and bust and some people saying we are seeing so-called green shoots where the economy is turning around. does this feel any different from past potential recoveries? guest: for right now the main thing things have stabilized from last fall, which was a terrible panic, if you like. so i see it is stabilization beard the real question is whether we will see a recovery coming out of this or whether it would be kind of flat or l shaped.

i think the jury is still out. things are unprecedented now. so i'm hopeful the economy will begin to recover, but we are not there yet. host: john from new vernon, n.y., on the republican line thenew bern. caller: i have a question concerning the board of governors of the federal reserve, and more specifically, why it is that the private corporation known as the federal reserve has governor's from othr banks, and more disturbingly, actually foreign banks. in other words, what i am getting here is really the fact that the federal reserve' is a bank that is in business for profit by other bankers. host: thank you, john. guest: of the board of

governors, they are all appointed by the president of the united states and they are confirmed by the senate. there are other participants in the decision making, something called the federal open market committee that makes the decisions about interest rates. and those are presidents of regional banks around the country, all the way from new york to san francisco. and those are appointed by local people. they are approved by the board. but the reason for those of the participants, it goes way back in time, if you -- so much power and one board or center, it is a way to diffuse, if you like, and get more participation from other parts of the country. some people complain about that now, but that is the original purpose. but i do think it needs to be thought through and examine because we do have a much different economy than when the fed was founded at the beginning of last century. host: our guest is one of the contributors to this new book called "the road ahead for the

fed." john taylor, former treasury undersecretary in the bush administration, serving the first term of -- under president bush, dr. at stanford university, senior fellow at hoover institution and teaches economics at stanford. welcome to the program. caller: good morning to both of you. i have maybe three questions, if i could stay on the line. host: can we stay on the line? caller: do you know tim adams? guest: former colleague at the treasury? host: second question? caller: of the second question is, -- the second question is, what area were you undersecretary? guest: international affairs. caller: that is what tim was.

here is my question. the bush administration was fundamentally established as a corporate model government, which did not sit well with me because governments and corporations are difference. the first treasury secretary, paul o'neill, i liked, -- the price of loyalty, what happens with him. john snow -- paul a came -- lcoa and john snow came from cs x, so they had business experience on the ground with employees. but then with henriette -- when henry paulson came in, he came from goldman sachs, and that seems to be a problem these days with respect to people on goldman sachs -- from goldman sachs and never seem to get away from goldman sachs.

guest: @ thank you. i worked very closely with paul o'neill and john snow and was in a position of heading up the international division before tim adams, two people with remarkably long and strong records in the private sector. and i think it is important to have people with management experience, executive experience. washington, of course, is a lot different, and and in ministration at any time is different than a corporation. but those skills i think are important. i think we need to find ways and government to be more effective and more responsive. and it is much more difficult, in some sense, because of all the players, turf battles, debates about how to proceed. but i think it is important to get that right. i see obviously from your question the room for improvement. host: today's "the wall street journal" editorial that focuses on ben bernanke and his role.

he will lead political courage we have not seen since paul volcker was chairman, to exit from all of these efforts in time to prevent another bubble. talking, of course, about the housing and credit card bubble. guest: again, i think it is a very good point. first of all, paul volcker did have amazing coverage and strength to counteract a very serious problem in the country. i inflation, loss of confidence in the dollar. he took action plan and was criticized tremendously but stuck through it and then passed a much better situation to his successor, pete successor, alan greenspan, who also did a good job for many years. host: but many point to alan greenspan's policies for one -- as one of the reasons we are in this edition today. guest: i would say i was one of his critics. because of the very end of his term, the fed that too easy for too long, and that 1% interest rate i think is at the heart of the housing boom, the housing

bauble, and the bust. we can look back of that period and learn lessons, and the most important lesson is, don't do that again. i call it, get back on track, get back to what was working in much of the 1980's and much of the 1990's, and that would be a much better economy. i don't think we would have this kind of serious financial crisis if the fed had kept on track earlier. so the importance for chairman bernanke is to get back on track. host: i realize this is a simple question with a complicated answer, but how do you get to the golden locks economy? not too hot and not too cold? dr. of the fed is setting interest rates -- so the question is not to hell and not to hide -- guest: of the fed is setting interest rates, so the question is not too low and not too high. there was one rule that simply says in certain circumstances, the fed should raise rates, inflation is picking up or if the economy is recovering, and

in other circumstances, they should cut them. that seems to have worked well over a period of time. we would have to use that formula, but used similar things. it is possible to use guidelines, people can discuss them and debate them and be more transparent about it. so that is how you get to the golden locks situation, which we were pretty close to 4 number of years, for those long expansions and short recessions. host: john taylor now with the hoover institution, formerly with the bush administration. blake is on the phone from georgia. the morning. -- good morning. caller: i am wondering if c-span could advertise at least a couple of days in advance to let the viewers pick out the subject matter so we can vote on it and determine what the subject matter is going to be for that day. host: you can send us an e-mail anytime you want at journal@c-

span.org. i'm not sure we will have a vote but we will take into account what you are thinking, because this program is for all of you. do you have a question for john taylor? caller: the question i got is how do people ever believe what you are saying out there -- you guys were involved in the most disastrous economic system we have ever had. so, for a lot of us, you did not have any accreditation. host: how do you respond? guest: it seems a broad criticism, not quite sure how to react because it is not very specific. you know, what i have tried to do in this book and other books is to look back at what the decisions were and see if we can learn lessons. i think the more government can review -- i think there should be a commission or operation that goes back and looks of the reasons for this financial crisis. in fact, i think we should be

doing that before we propose changes in the economy in reaction to it. lessons learned is the thing i think we should focus on here in the future. host: mitchell is joining us from florida. on the republican line. caller: good morning to you all. host: go ahead. caller: i would like to say that i'm a republican and i am not going to be a republican. much longer, i am thinking of going to the libertarian party. this stuff has been going on for over 20-something years, these jobs. democrats and republicans, not just republicans. what we have is a bunch of greedy folks up there, and what obama ran on was change, and they claim that bush was given to the rich and it was trickle- down and all of that kind of stuff going on, what did obama do? he started out at the top instead of the bomb -- bottom,

like a promised. so i will tell everybody out there, black and white and red and blue and whoever else, go libertarian, vote everybody out of congress and everybody out of the senate and get all libertarian's up their act and get the borders guarded, let's get the greedy folks out and let's get people back to work. host: thank you for the call. let me take his point and ask about what some say the republican party lost its way with a record spending in the bush administration. for that about what we are dealing about -- with in the obama administration but president bush saw a huge increase in government spending. was that a mistake? guest: certainly from a conservative perspective, yes, the growth of government was too large. from the liberal perspective, they let more government, so it would not be a mistake. from the perspective of the caller, moving toward more government, which is not the way to be going. i think what we are seeing now

is it has accelerated even more rapidly. president bush, it increased under president bush but it is increasing many more times under president obama. but i think in some sense it is not a partisan issue. for d. what good government for effective government to let the private sector grow and create jobs. i am concerned, like the caller, about the future because we are creating a lot of debt, much more than what was created during president bush ordering president reagan, it is astronomical come in many respects. host: you touched on this from there, but how you create bubblemania -- going back to troops in holland, credit cards, stock market? guest: you will not stop them completely, that is when markets are. but what the government can do is not helped create them. frequently we see government actions -- and we talked about that with respect to the federal reserve -- it is a very powerful

instrument. imagine setting the interest rate for the entire economy, it is potentially very systemic. the first idea is, do no harm. and then figure out if you can create more transparency, describe what the government is doing, more transparency from the fed. it reduces the probability of bubbles. and more important, it prevents them from spilling over to the entire economy. a tulip bubble will not be a major problem if it stays to the tulip market. the task for the government is not to make it so big that it hurts the entire economy. host: something you lecture at stanford. adrian concerns -- adrian joins us from san diego. caller: good morning, how were you? actually i just had more of a comment for the under secretary. i know you've got a tough job, sir, quite a few things that are not too good in the bush

administration but i know you did a good job. thank you for that. as far as the economy and things going on in general, i believe obama has some good things going on right now. he is not too bad looking guy -- every time i looked at him by and proud to be an american and and latino and i feel he brings quite a lot of hope. host: how you view the first five months of the of ministration? guest: from economic perspective, and kind of worried. a huge stimulus package that is not focused enough to get the economy moving. huge increase in the debt. his proposal is to increase the debt further. i'm worried about the intervention into the automobile industry, which is quite extensive and possibly even more intervention in other sectors. i know the intentions are

certainly good, but i am concerned about what this is going to do with the economy. host: what piece of advice would you give the president and economic advisers? guest: start working on plans to reduce the deficit. no reason to have over $1 trillion deficit 3, 4, 5, 10 years from now. a credible plan to get rid of the deficit. number two, i worry about the tax increases that coming down the road that could hurt the economy. i would avoid any tax increases, that is what my advice would be geared -- would be. make sure you get the economy recovering by not come if you like, threatening it with higher inflation or higher interest rates. host: the book is called "the the road ahead for the fed." john taylor served in the first four years of the budget and a station and now with the hoover institution and a professor of economics at stanford. guest: thank you. " scott iraq, afghanistan, some of the issues we will talk about with arizona senator john

mccain and we will turn to health care with linda douglas and then we have bob schieffer. first, some news headlines from c-span radio. >> the hill reports that congressional democrats are largely ignoring president obama's budget cuts of nearly $20 billion. in the five spending bills that have been reported out of the house appropriations committee so far, the biggest disagreement has been a $400 million reduction in federal spending for state prisons to incarcerate illegal immigrants. this from "the wall street journal." a bush administration spy satellite program at the department of homeland security is being cancelled by the new administration. democratic lawmakers said it would lead to domestic spying. the united states agreed today to more than triple the rent it pays for use of a key airbase in kazakhstan, to ship non- lethal military supplies to afghanistan k toyrgyzstan.

and those are some of the latest headlines on c-span radio. >> the u.s. house comes and for general speeches, morning hour at 10:30 a.m. eastern, and legislative business at noon. several veterans bills on the agenda today. later this week, spending measures for the homeland security and interior departments and environmental agencies. also expected to debate the 2010 defense authorization bill. live house coverage is here on c-span. on c-span2, president obama holding a news conference at 12:30 p.m. eastern live from the rose garden. and we continue to bring in coverage of the senate health committee fifth day of marked up on the health care legislation. that will be live on c-span3 beginning at 10:00 a.m. eastern. >> july 4 weekend on "book tv." discover an unfamiliar side of the nation's first president as we are live from george washington's not vernon estate

with historian and author john ferlin on the ascent of george washington. join our conversation sunday, july 5, live on " in-depth." >> "washington journal" continues. host: arizona senator john mccain, good morning. guest: nice to be back and best regards to brian lamb. many people said we were separated at birth because of our resemblance. he has done a great job and so have all of you over the years covering the capital in a dispassionate and objective fashion. host: thank you. iran -- the president's response, has it been appropriate, and now? guest: the president is having a full-blown press conference later on today, and, i mean, no one could watch the film of the young woman