shows the global imbalance, which has more to do with fiscal policies in the united states, the household savings rates in the united states and the distortions in china, which inflates their savings rate artificially. that has to do with the international exchange. the international exchange is essentially a way for these economies to be adapting to the pressures and these distortions, which really have to do with the domestic policy. >> since the issue is so important and so treacherous, i would like to ask if the other panelists have any comments for this question. >> let me complain about this component, the most concerning aspect of this is in the financial sector.

this is being promoted by many people in the official sector, who say that one way to make the system safer is to do this. this is, in a way, very understandable because of the problems that many of the smaller countries or dealing with. if we go down this route and we have protectionism with financial services, this will carry with it some bad implications. the least of which is that much of the growth in the emerging markets has come -- has come from the financial systems and the introduction of the best practices. certain practices from the mature economies into the emerging economies. . mature economies into the emerging economies. >> i would like to move to the

next question. this gentleman on the second row. >> my name is james bond and i work at a meter, which is part of the world bank group. we spent a lot of time on the financial crisis. my question is to philip suttle, and i want to ask him what will happen to the pace in europe, portugal, italy, ireland, greece and spain. in terms of what an unwinding of the eurozone would look like if it became unmanageable and the whole place falls apart. >> good question, and i'm sure desmond will have comments about this as well. i worry because precisely those links are so tied. you know, we have legal structures and physical structures that are not easy to on one, compared to, say, argentina going off -- or britain during of gold in 1991.

i think what it leads one to is the conclusion that -- i will not use the akron, but those countries that you mentioned, they have to tough it out. you would have to use multi year austerity. you could say that we have used that before and it turned out not too bad. ireland being one itself, it achieved a massive reduction in its budget deficit in the 1980's over a number of years and somehow the country survived and even flourished out of it. but then, you have the ability to convert interest rates. they started out high and converged on german levels. you also had the opening up the of the economy to a massive influence of the fdi. none of those financial support

seem to be there. it seems like this -- these countries are in more for austerity on the fiscal side for an extended time frame. >> i was trying to strike an optimistic nerf -- [laughter] until the question was raised. i do not think it is a question of if this is going to happen. i think it is more a question of when it is going to happen. basically, the stakes are incredibly high. the reason is that if any of these countries would be forced out of the row and have to be borrowing in their own currency, what that would mean is instant defaults on sovereign debt. what we're talking about is not a small country like dubai or iceland or something of that sort. we're talking by a series countries, something like spain, which is very large. you are talking about a huge

amount of debt. it would sink the whole of the european banking system. it would be real armageddon. that is the reason that the dot ecb is going to -- that the ecb is going to fight it. we're talking about insolvency issues, sustainability issues. the prospect of this kind of cataclysm happening in europe is going to force the ecb to continue pumping money into it. the reason i am pessimistic about from a long-term point of view is the size of the imbalances involved and most importantly the amount of international competitiveness that these countries have lost. if you're looking at countries like ireland, portugal, greece, spain, they have lost something like 30% of competitiveness against germany.

what they have got to do is not regain the competitiveness against a country that does not believe in inflation. what it means is that you have actually got to get prices and wages falling by 30%, which is then going to complicate their fiscal problem. unfortunately, when you get to my stage -- the stage that i am in my career, you know, you have been to this movie a number of times and the last rendition of this movie i saw was the argentine convertibility plan, which everybody said would not fall apart. and when it did fall apart, you really have to get to follow. the inconsistencies are just so great. if you try to go the austerity route, you know, you try to tie it into your budget, you drive your economy down. if you drive your economy down, you lose your tax base. you cannot gain much by the tightening. i think this is a fool's errand. but the way in which it will pay

out is that the ecb will continue kicking the can forward until they realize it is not just greece, but four or five countries that will be a huge transfer from the north of europe to the south of here. this will have a political dynamic of its own. i cannot imagine that spaniards are going to tolerate unemployment at 20% and rising forever. it will be asking if there is a what -- a better way. that is basically what occurred in argentina. >> maybe we should schedule a seminar like this on the future of europe. you can invite desmond again. the next question from the audience. >> very would, rghg in hong kong. i would add -- i would like to ask for a look about the power shifting to the emerging

markets. why do you really think that is happening? it is not just that in the united states, is it? -- the debt in the united states, is it? i am not persuaded that the domestic demand is going to rise in china and brazil and, thus, sustain this. if the u.s. is going to grow at a new level, aren't we going to see commodity prices declined? -- commodity prices decline from these current levels? >> do you want to go first, hans? >> why is it happening? let me first say why it is not happening. many people think that this was happening because of export

growth, because of peter manipulation of currencies or through other -- because of peter manipulation of currencies or to other factors, such as stimulation in china, for example, these economies were igrowing by exporting. that is a mystery of the data, in my opinion. -- a miss reread of the data coe out in my opinion. i would say that line of thinking is another danger because the trading system as we know it. we talk about protectionism and we talk about limiting the imports. there's a lot of discussion about rethinking export growth, which could also be against the trading system. it is in his read of the data. -- a misread of the data.

two to three times as fast as the high-income countries in places like china. the accelerated their growth while nothing was happening in the high-income countries. growth was not excellus ready and import demand was not accelerating. this was basically -- was not accelerating and import demand was not accelerating. this was basically happening while there was productivity potential they have not used yet. taron enormous increase in productivity and, with that, is -- an increase in supply of profits, they were gaining market share and ever-increasing their trade. but not only their exports, but also their imports. as i said to my think earlier on, if you look at china at the moment, despite all the discussion about their exchange- rate manipulation, their imports are actually growing much faster

at the moment than their exports. this was happening because of reforms in their economies which enabled them to catch up in productivity level to what was already achieved in other countries. this created a huge growth potential and made it possible to grow with limited inflation and actually kept inflation very low all over the world. as a result of this process, they have become very important not only for their a -- their own economies, but actually, very important for the world economy as a whole. in 2007, it was a very good illustration of that. the recession, or the downturn in the united states started in early 2007, or you could argue that the end of 2006. that was the moment that housing prices started falling. as a result of that in 2007, there was no growth in

consumption. there was no growth in importing into the united states, and still, the united states was growing because there was no export growth to a large extent, there was a gross of export growth going to be emerging economies. it was a good illustration that not only did the rest of the world depend on the u.s. consumer, but actually, the u.s. guard depending on investor demand in the rest of the world. -- the u.s. started depending on investor demand and the rest of the world. and what happened with the lehman brothers crisis is that suddenly that dynamics stock. everywhere in the world people stopped investing -- dynamic stopped. everywhere in the world people stopped investing. it affected especially japan

because they're so specialized in their products. for the world declined -- economy to grow again, you need to go back to very fast growth in emerging economies. the danger is that too much, perhaps, in the short run is still driven -- driven by stimulus. and there is more needed to go back to the very fast growth that we saw before the crisis. but it is a real phenomena and is home grown. >> very quickly, the image that i have been pushing, and living with for the last couple of years is that this is a world turned upside down in so many ways, not the least of which is we actually have the official sector in the emerging world supporting banks in the mature world. that is a tremendous inversion of the official capital active in the 1990's. but i think, the point i would really highlight youhere is thai

came into this business in the early 1980's and the first part of my career, the world was about financial crises in the developing world. starting with the ldc debt crisis and the more extreme crises in the 19th -- the 1990's. an amateur world was smug and kind of ticking along. sometimes it did well, sometimes it did poorly. inflation was a concern and of this. but the emerging world was a world of financial instability. china was a bit of an exception, but it was occurring particularly in latin america. i think we have seen a dramatic conversion of the financial instability. -- conversion of the financial instability. a big part of the market's strength is the benefit that this region is now enjoying, from the long run, and reads the bushmen of financial stability. it is very paradoxical because

that benefit is coming from the very time we in the richer world are suffering financial instability. it need not have happened that way, but it has. r')

point, one of the big issues that we face in the world. reestablishing financial conditions in the mature markets, but also ensuring that the boy and financial conditions that we have out there in many of the emerging markets, we need to be sure that those do not to become over -- to overheated. -- too overheated. >> the next question to the gentleman in the middle there. >> i'm john ring from morgan stanley. the panel has not talked about tax policy at all. i have two questions, peter. the first is, do you think that governments will ignore growing evidence that low tax rates foster economic growth in interest of fiscal austerity -- austerity going forward? secondly, as an economist, do you think that you should be considering a higher tax rates

in your growth forecast going forward? >> this is an increase -- an easy question. [laughter] jorg, you are the most obvious candidates to have a first go at this one. >> it is clear that a good deal of fiscal adjustment needs to take place. i've already said that. ideally, it should be performed along two dimensions. one is on entitlement systems and one is actual adjustment. when it comes to actual adjustment, everything has to be on the table. expenditures, cuts, tax increases. the relationship is complex. it is not straightforward. there are many ways in which you can raise more revenues without altering growth. what you really want to do is remove forms of taxation that end up being distortion mary, or eliminate subsidies, or tax expenditures, as we call them. it is really the interaction between -- what i want to leave you with is the interaction

between the tax system and growth is complex and is a function not only of the tax rate, but the structure of this tax system. i'm convinced that in many countries you can in chief -- you can achieve improvements that will also bring about more revenue and at the same time not hurt growth. but that will mean taking on special interests and all kinds of things that are very tough in the political agreement. >> desmond, would you like to add? >> i think the question raised is a great question because it really raises the issue of what is going to happen to potential no carrier then we've got to deal with the entitlement programs that are

going to cause it to probably double further over the next decade. so i agree that i don't think that now is the time to be talking about tax cuts, you know which would just be widening those kind of deficits. i think they've got commitments on expenditure. what we should really be doing is de-financing them. this is a concern that i've got with this administration, is that we've got a very precarious budget situation, that they seem to be rather cavalier in adding additional expenditures that aren't funded. i'm, frankly, worried about the rating agencies indicating that , you know, if the united states doesn't come up with a medium term adjustment plan, the united states could lose its a.a.a. rating. so i just don't see a way around having to engage in

expenditure cuts, revenue increases to put the public finances on a better footing. otherwise what we're really doing is inviting a major crisis down the road. . otherwise, what we would be doing is just inviting a major crisis down the road. >> do you have supplemental comments on this critical question? too controversial? >> no, i think these are very good comments. i do not have much to add. >> next question to the audience -- from the audience. >> i am from cctv china central television reason. i have a question for mr. dadush. you have mentioned that china needs to improve its international influence in the world. i want to know how.

you have specific suggestions for the chinese policy makers? >> my observation is a longstanding one that comes from many years spent in frustration trying to nudge the doha negotiations along. and noticing two things. one, china is pretty much destined to to be the world's largest trading nation. it is not already, it is going to be within the next several years. -- if it is not already, it is going to be within the next several years. and that, in a sense, is trade power. if you relate it to this concept, you know, britain was

the free trade power in much of the modest -- in the 19th century. the united states was the free trade power in a good part of the second half of the 20th century. and the free trade power is basically the world's largest trader, but it is also a competitive trader. it is a trader that is confident. my point about china is that they could be doing more, could have done more to promote the doha negotiations and to recognize that no country has a greater interest than china in a free trading system. those were the particular point comes. but i think the point could increasingly become generalized.

in so many areas. in climate change, china is now the biggest emitter of carbon dioxide. and of greenhouse gases. therefore, moving forward on the climate change negotiations will not happen unless china, together with the united states of course, which is the second largest emitter, come to some sort of agreement, especially since these two countries are the opposite -- in some sense, are at the opposite side of the spectrum, developed and undeveloped. it is really a point about china recognizing, on the one hand, is

growing influence -- and i think this is obviously happening -- but on the other hand, recognizingno carrier ring that is why the currency issue, even though i am on record saying that an appreciation will do absolutely nothing to correct the current deficit of the united states. because it is a completely marginal issue. the main issue in the united states is domestic policy.

even though that is the case, it is important that china move in the direction of greater exchange rate flexibility for china itself and, in part, to defuse the protectionist pressures that are become more and more important. but it's very important. and it will help china to move in that direction. >> if i may ad because i'm focused on the china questions almost full-time even though i'm the moderator and i completely agree with uri's responses. but i'd like to add one or two other comments. many of the senior leaders in china i think still to become used to the idea that china has become a major factor in the world in every dimension. it's almost certainly already the second largest economy in whatever way you measure it. tainly already the second-largest economy in whatever way you measure it.

it is probably the largest trader, the largest co2 emitter, and so on and so on. but in the minds of the senior people, china still is struggling, developing country that has to do -- to fend for itself. china has to adopt the mindset where it is, accept the role of a major player in all dimensions of the world economy. with regard to specific recommendations, the comment i would like to make is beis that the exchange rate, and i support, but still it is not all important for different reasons. i believe a flexibleization of the exchange rateno carrierring

especially domestic consumer demand that would be good for all of us. thank you. of -- next question? this gentleman, here. >> thank you. it's bob davis for "the wall street journal." we've talked for years and years and years about how growth in the rich countries affects in a positive fashion growth in emerging markets. i'm wondering in the context of the u.s. where most everyone here thinks they'll be, you know, slow to at least moderate growth, what are the linkages from the emerging markets to the u.s. in such a way that you can see -- or are there such linkages that can you see 8% or

9% growth in china affecting in a positive way growth in the u.s.? >> the linkages come through trading system. these emerging economies, although their weight in global g.d.p. has been rising rapidly, we are focused on that. they also have a weighting in global consumption. it's smaller relative to the rate in g.d.p. but it's still appreciable. if you have consumption growth rates on the order of 8%, 9% in china, this does make a difference for the u.s. economy. now that said, if you put this into perspective, then you realize that the extent to which the emerging economies can do something for the advance economies is still relatively limited. let me give you some numbers. if you take consumption in all

the countries that ahead of this crisis have been running large current account deficits and are now experiencing increases in savings rate that are quite large, too, these economies comprise like the u.s. and, you know, the u.s., the u.k., the islands, portugal island, greece, spain, all eastern european economies, you take consumption out of them and then put it in relation to the consumption of china. consumption of china is one-third. so china alone cannot do the whole adjustment. consumption there is still too small even though it is growing very rapidly. so it does make a difference for the u.s. economy, but it cannot poll the u.s. and all -- pull the u.s. and these other countries out of recession. that's the way we see it. >> [question inaudible]

>> one of which i think you could argue is a mixed blessing, which is the provision of debt capital into the economy. you know, over recent years. obviously the emerging markets have been the major buyers primarily of treasury paper, especially in the last year before that, also mortgage-backed securities. less obviously since the crisis. and that has kept interest rates down. now, as i say, that may have been a mixed blessing and may have contributed to the whole problem. but i think one of the final linkages sort of somewhat under appreciated is the support given by profitability abroad to u.s. corporations. and thus to the u.s. stock market, and thus to the u.s. economy more blaudly, i would argue. probably the best example i can think of off the top of my head, maybe not a particularly

good one, is general motors. joan motors has obviously -- general motors has obviously gone bankrupt and is a bit of a disaster. but its operations in the emerging economies, most especially in china -- i mean, they didn't save it but they were part of a stabilizer. i contrast that, actually, with their operations in sbeeden, for example -- sweden, for example, which they basically have had to walk away from >> think it's an interesting contrast showing the supporting role provided to the corporate sector by the emerging world. >> i'd like to make the point that rapid growth in china needn't be supportive of the united states economy, particularly if it's an export-led growth that leads to a very large current account surplus. that really has been the pattern in china. running current account surfaces means that effective what you're doing is taking demand away from the united states. you're sucking it out of the united states. i think that when you've got a

stimulus package that goes in for excess capacity, excess supply, that is not going to be very supportive to the united states going forward. >> boosting aggregate demand in the united states this forgets, what i believe is the most important benefits of the growth of developing countries which has to do with the supply side of the economies. essentially as china grows, as india grows, the number of people that are able to buy products, sophisticated,

advanced consumer products for use in the united states or, for that matter, in germany or the united kingdom increases exponentially. when i was at the world bank working with hans, we produced a report that illustrated how within 20 years now something like 90% of the middle class in the world somehow defines. i don't want to go into all the definitions. but these are people that can buy sophisticated products. 90% of those people will reside in the developing world, where as today that proportion is much, much smaller. what this means fundamentally is that the united states will be able to pursue the natural path of its comparative advantage, which is the development of sophisticated

products. and import the low-cost stuff that can be manufactured much better elsewhere. ok? so what we're talking about is -- we're not talking about the growth potential of the united states in the course of the next 12 to 18 months. we're talking about what the standard of living of the average person in the united states is going to be 20 years from now, 30 years from now and what will determine that. and the integration with the developing countries probably holds the largest opportunity to raise those living standards in the medium term. >> just because it's such an important issue, i want to underline two things. first of all, there are limits

to what you can get out of macromodels, the standard rules of thumb through the trade linkages. as i said before, one of the most important mechanisms in the current crisis was a sharp drop in investments and the fact that it's the high-income country that are specialized in the production of investment goods. if you think through that mechanisms which is more detailed than a standard macrostory, then you see that the role of the emerging economies is far bigger than what you get when you just look at the aggregate economy. so that's the first point. the second point is very much related to what uri said about the supply side. the sole focus on the current account and thinking through impact of aggregate demand in high-income countries is very misleading. that would be an important story. if a country like china was trying to increase its share in

the same take by promoting export-led policies. but what it actually does is it increases the cake for the whole world. and everybody benefits from that. it's not just the emerging middle class in the developing countries themselves. it's also at the benefit from the people in the high-income countries. and it comes through lower prices. but the real wealth is increasing because somewhere in the world productivity sin creasing and the whole product is increasing. that's the process that is most important at the moment. >> unfortunately we have run out of time so i'll have to bring this seminar to a close. i'd like to thank the audience, also on c-span, for tuning in to this very, very timely and important seminar. there's no time for any summing up other than to say that perhaps if it were up to --

[inaudible] he would put three question marks behind the happy new year where as philip and uri might be con tept with no question mark. >> an exclamation point. >> thank you all for attending this seminar. [applause] [captioning performed by national captioning institute] [captions copyright national cable satelite corp. 2010] >> in a few moments democratic leaders on negotiations over the house and senate versions of the health care bill. in 10 minutes, president obama on the investigation into the recent attempt to bomb a northwest flight near detroit. and on "washington journal" we'll look at the terrorist threat and the government protests in iran and the hivetry and role of the federal reserve.

>> several events to tell about today on c-span. the chairman of the joint chiefs of staff, admiral mike mullen, speaks at the washington center for interns on the role of the military. that's at 10:00 a.m. eastern. at noon eastern, a discussion of conflict in the developing world hosted by the wilson center and catholic relief services. and we'll be live from the national archives at 7:00 p.m. eastern for a discussion of president nixon's meeting with elvis presley in 1970. the photo of the two together is the most requested photo from the archives. >> i'm always concerned about the potential unforeseen consequences, unintended consequences of new regulations. new regulations or regulations of any kind act as a tax. when you tax or regulate

something, you tend to get less of it. you tend to diminish it. >> this weekend on "the communicators" republican f.c.c. commissioner robert mcdowell on efforts to create a national broad band plan, net neutrality and the wireless industry. saturday 6:30 p.m. eastern on c-span. >> next, an update on health care negotiations on capitol hill. democratic leaders spoke with reporters for 10 minutes about their efforts to pass a bill before the president's state of the union address. >> happy new i didn't remember. great to see you all. we just had a productive meeting. want to commend all of them. mr. miller, chairman waxman, chair of the energy and commerce committee, chairwoman

slaughter, chair of the rules committee, for the imptant work they have done and that they are doing. we're very pleased that our conversations continue with our current parts in the senate at the leadership level, at the committee level, and at the staff level and are optimistic that there's much that we have in common in both of our bills and that we will reconcile this legislation in a way that is a triple-a rating. affordability for the middle class, accountability for the insurance companies, and accessibility to many more people in our country to quality, affordable health care. with that i would like to yield to our distinguished majority leader for any comments. >> thank you very much, madam speaker. we passed a very historic health care reform bill. the senate has now passed its health care reform bill. obviously it is necessary for us to reconcile these two bills.

there are significant differences. and we will be discussing these over the next coming weeks. we expect to move very, very forcefully on this effort to bring these two bills together. we are very hopeful that we will pass a conference report in the near term and send it to the president for his signature. teddy roosevelt started this effort almost a century ago. he said that we needed to make affordable quality health care available to all americans. over the ensuing century we have not accomplished that objective. we have now moved further than in any time in history on a bill that does exactly what teddy roosevelt and many presidents, republicans and democrats who followed him, said we need to accomplish. we are here working on that effort. we are going to be successful. we know the president looks forward to signing a health care reform bill which provides affordability and accessibility

and accountability of which the speaker spoke. thank you very much. >> our distinguished whip. >> thank you, madam speaker. i'm trying to hide behind him because i'm dressed for the weather today. >> i just changed. [laughter] >> i do believe that all of us heard from our constituents over the holidays, and we know that they're looking forward to us using the time between now and when we reconvene to have a legislation well underway to reconciliation. we are trying to reconcile two bills that are good bills. there are real good things in the senate bill. great things in the house bill. what we have to do now is meld these two together and do this in such a way that the american people will feel that the time and imaging in this effort has been worth while.

>> thank you very much. we are particularly delighted with the leadership of the president of the united states. without his leadership, without his vision, without his encouragement we would not be right on the verge right now of passing this historic legislation which will be placed, i think, in its rightful place, alongside social security, medicare and now health care for all americans. any of my colleagues wish to add? any question? >> madam speaker, as you know, a number of moderates said that the senate legislation can't change too much and still get 60 votes in the senate. so what is is it critical for members to see? >> we want our final product, as i'm sure everyone in the house and senate would agree to ensure affordability for the middle class, accountability for the insurance company as it provides accessibility by lowering costs for every -- at every stage. those are the standards that we

have which i think are shared in the house and in the senate. >> the senate should know -- [inaudible] >> we need 218. >> madam speaker -- [inaudible] >> the fact is the public option -- i prefer to call it the public's option, an option for the public to hold the insurance companies accountable and to increase competition. there are other ways to do that. and we look forward to having those discussions as we reconcile the bill. but unless we hold the insurance companies accountable we will not be able to have the affordability for the middle class. the reassurance of the insurance industry that we must have. to end the basis of the preexisting conditions, to cap payments and co--pays and all the rest. again, it's about affordability which is stonal accessibility. >> [question inaudible]

>> well, we will have what we need to hold the insurance companies accountable. i contend that whatever we have coming out of this bill will hold them accountable and they'll be crying out for a public option one of these days. [laughter] >> [question inaudible] a letter written regards to the conferencing committee. any response on that? [question inaudible] >> really? there are a number of things on the campaign trail. i have referred that letter to the assistant to the speaker. would you like to? >> thank you, madam speaker. let me just point out first that the health care debate in this piece of legislation has been subjected to an unprecedented degree of public scrutiny and input. the original bill was put on

the internet for the public to inspect. you then had a summer where you had thousands of hearings around the country and town meetings. both town hall meetings were people were showing up as well as telephone town hall meetings. you had a whole series of hearings in fact, i think it's important to note there were over 100 hearings held by the chairman of the three committees who are here with us today. i heard from 181 witnesses, 83 hours of markup. the list goes on. so we will continue to have that kind of open process as we go through this next phase. there will obviously be discussions between members of the house and senate, but we will continue to keep the american people informed as we have in the earlier stages of this legislation. >> [question inaudible] >> we don't even know yet whether there's going to be a conference, as the speaker it's not clear whether or not that's going to happen.

>> mad ym speaker, one of your colleagues -- mad ym speaker, one of your colleagues today -- [inaudible] >> i don't know who you're talking about but what i will say, that there has nev been a more open process for any legislation and anyone who serves here's experience. as you know, tens of thousands of people participate in our town meetings. over 100 witnesses in our bipartisan hearings that were held in the conference. and the list goes on. i'm not going to repeat what he has said. we now have another town venue. and that is the internet. and our legislation has had visibility for a very long time in that place. >> [question inaudible] >> i don't know who you're talking about. but what i will say is i completely disagree. we don't know what we will take. we will take the route that

does the job for the american people that gets this done in a timely fashion, in a city where the special interests are so entrenched and would like any avenue in order to stop this legislation. we will do what is necessary to pass the bill for affordable, accessible legislation which holds the insurance companies accountable. and we will do it when we are ready, in a timely fashion. >> [question inaudible] >> we'll see what that is. we think that we have the fairest approach in our bill. we say when it comes to tax policy it's like a mirror. mirror, mirror, on the wall who is the fairest of them all? the senate thinks theirs is fair. we think ours is. we'll see which mirror cracks. but we will proceed in a way that is fair to the american people. thank you. >> if i could just add to that. whatever the funding mechanism,

the president and we and the senate had pledged that this will be paid for and will bring down costs and it will bring down the deficit. >> [question inaudible] what kind of update mechanism? how will we know? >> my experience has been -- [inaudible] [laughter] >> my experience has been you know before i know. and i presume that will continue to be the process. thank you very much. [captioning performed by national captioning institute] [captions copyright national cable satelite corp. 2010] >> now president obama into the investigation of attempted bombing of flight 253 near detroit. he also talks about airline security for about 10 minutes.

>> good afternoon, everybody. i just concluded a meeting with my members of the national security team, including those from our intelligence, homeland security and law enforcement agencies involved in the security reviews that i ordered after the failed attack on christmas day. i called these leaders to the white house because we face a challenge of the utmost urgency. as we saw on christmas, al qaeda and its extremist allies will stop at nothing in their efforts to kill americans. we are determined not only to thwart those plans but to disrupt, dismantle and defeat their networks once and for all. indeed, over the past year we've taken the fight to al qaeda and its allies wherever they plot and frame, be it in afghanistan and pakistan in yemen and somalia, or in other

countries around the world. here at home our intelligence, homeland security, and law enforcement agencies have worked together with considerable success gathering intelligence, stitching it together, and making arrests. from denver to texas, from illinois to new york, disrupting plots and saving american lives. these successes have not come without a price. as we saw last week in the loss of our courageous c.i.a. officers in afghanistan. but when a suspected terrorist is able to board a plane with explosives on christmas day, the system has failed in a potentially disastrous way. it's my responsibility find out why and to correct that failure so that we can prevent such attacks in the future. that's why shortly after the attempted bombing over detroit i ordered two revies. i directed secretary of home land security janet napolitano to review aviation screening,

technology, and procedures. she briefed me on her initial findings today. and i'm pleased that this review is drawing on the best science and technology, including the expertise of secretary of energy steven chu and his department. i also directed my counterterrorism and homeland security advisor, john brennan, to lead a thorough review into our terrorist watch listing system so we can fix what went wrong. as we discussed today, this ongoing review continues to reveal more about the human and systemic failures that almost cost nearly 300 lives. we will make a summary of this preliminary report public within the next few days. but let me share some of what we know so far. as i described over the weekend , elements of our intelligence community knew that umar farouk abdulmutallab had traveled to yemen and joined up with extremists there. it now turns out that our

intelligence community knew of other red flags that al qaeda in the arabian peninsula sought to strike not only american targets in yemen but the united states itself. we had information that this group was working with an individual who was known -- who we now know was in fact, the individual involved in the christmas attack. the bottom line is this. the u.s. government had sufficient information to have uncovered this plot and potentially disrupt the christmas day attack. but our intelligence community failed to connect those dots which would have placed the suspect on the no-fly list. in other words, this was not a failure to collect intelligence . it was a failure to integrate and understand the intelligence that we already had. the information was there. agencies and analysts who need it had access to it. and our professionals were trained to look for it and to bring it all together.

now, i will accept that intelligence by its nature is imperfect. but it is increasingly clear that intelligence was not fully analyzed or fully leveraged. that's not acceptable. and i will not tolerate it. time and again we have learned that quickly peetsing together -- piecing together information and taking swift action is critical to staying one step ahead of a nimble add versarry so we have to do better and we will do better. we have to do it quickly. american lives are on the line. so i made it clear today to my team. i want our initial reviews completed this week. i want specific recommendations for corrective action to fix what went wrong. i want those reforms implemented immediately so that this doesn't happen again and so we can prevent future attacks. and i know that every member of my team that i met with today energies the urgency of getting this right. and i appreciate that each of them took responsibility for the shortfalls within their own agencies.

immediately after the attack i ordered concrete steps to protect the american people. new screening and security for all flights, domestic and international, more explosive detection teams at airports, more air marshals on flights, and deepening cooperation with international partners. in recent days we've taken additional steps to improve security. counterterrorism officials have reviewed and updated our terrorist watchlist system, including adding more individuals to the no-fly list. while our review has found that our watchlisting system is not brecken -- broken, the failure to add abdulmutallab to the no-fly list shows that this system needs to be strengthened. the state department is now requiring embassies and consulates to include current visa information in their warning on individuals with terrorists or suspected terrorist connections. as of yesterday, the transportation security administration, or t.s.a., is requiring enhanced screening for passengers flying into the united states from or flying

through nations on our list of state sponsors of terrorism or other countries of interest. and in the days ahead i will announce further steps disrupt attacks including better integration of information and enhanced passenger screening for air travel. finally, someone suggested that the events on christmas day should cause us to revisit the decision to close the prison at guam guam bay. -- guantanamo bay so let me be clear. it was always our intent to transfer detainees to other countries only under conditions that provide assurances that our security is being protected. with respect to yemen in particular there's an ongoing security situation which we have been confronteding for -- confronting for some time along with our yemeni partner. given the unsettled situation i've spoken to the attorney general and we have agreed that we will not be transferring additional detainees back to yemen at this time. but make no mistake. we will close guantanamo prison

which has damaged our national security interests and become a tremendous recruiting tool for al qaeda. in fact, that was an explicit rational for the formation of al qaeda in the arabian peninsula. as i've always said, we will do so. we will close the prison in a manner that keeps the american people safe and secure. our reviews and the steps that we take and will continue to take go to the heart of the kind of intelligence in homeland security we need in the 21st century. just as al qaeda and its allies are constantly evolving and adapting their efforts to strike us, we have to constantly adapt and evolve to defeat them. as we saw on christmas, the marriage yidge for error is slim. and the consequences of failure can be catastrophic. as these violent extremists pursue new havenens, we intend to target al qaeda.

denying them sanctuary as we are currently doing in yemen. as our adversaries seek new recruits, we'll constantly review and update our intelligence and our institutions. as they refine tactics, we'll enhance our defenses including smarter screening and security at airports and investing in the technology that might have detected the kind of explosives used on christmas. in short, we need our intelligence, homeland security and law enforcement systems and the people in them to be accountable and to work as intended -- collecting, sharing, intergrating, analyzing and acting on intelligence as quickly and effectively as possible to save independent lives. not just most of the time but all of the time. that's what the american people deserve. as president, that's exactly what i will demand. thank you very much. [captioning performed by national captioning institute] [captions copyright national cable satelite corp. 2010]

>> "washington journal" is next with the day's news and your calls. the chairman of the joint chiefs of staff, admiral mike mullen, speaks at the washington center for interns on the role of the military. that's live at 10:00 eastern. at noon eastern, a discussion of conflict over water in the developing world. and we'll be live from the national archives at 7:00 p.m. eastern for a discussion of president nixon's meeting with elvis presley. the photo of the two together is the archives' most requested photo. .