helping to create the kind of environment that now where we have economic growth, people actually are starting to add to their payroll. there are some ideas on both the republican and democrat side that allow us to potentially, for example, lower rates for small businesses on their taxes, to help spur on some growth and my hope is that both in the house and senate will see packages moving over the next several weeks to provide a jump start to start lowering the unemployment rate. . .

seeing that we can accelerate that and binding agreement in those areas. there may be some priorities that both the republicans and democratic leaders have that they want to raise at this meeting. my hope is that is not going to be a rare situation. we're going to do this on a regular basis i am thankful that they have taken some time to come. i am confident if we move forward in the spirit, keeping

in mind what is best for the american people, that we should pay bill -- we should be able to accomplish a lot. all right? thank you very much, everybody. >> good morning, everyone. we had a good meeting with the president and not like to emphasize that there are some areas of potential agreement. he mentioned in the state of the union his support for nuclear power, for offshore drilling, forcing coal technology, and for trade agreements, promote -- presumably with colombia, panama,, and others. these are areas where i think there could be broad bipartisan

support to go forward on a collaborative basis. obviously there will be areas of disagreement, but emphasizing that we might be able to work on together, i mention those four areas, all of which i think would be job generators -- nuclear power, offshore drilling, clean coal technology, and free trade agreements which we know create jobs here in the united states. we also have a long conversation about spending. the american people know that we have been on a spending binge for year. if you're serious about cutting spending, why don't we do it now? why don't we start with rescission packages? he has the power to send up to the hill. send it up to the hill. let members tote up and down on wasteful spending.

don't send this off to a spending commission. we can stop spending now. we did not really talk about health care. that apparently has not been discussed in several weeks. we are trying to tell the white house what it is we're trying to accomplish with this health care bill. that is why eric and i sent a letter down here yester day to get some answers as we consider what to do about this february 25 meeting. [inaudible] >> we are interested in a bipartisan confrontation regarding health care. but a bipartisan conversation ought to be that -- bipartisan from the beginning. we have been having conversations going back a letter -- going back to a letter we sent to the president last may. we got no response to it.

we certainly want to have a bipartisan conversation but we need to know what we're going to talk about. [inaudible] we would like to attend the meeting. we are interested in having these bipartisan conversation and look forward to it with the can -- with the administration. we are considering that. >> any progress on the jobs legislation? >> we had a lot of conversations about various concepts. the house has already passed the stimulus bill. it is over in the senate. >> we discussed the senate package. it is a work in process. some members of the finance committee are not ready yet, most of my members have not seen it yet. we are certainly open to it and

there is a chance to move forward on a bipartisan basis. we hope that the next dingell's bill is truly a job creator. -- the next stimulus bill is truly a job creator. >> you have concerns about the health care talks? >> a good way to start would be to listen to the american people. they are overwhelmingly opposed to the 2000-page bill that the house and senate have looked at. what we need to do is start over in a true body -- in a truly bipartisan basis to reach an agreement three the republicans are open to doing that. we're focused on costs. costs are the problem. the rising cost of health care in america -- we need to target cost.

targeting juppe lawsuits against doctors and hospitals, making it possible for the purchase of health insurance -- there are a lot of things we can do to expand -- reduce the number of uninsured and target the cost issue. [inaudible] >> we need to start over. we need to listen to the american people. these surveys are overwhelming. the last national public radio poll last week indicated that by 58-38, the people were opposed to this bill. why would way -- why would they want to keep pushing that? the american people are overwhelmingly against it. that is the measure on the shelf, and start over step-by- step and get it right. >> some of the things that you

opposed are actually in the bill that -- that you have proposed are actually in that bill. do you ever response to that? >> we're going to have a health care meeting on the 25th. what i am saying is that should go on the shelf, start over, with more modest goals, and going step by step to deal with the problems that the american people want us to deal with. >> we want to have a bipartisan conversation. it is going to be hard to have a bipartisan conversation with a 2700-page health care bill or the majority's cannot pass it. why are we going to talk about a bill that cannot pass? scrap the bill and start over and let's talk about the things

that we can do to make health care more affordable for the american people. [inaudible] >> we will see. [inaudible] >> it is hard to predict. this is a package that is a work in process. we want to make sure that is not just another stimulus bill that will not create jobs. it is too early to tell what that package will look like, and the weather is interfering this week with our ability to do this. thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> after the meeting, president

obama made an unscheduled appearance at the white house briefing 3 he talked about health care and other issues. robert gibbs continue to speak with reporters after the president. this is about an hour. >> we are trying to bring some change that you can believe them. i am glad to see that all of you

braved the weather to be here. all little while ago, i had a meeting with the democratic and republican congressional leaders, and it went very well. in fact, i understand that mcconnell and reid are out doing snow angels on the south lawn together. can you picture that, chuck? not really? the meeting did go well, and i appreciate them making the trek. we had a good and frank conversation and it is one that i hope that we can continue on a more regular basis. we all understand that there are legitimate and genuine differences between the parties, but despite the political posturing that often paralyzes this town, there are many issues upon which we can and should agree. that is what the american people are demanding of us. i think they are tired of every day being election day in washington. and at this critical time in our country, the people sent us here -- who sent us here expect

a seriousness of purpose that transcends petty politics. that is why i am going to continue to seek the best ideas from either party as we work to tackle the pressing challenges ahead. i am confident that when one in 10 of our fellow citizens cannot work, we should be able to come together and help business create more jobs. we ought to be able to agree on providing small businesses with additional tax credits and much leaded -- much needed lines of credit. we ought to agree on investments in crumbling roads and bridges, and we should agree on tax breaks for making homes more energy-efficient -- all of which will put more americans to work. many of the proposals that i have laid out have passed the house and are soon going to be debated in the senate. we spent a lot of time in this meeting discussing a jobs package and how we could move forward on that. and if there are additional ideas, i will consider them as well. what i will not consider is doing nothing in the face of a

lot of hardship across the country. we also talked about restoring fiscal responsibility. there are few matters on which there is as much vigorous bipartisan agreement, at least in public, but unfortunately there is a lot of partisan wrangling behind closed doors. this is what we know for sure -- for us to solve this extraordinary problem that is so many years in the making, it is going to take the cooperation of both parties. it is not going to happen any other way. i am pleased that congress supported my request to restore the pay-as-you-go rule, which was instrumental in turning deficits into surpluses during the 1990's. i have also called for a bipartisan fiscal commission. unfortunately this measure, which originally had received the support of a bipartisan majority of the senate and was cosponsored by senators conrad and gregg, democrats and republicans, was blocked there. so i'm going to be creating this

commission by executive order. and during our meeting, i asked the leadership of both parties to join in this serious effort to address our long-term deficits, because when the politics are put aside, the reality of our fiscal challenge is not subject to interpretation. math is not partisan. there ought to be a debate about how to close our deficits. what we cannot accept is business as usual, and we cannot afford grandstanding at the expense of actually getting something done. during our meeting, we also touched briefly on how we can move forward on health reform. i have already announced that in two weeks i will be holding a meeting with people from both parties, and as i told the congressional leadership, i am looking forward to a constructive debate with plans that need to be measured against this test -- does it bring down costs for all americans as well as for the federal government, which spends a huge amount on health care? does it provide adequate protection against abuses by the insurance industry?

does it make coverage affordable and available to the tens of millions of working americans who do not have it right now? and that is -- and does it get us on a path to fiscal sustainability? we also talked about why this is so urgent. just this week, there was a report that anthem blue cross, the largest insurer in the larger state, california, is planning on raising premiums for many individual policyholders by as much as 39%. if we do not act, this is just a preview of coming attractions. premiums will continue to rise for folks with insurance. millions more will lose their coverage altogether. our deficits will continue to grow larger. and we have an obligation in both parties to tackle this issue and a serious way. bipartisanship depends on a willingness among both democrats and republicans to put aside matters of party for the good of the country. i will not hesitate to embrace a good idea from my members in the minority party, but i also will

not hesitate to condemn what i consider to be obstinacy that is rooted not in substantive disagreements but in political expedience. we talked about this as well, particularly when it comes to the confirmation process. i respect the senate's role to advise and consent, but for months qualified, non controversial nominees for critical positions in government, often positions related to our national security, had been held up despite having overwhelming support. my nominee for one important job, the head of general services administration, which helps runs the government, was denied a vote for nine months. when she finally got a vote on her nomination, she was confirmed 96-0. that is not advise and consent. that is delay and obstruct. one senator, as you are all aware, had put a hold on every single nominee that we have put forth to a dispute over a couple

of earmarks in his state. in an hour meeting, i ask the congressional leadership to put a stop to these holds in which nominees for critical jobs are denied a vote for months. surely we can set aside partisanship and do what is traditionally -- what has been traditionally done to confirm these nominations. if the senate does not act to confirm these nominees, i will consider making several recess appointments during the upcoming recess, because we cannot afford to allow politics to stand in the way of a well functioning government. my hope is that this will be the first of a series of meetings that i have with leadership of both parties in congress. we have got to get top -- get past the tired debates that have plagued our politics and left behind nothing but soaring debt and mounting challenges, greater hardships among the american people, and extraordinary frustrations among the american people. those frustrations are what led me to run for president, and as long as i am here in washington,

i intend to try to make this government work on their behalf. so i am going to take a couple of questions, guys. maj. >> after meeting with you, john boehner came out and told us that the house cannot pass the health care bill it once passed, the health -- and the senate cannot pass the health care bill it once passed. why would we have a conversation about legislation that we cannot pass? as part of that, he said you and your white house and congressional democrats should start over entirely from scratch on health care reform. how do you respond? are you willing to do that? >> this is how i responded to john in the meeting and i have said this publicly before. there are some core goals that have to be met. we have got to control costs, both for families and businesses, but also for our government. everybody out there who talks about deficits has to the knowledge that the single biggest driver of our deficits is health care spending. we cannot deal with our deficits

and debt long term until we get a handle on that. so that has to be part of a package. no. 2, we have got to deal with insurance abuses that affect millions of americans who have got health insurance. and number three, we have got to make health insurance more available to folks in the individual market, as i just mentioned, and california, who are suddenly seeing their premiums go up 39%. that applies to the majority of small businesses as well as sole proprietors. they are struggling. so i have got these goals. now we have the package, as we work through the differences between the house and the senate, and we will put it up on the web site for all to see over a long period of time, that meets those criteria and those goals. but when i was in baltimore talking to the house republicans, they indicated that we can accomplish some of these goals at no cost. and i said, great, let me see it.

i have no interest in doing something that is more expensive and harder to accomplish if somebody else has an easier way to do it. so i am going to be starting from scratch in the sense that i will be open to any ideas that help promote these goals. what i will not do, what i do not think makes sense and i do not think the american people want to see, would be another your partisan wrangling around these issues -- another six months or eight months or nine months worth of hearings in every single committee in the house and the senate in which there is a lot of posturing. let's get the relevant parties together, the best ideas on the table, and my hope is that we can find enough overlap that we can say this is the right way to move forward, even if i do not get every single thing that i want. but here's the point that i made to john boehner and mitch mcconnell -- bipartisanship cannot be dead i agree to all

the things that they believe in or want, and they agree to none of the things i believe in and want, and that is the price of bipartisanship, right? but that is sometimes the way it gets presented. mitch mcconnell said something very nice in the meeting about how he supports our goals on nuclear energy and clean coal technology and more drilling to increase oil production. well, of course he likes that. that is part of the republican agenda for energy, which i accept. and i am willing to move all some of the preferences of my party in order to meet them halfway. but there has to be some give from their side as well. that is true on health care, on energy, on financial reform -- that is what i am hoping gets accomplished at the summit. >> do you agree the house and

senate bill cannot pass anymore? >> what i agree with is that the public has soured on the process that they saw over this last year. i think that actually contaminates how they view the substance of the bills. i think it is important for all of these issues to be aired so that people have confidence if we're moving forward on such a significant part of the economy as health care, that there is complete transparency and all of these issues have been adequately vetted and adequately debated. and this gives an opportunity not just for democrats to say here's what we think we should do, but it also gives republicans a showcase before the entire country to say -- here is our plan, here's why we think this will work. and one of the things that john boehner and mitch mcconnell both said is that they did not think that the status quo was acceptable, and that right there is promising. that indicates that if all sides agree that we cannot just continue with business as usual, then maybe we can actually get

something done. >> one of the reasons and some blue cross says it is raising its premiums is because so many people are dropping out of individual coverage, because the economy is so bad. that leaves the people in the pool who are people who need medical care driving up costs. one of the reasons why businesses are not expanding right now, in addition to the credit issues you have talked about, at least according to business leaders, is that they say there's an uncertainty of what they need to plan for because of the energy bill, because of health care. that is what they say. i am not saying it is true or not, but that is what they say. what do you say when you hear that? >> the biggest uncertainty has been we just went through the worst recession since the great depression and people were not sure whether the financial system was going to melt down and whether we would tip into an endless recession. let's be clear about the sources of uncertainty in terms of business investment over the last several years -- by a huge

contraction, trillions of dollars of losses in people's 401(k)'s, people have a lot of debt coming out of the previous decade that they still have not worked out, and the housing market losing a whole bunch of value. so the good news is that where we were contracting by 6%, the economy is now growing by 6%. the ceo's i talked to are saying that they are now making investments, and i anticipate that they are going to start hiring at a more rapid clip. what i've also heard them saying is that we would like to feel like washington is working and able to get some things done. their two ways of interpreting the issue of uncertainty. one way would be to say, well, you know what, we will just go back to what we were doing before on, let's say, the financial markets. we will not have the regulations that we need. we will not make any changes in terms of "too big to fail."

that will provide certainty until the next financial crisis. that is not the kind of certainty that i think the financial markets need. the kind of certainty that they need is for us to go ahead and agree on a bipartisan effort to put some rules of the road in place so that customers -- consumers are protected in the financial markets, so that we do not have banks that are too big to fail, that we have ways of winding them down and protecting the overall system without taxpayer bailouts. that requires legislation. the sooner that we can get that done, the better. the same would be true when it comes to health care. a lot of ceo's i hear from will say, boy, we would like to get health care settled one way or the other, but they will let knowledge that when they open up their latest invoice for their premiums and they find out that those premiums have gone up 20% or 20 to -- or 25%, that is the kind of uncertainty that also tamps down business investment. so my answer would be this -- the sooner the business community has a sense that we

have got our act together here in washington and can move forward on big, serious issues in a substantive way without a lot of posturing and partisan wrangling, i think the better off the entire country is going to be. i absolutely agree on that. what i think is important is not to buy into this notion that is perpetrated by some of the business interests that have got a stake in this, who are fighting financial reform for example, to say, boy, we would be doing fine if we just did not try to regulate the banks. that, i think, would be a mistake. >> to play devil's advocate on that -- a small business, let's say, not somebody who is going to be affected by the regulatory reform -- you a proposed a bold agenda. a small business might wonder, i don't know how the energy bill is going to affect me, or the health care reform bill, i'd better hold off on hiring.

>> the small businesses i talk to -- and i have been talking to a lot of them as i have been traveling around the country over the last several months -- their biggest problem is right now they cannot get credit out of their banks and so they are uncertain about that. and they are uncertain about orders -- do they have enough customers to justify them doing more? it is looking better at this point. but that is not the rationale for people saying, i am not hiring. let me put it this way. most of businesses right now, if they have got enough customers to make a profit in making that the bank loans required to boost their payroll, boost their inventory, and sell to those customers, they will do so. ok? let's see, let's get a print guy in here. david. >> you heard mcconnell talk about nuclear power, offshore drilling, free trade -- that is a lot of republican stuff. is your party going to go for that if you decide to report --

to support that? >> i think that on energy there should be a bipartisan agreement that we have to take a both/and approach rather than an either/or approach. what we mean by that? i am very firm in my conviction that the country that leads the way in clean energy -- solar, wind, biodiesel, geothermal -- that country is going to win the race in the 21st in troy -- 21st century global economy. so we have to live in that direction. what is also true that, given our energy needs in order to continue economic growth, produce jobs, make sure our businesses are competitive around the world, that we are going to need some of the old, traditional energy sources as we are developing these new ones and ramping them up. so we cannot overnight convert to an all-solar or an all-wind economy. that just cannot happen.

we're going to have needs in these traditional sources. and so the question then is, are we going to be able to put together a package that includes safe, secure nuclear power, that includes new technologies so that we can use coal -- which we have in abundance and is very cheap, but often is adding to our greenhouse gases -- can we find sequestration technologies that clean that up, can we identify opportunities to increase our oil and natural gas production in a way that is environmentally sustainable? and that should be part of a package with our development of clean energy. and my hope is that mine republican friends, but also democrats, say to themselves, let's be practical and let's do both. let's not just do one or the other -- let's do both.

overtime, i think the transition is going to be more and more clean energy and over time fossil fuels become less prominent in our overall energy mix. but we've got to do both. >> how confident argued that there will be the kind of consensus for that double-edged approach? >> i am just an internal optimist -- an eternal optimist. it is the right thing to do. all i can do is just keeping on making the argument about what is right for the country and assume that over time people, regardless of party, regardless of their particular political si are going to gravitate toward the truth. ok? i'm going to take two more. let's see. >> how about the back? >> i just want to make sure that i was getting a balance here, so

go ahead, chuck. why is everybody moaning about todd? >> his questions are too precise. [laughter] >> we got the news today that iran is doing more enhancement uranium. secretary gates today in paris was quoted as saying basically the dialogue seems to be over and now the question is sanctions. where are we on sanctions? how close is this? i know you had and ended the year deadline when you stood up there with sarkozy and brown. it is now february. how quickly is this moving along? >> it is moving along fairly quickly. i think that we have bent over backwards to say to the islamic republic of iran that we're

willing to have a constructive conversation about how they can align themselves with international norms and rules and reenter as full members of the international community. the most obvious attempt was when we gave them an offer that said, we are going to provide the conversion of some of the low-enriched uranium that they already have into the isotopes that they need for their medical research and for hospitals that would serve up to a million iranian citizens. the rejected it. although one of the difficulties in dealing with iran over the last several months is that it is not always clear who is speaking on behalf of the

government, and we get a lot of different, mixed signals. but what is clear is that they had not yet said yes to an agreement that russia, china, germany, france, great britain, and the united states all said was a good deal, and that the director of the iaea said was the right thing to do and that iran should accept. that indicates to us that, despite their posturing that their nuclear power is only for civilian use, that they in fact continue to pursue a course that would lead to weaponization. and that is not acceptable to the international community, not just the united states. so what we have said from the start is that we are moving on dual tracks. if you want to except the kinds of agreements with the international community that lead you down a path of being a

member of good standing, then we welcome you. if not -- >> had they not responded, though? by deciding to do what they did? >> i am getting to that. if not, the next up is sanctions. they have made their choice so far, although the door is still open. and what we're going to be working on of the next several weeks is developing a significant regime of sanctions that will indicate to them how isolated they are from the international community as a whole. >> what you mean by regime of sanctions? some will be u.n. and some will be -- >> we're going to be looking at a variety of ways in which countries indicate to iran that their approach is unacceptable. and the u.n. will be one aspect of that broader aspect -- broader effort. >> china will be there? >> we are confident right now

that the international community is unified around iran's misbehavior in this area. how china operates at the security council as we pursue sanctions is something that we're going to have to see. one thing i am pleased about is to see how forward-leaning the russians have been on this issue. i think they clearly have seen that iran has not been serious about solving what is a solvable dispute between iran and the international community. i'm going to make this the last question. and all take somebody from the back. >> thank you for doing this. it has been a while. on health care, the republicans are asking whether the february 25 session will include economists and public interest groups and people supporting your side, or will it just be the members of congress? and on anthem blue cross, do you have the authority to go in and

tell private company they cannot charge that? how will you stop them? >> i did not have the authority as i understand it -- i cannot simply issue an executive order lowering everybody's rates. if i could, i would have done that already and saved myself a lot of grief on capitol hill. that is why reform is so important. that is why the status quo was unacceptable. but there is no shortcut in dealing with this issue. i know the american people get frustrated in debating something like health care because you get a whole bunch of different claims being made by different groups and different interests. it is a big, complicated, tough issue. but what is also true is that without some action on the part of congress, he is very unlikely

that we see any improvement over the current trajectory. and the current trajectory is premiums keep on going up 10%, 15%, 30%. the current trajectory is more and more people losing health care. i don't know if people noted, because during the health-care debate everyone was saying that the president is trying to take over -- a government takeover of health care. i don't know if people notice that for the first time this year, you saw more people getting health care from government than you did from the private sector, not because of anything we did, but because more and more people are losing their health care from their employers. it is becoming unaffordable. that is what we're trying to prevent. we want people to be able to get health care from their employers, but we also understand that you have got to fix the system so that people are able to get it at affordable rates and small businesses can afford to give it to their employees at an affordable rate. that is not happening right now.

to your question about the 25th, my hope is that this does not end up being political theater, as i think some of you have phrased it. i want a substantive discussion. we have not refined exactly how the agenda is going to go that day. we want to talk with both the democratic and republican leaders to find out what they think would be most useful. i do want to make sure that there are some people like the congressional budget office, for example, that are considered non-partisan, who can answer questions. in this whole health care debate, i am reminded of the story that was told about senator moynihan, who was, i guess, in an argument with one of his colleagues. his colleague was losing the argument and so we got flustered and said to senator moynihan, "well, i am entitled to my own

opinion." and senator moynihan said, "well, you are entitled to your own opinion, but you're not entitled to your own facts." i think that is the key to a successful dialogue on the 25th about health care. let's establish some common facts. let's establish what the issues are, but the problems are, and let's test out in front of the american people what ideas work and what ideas do not. and if we can establish that factual accuracy about how different approaches would work, then i think we can make some progress. and it may be that some of the facts that come up are ones that make my party a little bit uncomfortable. so it is established that by working seriously on medical malpractice and tort reform that we can reduce some of those

costs, i have said from the beginning of this debate i would be willing to work on that. on the lohan, if i am told that that is only a fraction of the problem and that is not the biggest driver of health care costs, then i'm also going to insist, okay, let's look at that as one aspect of it, but what else are we willing to do? and this is where it gets back to the point i was making earlier. bipartisanship cannot mean simply that democrats give up everything that they believe in, find the handful of things that republicans have been advocating for, and we do those things and then we have bipartisanship. that is not how it works in any other realm of life. that is certainly not how it works in my marriage with michelle, although i do usually

give in most of the time. [laughter] but there is got to be some give-and-take, and that is what i am hoping can be accomplished. and i am confident that is what the american people are looking for. all right? >> jobs question? >> since there was not a jobs question, i will make this the last one. >> at the stakeout, the republicans were saying, the jobs package we've seen, it is not really ready yet, we are loop -- we are a little worried about cost. are you satisfied something can be moved quickly to congress on jobs? >> the house as to afford a jobs package that has some good elements in it. my understanding is that there is bipartisan talks taking place as we speak on the senate side about some elements of a package. i think there are some things that a lot of people agree on. just to give you an example, the idea of eliminating capital gains for small businesses, something we can all agree on. i talked about it at the state

of the union address. my hope would be that we would all agree on a mechanism to get community banks who are lending to small businesses more capital, because that is something that i keep on hearing is one of the biggest problems is small businesses have out there. so i think that it is realistic for us to get a package moving quickly that may not include all the things i think need to be done, and it may be that that first package builds some trust and confidence that democrats and republicans on capitol hill can work together and then we move on to the next aspect of the package and so forth. it may take a series of incremental steps, but the one thing i am absolutely clear about is that we have got an economy that is growing right now, a huge boost in productivity -- that is the good news. the bad news is that companies

still have not taken that final step in actually putting people on their payroll full-time. we see an increase in temporary workers but they have not taken on that full-time worker. and so providing some additional impetus to them, but as the economy is moving in a positive direction, i think that can yield -- end up yielding good results. thank you, guys. that was pretty good, thanks. >> now that the warm-up and is played, i can imagine there is a lot to say. -- the warm-up band has played, i cannot imagine that there is a lot to say. >> the present said that it cannot just be democrats.

there has to be give-and-take. what about the given the white house offers? >> you heard the president discuss any interviews that he has done the notion of talking more fully about medical malpractice, something that you can put on the table that we would discuss. the republican ideas already in the legislation include interstate compact all-out coverage across state lines, catastrophic plans for the young, extending coverage to age 26, incentives for wellness programs, and the small business polls. there are republican ideas -- the latest figure was 150 amendments that were offered in

the committee process in this bill. but that is the point here. as a result of president discussed in baltimore, that we should listen to these ideas. >> it's as like -- it sounds like you're taking the position that the white house has already given and now it is time -- a >> i think you know that is simply not true. if you think about the number of meetings that senator baucus had with senator grassley of the number of times that they spoke to the president on this issue, the notion that the president has not talked to republicans -- that is a gop party talking point. but let's have a reasonable discussion. but sit down and discuss these issues in a bipartisan way, and

do this in a way where we can have this discussion in front of the american people and decide what ideas we can all agree on. the last example the president used, which was bipartisanship is not going to be 100 percent of yours and mine. that is not bipartisanship. there has to be given taken the process. you may not get everything that you want. and the other side made get some of that as well. what senator mcconnell and congressman boehner both said today, is that the status quo we have right now is not fair. we have to figure out the uncertainty and provide the american people. >> the white house is still willing to give in the give-and-

take. >> absolutely, during this entire process. >> the underlying issue, does the president generally think that the republican leaders in the house and senate want to work with him? >> we take them at their word. that they do indeed want to have -- they want to play a constructive role. senators hatch and schumer are working on a jobs tax credit that could come up this week for a vote in the senate. the president discussed insuring credit to small businesses, something that both the white house and members of congress in both parties believed was important for small business. there was a discussion on the deficit and on ensuring that the fiscal condition be an outlet

for that, understanding that congressman boehner and senator mcconnell both spoke in support of their respective pieces of legislation. i think that if we understand what the president said, when we have this give-and-take, i think we can do this. >> present obama is saying no to both dana -- boehner and mcconnell about scrapping the bill and starting from scratch. >> they are going to bring their ideas to the table. and there are some in their party that would do away with this. i wrote a few things down. [laughter]

i wrote eggs, milk, and bread. i crossed out bread. i can make pancakes. and then i wrote hope and change just in case i forgot that. [laughter] again, there are different ways of treatment. they're some of what to do away -- there are some that want to do away with attached referral, and there are some that do not. there are those that want to -- that believe that there should be a broader restructuring of the medicare advantage program that provides incentives for insurers, and obviously there is a disagreement about that.

we don't think that republicans are not going to bring ideas. the president wants to scrap a year-long process to get us to this point. >> to fight -- despite the scale back -- >> your characterization the scale back. we want to do this in a way that is not to simply more cost- effective but actually will have a better results in the event -- [unintelligible] >> the russians still be the system is being directed against them. -- still view the system as being directed against them. how was the president going to overcome that obstacle and get the russians back?

>> when president obama talk to president mad that a few weeks ago, there was not an obstacle. our change in architecture was announced last september, yet we have had substantive negotiations going on for many my spirit the notion that this is in any way an impediment to what is going on with start is simply not true. it was certainly not what the russian president told president obama. >> [inaudible] >> again, i hate to contradict the president of russia when speaking to the united states about getting a stark deal done

in not mentioning in a phone call that is happening in the oval office something like this, because it is just not the case. it is not what is holding up these negotiations. these negotiations are ongoing. whenever you get down to this point in the treaty, you're taking consensual agreements and putting them into words. they're going to be fights over different words, but i can assure you it is not our different approach to that. >> some republicans are critical in not being involved in health care reform or other issues. the president has now invited them to the white house? financial reforms --

>> senator shelby was working together with us on financial reform. >> they have not been brought in for the process. now there be here -- they are being brought in on the 25th again. is this the white house saying that we should involve republicans all along? >> we're paving the road again to bipartisanship. >> a greater effort to involve republicans? >> i do not think that is true. i cannot tell you the number of times that the president talked to republican senators trying to get the finance committee to come to an agreement. many, many times. it is quite revisionist to think that somehow -- and this

summer, they're all of these questions of trying to get to the finance committee and that the reform. we spent hours and hours, many conversations trying to rip retract -- trying to bring republicans on the finance committee along. susan collins did work constructively and we were working constructively with her. [unintelligible] >> the entire reform -- whether financial reform, the republicans feel they have not been brought into the process. the white house seems to be more aggressive with that now. >> we have a fundamental disagreement about the premise of your question. [inaudible] >> i thought about a lottery ticket yesterday. maybe i won the lottery.

we would not be doing what we are doing remember, the president went to capitol hill and talk about supporting the recovery bill. before we get out in the motorcade, they have put out a statement opposing it. if bipartisanship means i am going to give up everything i believe and adopt everything that you believe, that is not bipartisanship. that has never been bipartisanship in this town. it bipartisanship is we're going to take into account some of your ideas and you're going to take into account some of our ideas, knowing this 100% of what they want but we're going to make progress on the issue for the american people. that is what the definition of bipartisanship has been for several hundred years. and that is what each party is interested in doing now. >> on the deficit, there was a

town of bipartisanship. [inaudible] immediately after, boehner mcconnell came out and said that the president had been on a spending binge. >> i hope that you will get your congressional reporter to ask after -- why after a bipartisan meeting, because no one could blame everything that happened on one party. or that they want to come out of the white house bipartisan meeting and somehow read this in a way no normal human being would read it, that is one thing. but the point is this -- leader boehner co-sponsored a bill by frank wolf that did not even have an equal number of house

republicans and democrats on the commission. senator mcconnell in the number of different venues, including in november, spoke quite passionately for the conrad-greg commission. the president supported the commission which was set up very clearly along the wolf proposal that leader banner -- leader boehner supported in the house. you normally think you need 60 votes in the senate when you can pass something on a majority, if each were serious about working on the deficit. but alas, that is what was asked for. let's talk about what happened in that vote.

not all republicans supported it, not all democrats supported it, 53 votes. seven short of the necessary 60. those seven votes could have been gotten by the co-sponsors of that bill in december that decided not to vote for it. they are the seven votes. but the president has laid out $17 billion worth the spending $20 billion in spending cuts this year, and we hope to get those. if congress wants to do better than that, the president is happy to look at it. they talk about all line-item veto. the president will certainly look at those. >> it's been made very clear from the republican leadership is that there is no compromise

on a bipartisan commission and health care reform. they want him to scrap the health care bill. isn't he engaging in political theater? >> 53 senators supported the bill. the senator at the meeting representing the senate republicans, just two months ago, said he supported the bill. the leader of the house republicans -- it is political theater when something comes to a vote -- he said it to john n. mitchell, guys, it does not really work in this town if i say i am for that, and then you decide that you are not. i don't know what the definition of that is, chip, and i presume you will have to ask mitch

mcconnell and john maynard -- john boehner why they would not supported. they have concerns about what would be on the table? here is a good idea. there is a budget process on capitol hill. if you have an idea about how to structure our budget, vote on that. i have no doubt that if the house republicans and senate republicans want to put forward a budget, that should be voted on, absolutely. i cannot imagines anyone would stand in the way of having that budget voted on. .

some other differences were discussed in terms of how all that is structured, but the leaders talked about how you're going to pay for this. we have authority to use money to help banks get the capital they need to then, -- to lend,

so all three of them said, unless we do something like this, landing is going to contract. we have this authority, and that a third date is permissible, -- permissible asserted under tarp is to get their financial system going through lending. this is a common-sense way. >> the president highlighted the fact that the republicans like some of the energy ideas like clean coal and nuclear power. was there any discussion of moving forward with a comprehensive energy bill that would include those elements? >> senator mcconnell brought up some ideas the president had proposed in the state of the union that he thought many republicans would support. he mentioned clean coal

technology, which the president supported since running for office in 2003 and 2004. he mentioned increasing nuclear loans, which is in our budget, and talked about offshore oil drilling, something the president of forded at the end of the last campaign. as you heard the president say, he is certainly prepared to walk away from some in his party that think we cannot do those things. in order to get some of this done, we need to have give and take with the republicans. >> we did not have any of that. >> that was not along topic. i think the president said to senator mcconnell, if that is what he supports, he would be pleasantly surprised what the administration supports.

>> the president made a mention of the free trade deals, but he did not say they should be ratified. does he want them ratified this year, and if so, is there political damage, because labor would certainly not be happy? >> this is an example of what has to be give and take. the president mentioned those three. we did not lay out a specific deadline, but the president, who believes in order to have jobs we have to increase the amount of exports leaving the country. he has a very robust agenda on exports, and they include those agreements. >> should they be ratified this year? >> the president did not lay out in the state of the union and did not do so in this meeting.

>> the president just said the american public has soured on process of health care reform. can you explain how i health care summit a week from now will change that? what are you hoping to get? >something else is going on now. >> i think the president hopes to take everybody at their word, including senators mcconnell and leader rainer -- boehner today that the status quo is unacceptable. we understand what we're doing is not sustainable. it is not sustainable when we deal with our deficit. it is not sustainable what we do with small businesses. having this discussion, having everyone be able to see this discussion and be able to

discuss the ideas each party wants to bring to the table, the president believes can help move this process forward. it started with what the president did in baltimore, and the president hopes it will continue on february 25 at the white house. >> the rep is already saying it is a dog and pony show, and we have no intention of discussing what has already been rejected by the american public. >> i cannot imagine that a group that wanted to sit and talk in a bipartisan way with the president about health care would now walk away from sitting in a bipartisan way and talking with the president about health care. i year crazy stuff all the time, but to literally move from the talking points of, we need a transparent process where the president sits down and take seriously our ideas on health

care, and the next day's says, what you want us to do is sit down and talk about our ideas on health care? we cannot possibly do that. representative kantor can decide whether he agrees with himself from yesterday or whether he agrees with himself from a few weeks ago. >> one issue they were asking for prior to the meeting is that reconciliation be taken off the table. >> i see republicans -- think republicans should come to the white house to discuss their ideas without preconditions. >> i want to -- >> the president is not going to limit anything based on preconditions. if that is a precondition, the president does not agree with limiting the way we're going to

discuss that. >> based on the reaching out you just discussed, does the president see this february 25 summit as a last chance for republicans could -- to come to the table and agree on something or he is just going to do it with democratic votes? >> i think the president believes this is the next best chance to do it, and the president is going to take republicans seriously that they want to come discuss these issues. you are laughing, and i have not even finish. >> how many chances before he says, we're just going to go with a democrat vote? >> if there was a way to have solved this prior to today, we would not be reaching >> -- we would not be -- >> how focused is the white house to the tea party convention? the you have any reaction to

what was said there? >> i did not want to. >> to you think the key party movement is a real political force? -- do you think the tea party movement is a real political force? >> it seems to be a very successful private enterprise. i would say there appear to be fewer speechmakers unemployed in this economy than what might have been previously reported. i think whether you are part of an organized party it -- whether you're part of a movement, i think what we saw in 2008, what we saw in massachusetts, what we see across the country is a great deal of anxiety about what we have been through. we discussed this a little on friday when we talked about the

jobs report. the formulation of how many jobs have been lost exceeds what has been lost in the recession of 1981, the recession of 1991, and the recession of 2001, combined, so for a long time, this anxiety has built. whether you are a democrat or republican, an independent, a member of the tea party movement, you want to be able to sit down and talk about differences, but also, not just focus on differences. i notice there are a lot who focus on what we've disagree on and not what we agree on. i think the president wants to sit down and talk about health care to find some agreement on what we are for. there are plenty of all outlets to discuss what people are

against. what the american people want us to do is come together and make some progress and move forward with what we agree on to help get this economy started again, to help it -- help get the credit we need. that is what the american people want to see. i think that is what the president wants to work on, too. >> any comment on craig? [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> you are watching public affairs programming on c-span.

up next, a senate hearing on the economy and federal budget, and after that, today's meeting with house and senate leaders and the president. tomorrow morning, we will get an update on the senate jobs bill with ian swanson. after that, professor daniel kaniewski will discuss a recent report on american security. after that, richard brake on literacy and education. this begins a 7:00 a.m. eastern. >> tune in to booktv for us three-day presidents' day weekend beginning saturday. authors include henry paulson talking about warren buffett.

afterwards, gary wills on how the atomic bomb changed the presidency and the role of the u.s. in the world. this airs saturday at 10:00 p.m. eastern. for the complete schedule, go to booktv.org. >> now hearing on the economy and what it means for the federal budget. kent shares the budget committee. he co-sponsored a proposal to create a bipartisan commission. that measure was voted down last week. this hearing is 2 1/2 hours. >> the hearing will come to order. first, i appreciate very much witnesses being here with

conditions as they are, and i appreciate colleagues who are here and who are on their way. i especially want to thank senator sessions for being here to represent the republican side of the aisle. senator gramm hopes to be here soon, but airports are closed, so people hoare having a difficult time getting back. i do not know if the votes scheduled this afternoon are going to come. for those of you who have a hearing scheduled tomorrow, we're going to make a decision soon, because we have witnesses lined up.

one thing we are going to consider is moving tomorrow's hearing. we will have snow this afternoon and into tomorrow. if we do get another 12 inches, it will be very difficult for witnesses to get here. i am fortunate. i live about 10 blocks away, so i can always get here. i want to very wantthank the witnesses. -- you very much thank the witnesses. we're joined by a distinguished panel of witnesses. dr. reinhardt, professor of economics and director of the center for international economics at the university of maryland. welcome. good to have you here. dr. simon johnson at the school of management, and the senior fellow at the peterson institute for international economics. simon has appeared before this

committee in the past. we have always enjoyed his commentary and his testimony, and a visiting professor from georgetown's public policy institute and the former acting director of the congressional budget office. it is good to have you as well, someone who has served in a distinguished way in the congressional budget office, and we have always been indebted to him for his service there. this is dr. reinhard's first appearance before the budget committee, so we want to make her feel at home. we look forward to her testimony, and dr. johnson and dr. meron are well-known. we're going to focus on the nation's economic outlook and the risk we're facing that could affect the outlook, the federal budget, and the nation's debt.

i would like to begin by a brief review of our economic situation. i think we all know when president obama took office, we were in the midst of the first recession. we have work to avert an even sharper economic decline. those policies, i think, are clearly working. the actions taken by the federal government over the last year have helped pull us back from the brink. we have seen and dramatic turnaround in economic growth in the first quarter of last year. by the last quarter it improved to a 5.7% growth. i think it is fair to say none of us anticipated that level of economic growth would continue. many of us see a more to the

level going forward. according to the estimates we received last friday and january of last year, the economy was losing more than 800,000 private sector jobs in one month. that is up from a previous estimate of 700,000, so looking back, we can see in january last year, job loss was 800,000 a month. by this january the economy was losing about 12,000 jobs a month, a dramatic improvement but still short of where we need to go in terms of dramatically reducing unemployment, and i must say all of these numbers to those suffering from the weakened economy is just numbers on the page. if you are unemployed or cannot find sufficient work, these

numbers are cold comfort year -- to you. it is important to recognize that things are improving. the free fall has been stabilized, and we're starting to move in the right direction. according to estimates, the unemployment rate did fall to 9.7%. that is still far too high. last year's recovery package is still providing stimulus. we know its impact and economic growth likely peaked during the third quarter of 2009. according to an estimate, the recovery package provided about 3.3% of increase in real gdp at its peak during the third quarter. following the third quarter, the contributions to gross begin to diminish. given the high unemployment rate and concerns about the economy and the fact that the

impact of the recovery package is starting to wane, i think it is appropriate to consider an additional job creation measures at this time, so i would like to hear from our witnesses on the benefits of enacting such measures at this time. the economic downturn and the federal response toñi it has contributed significantly to the worsening of our budget outlook. this is the other side of the picture. in the short term, measures taken to stabilize the economy and stock a precipitous collapse have been effective, but we know there is a price to be paid, and the press to be paid are increases to our deficit and debt. this chart shows the predicted deficit over the next 10 years. it shows the deficit coming down from a high of 1.6 trillion dollars in 2010 to $706 billion

in 2014 and then slowly resuming its climb back to one trillion dollars in 2020. i have said before that i can understand increases and deficits and debt in the short- term to deal with economic weakness and to prevent economic collapse, but i am increasingly concerned about the out years, because we're already on an unsustainable path, and i am concerned the president's budget does not focus sufficiently it on our long term need to deal with the debt threat. the nation's debt outlook is even worse over the long term. the fact is we are on a completely unsustainable course long term. i personally believe we need a two-prong strategy going forward -- one for the near term, one

for the long term. near-term, i believe we must emphasize policies that encourage job creation in the private sector. for the long term, we must give it to controlling our debt. the economic secure -- we must pick it -- pivot to controlling our debt. economic security depends on it. we will go to our next speaker and then witnesses, and then we will have time for questions from the panel. thank you so much for being here. it speaks very well for a man from alabama to be here with weather conditions we are currently experiencing. in north dakota, this is no big deal. >> it is fine for me. i will walk around and see the beauty of the snow. it is really a stunning sight, but it does cause difficulties

for travel. >> if you like the beauty of the snow, i would like to invite you to north dakota any time in january or february of next year. maybe spend all of january or february. >> maybe inviting you south would be a better idea. thank all of you for coming, and i look forward to your discussion. i do not know how well our actions worked after the collapse of the financial markets. those who supported it, promoted it, funded it, all tell us if we had not done that we would be so much worse than we are today, but forgive me if i am not sold. i believe that a lot of things had to be done, and i supported

a number of things, but the fundamental actions we took were troubling to me, and the fed had to act. we know that, and the congress had some things it needed to do, but i am troubled by a doll -- by it all. $700 billion had to pass before the asian markets, and when president bush left office, he had not spent his 350 -- half of it yet. one man was allocating $700 billion, so forgive me if i am uneasy about that. that is $700 billion distributed in which is directly contrary to what congress was told. we were told it was about toxic assets, and within a week, there were buying stock in companies,

insurance companies, then buying automobile companies. forgive me if i am not happy and the american people are not happy. second, the stimulus package is now $840 billion, because we're spending more under the commitments we made then we intended when we passed it -- i think has produced little. i think it is one of the great tragedies in the history of the country that we have gotten so little out of such an incredibly large expenditure, the largest expenditure in american history, and i do not think it has gone very well. i do not think it has created the jobs it projected. the bill some of us supported --

senator mccain offered for half the cost would have created twice as many jobs and half the debt impact on our country, so we have got serious problems. one thing that happens with budgets, that you might be aware of -- the only year that really counts is the year you're in, and the year we are in, for example, if the president's jobs package was to pass like the one similar to the house package he praised in the state of the union, it has $100 billion more. he is cunning $170 billion in

the next 10 years, -- he is counting one had to $70 billion in the next 10 years, but he is not counting the $100 billion -- $170 billion in the next 10 years, but he is not counting the $100 billion this year. i guess what i am saying is what i am hearing from the incumbent administration that concerned me -- it is always next year. next year. we have got to do all this this year. we're not going to worry about how much debt is being run up this year. we will worry about it next year, and the chart you put up is the budget they are signing, so we have got to reduce the budget. i offered legislation to the 16

or 17 democrats who support it by saying, let's follow up those numbers, which are basically increases over the next five years, but we did not get the 60 votes net -- necessary to pass it, but that would be a real step that would help send a message to the world and to the american people that we're going to contain discretionary spending, at least for a while, and we will discuss how we can reduce entitlement spending and all spending, really. we have got to act. i look forward to hearing from you. the american people are unhappy with us. they are not happy. unemployment is high. the numbers were not good this last week. another increase in unemployment, and i think it takes about 800,000 increase to

begin to reduce the total unemployment numbers, so i really worry about unemployment. we want to have growth, and hopefully we can. thank you. i am sorry senator gregg is not here. i know he has difficulty. i know you and he have worked on a number of issues that are important, and i hope to work on them, too. >> thank you. thank you very much for being here. now we turn to the rest of the witnesses. dr. reinhardt, professor of economics and director of the center for international economics at the university of maryland. very timely for you to be here. please proceed with your testimony, and then we will go to dr. johnson. >> thank you, chairman, and other members of the committee,

for the opportunity to comment on the u.s. economy and the risk to the budget and debt. i am a professor at the university of maryland. i suspect i was invited today because for more than a decade my research was focused on various types of financial crises, and that includes fiscal implications and other economic consequences. one of the main lessons the emerging is that across countries and over time, severe financial crises followed a pattern. . follows financial crises. the recession's following severe post-world war two crises tend to be protected affairs.

asset market collapse were deep, prolonged and realizing -- housing prices declined at least 35% for this decline stretched out over six years. out over six years. equity p on an average of 55%. the recovery from the bottom was quicker. to put it in context, in the present downturn here in the united states, a real housing prices have already fallen 36% from their february, 2006 peak. not surprisingly, banking crises are associated with profound declines and output in employment. the unemployment rate rises an average of 7% over the down the face of the cycle. it last an average of four years. we are following this tractor the u.s. unemployment rate bottomed at 4.4% in december,

2006, about six buns before the crisis broke. at its recent peak level, in october, 2009, the unemployment rose 5.7%. historically, these conditions produced a budget deficit. correspondingly, the real value of government debt xsoars, rising an average of 86%]x in te major post-world war two episodes. the main cause of the debt explosion is not the widely cited cost of bailing out the banking system nor is it the fiscal stimulus. many countries in our samples did not estimate such policies. the critical factor is the collapse in tax revenues. that follows in the wake of

deep and prolonged economic contraction. our estimates of the rising government debt are likely to be conservative as they do not include increases in government guarantees which also soar. the government debt has been soaring in the wake of the recent global maelstrom expect in the epicenter countries. i completed work a few weeks ago that calculated the increase in inflation-adjusted public debt that has occurred since 2007. for five countries with systemic financial crises, which includes the united states and united kingdom, the average debt levels are up by about 75%. this is even in countries that have not had a major financial crisis, that rose an average of 20% in real terms between 2007 and 2009.

our main focus is on the longer term macroeconomic implications of much higher public and external debt. we examined in this work, the experience of 44 countries, spending up to two centuries of data on central government debt, inflation, and growth. ain findings is that across advanced countries and emerging markets, high debt to gdp levels, debt levels, gross debt about 90% are associated with notably lower growth outcomes. above 90%, median growth rates fall by 1%. average growth rates fall considerably more. in addition, for emerging markets, there appears to be a tighter threshold for external debt, a lower threshold so that when external debt reaches 60% of gdp and the growth decline

by the about two% and for higher levels of debt, growth is cut about in half. our international and historical experience shows that seldom do countries simply grow their way out of their debt burdens. there are also household thresholds of debt near 90%. the exact mechanism is not certain, we presume that at some point, interest rate premiums react to unchecked deficit to, forcing governments to tighten fiscal policies. higher taxes have an especially deleterious effect on growth. we suspect that growth also slows as governments turn to financial repression to place debt at sub-market interest

rates. there are other vulnerabilities associate with debt buildup that depend on the composition of the debt itself. one common mistake is that the sources for government could play the yield curve, shifting to cheaper, short-term debt to economize on interest costs. unfortunately, a government with massive short-term debts to rollover its ill-positioned adjustment does not work. even aside from high and rising levels, many advanced countries, particularly in europe right now, are saddled with extraordinarily high levels of externalv debt or debt issued abroad by both the government and private entities. in the case of europe, the advanced country average exceeds 21% of gdp. -- 200% of gdp. in private debt, u.s. debts

exceed 300% and they are at their highest level since 1916 or the historical statistics of the united states beginyf/imoo record this data. current high private domestic and external debt burdens would also seem to be an important vulnerability to. to monitor. downgrades follow desperate given these risks of higher government debt, how quickly should governments exit from fiscal stimulus? this is not an easy task, especially given weak employment in the united states and elsewhere. in light of the likelihood of continued weak consumption in the u.s. and europe, rapid withdrawal of stimulus could easily tilt the economy back into recession. to be sure, this is not the time to exit. it is, however, the time to lay

out a credible plan for a future exit. the sooner our political leadership reconciles itself to accepting adjustments to lower the risk of;çñ truly paralyzing debt problems down the road, the likes of which we are seeing in europe right now. although most governments still enjoys strong access to financial markets at very low interest rates, market discipline can come without warning. countries that have not laid the groundwork for adjustment will regret it. this time is not different. thank you. >> thank you for your excellent testimony. we'll go to dr. johnson next and then dr. marin and we will open one year ago, i was before this committee and i came to the

conclusion that we faced a pretty tough year. i think that discussion turned out to be exactly right. my recollection is that we discussed contraction in the global economy for the first time since world war two, roughly around 2% on a year- over-year basis. the latest number for 2009 is eight -0.8% decline. we are exactly the right place. at this stage, we should discuss the recovery. when you have a sharp decline, you have a fairly rapid recovery. the numbers that you showed us for the fourth quarter of last year are encouraging in that direction. i am worried about the dynamics that we face during this year. i think there is a great deal of volatility ahead, some of which is domestic for the reasons that professor rhinehart was talking

about and some of the global origin. while the headline numbers of this year, the year over year average numbers will indicate a modest recovery if you look at the fourth quarter on fourth quarter numbers, look with in 2010, you will see something quite different. in the second half of this year, i think there will be a slowdown. i am not suggesting that we will have a double dip recession. i think that the pace of growth is slow and the pace to come back will be slow and i think this is a major concern for the budget and for job creation. my overall projection on the fourth quarter on a fourth quarter basis is that the global economy will grow around 3%. traditionally, that is where the imf would draw the line on global recession. they have moved the goal post

over the last couple of years. the 3% global is fairly slow. this rate will be held up by what is happening in emerging markets. we can probe to what extent that is sustainable beyond 2010, if 5the weaknesses in the u.s. economy are well known. the consumer income is weak and they have a substantial debt with an overhang in housing prices. asset prices, based on the particular global picture, will remain volatile houses do not feel that wealth has gone back up matching the recovery in stock prices. n9xal will not leave this recovery. investment may be stronger but are issues of credit availability for the small business sector, this component

of volatile demand is not big enough to pull the u.s. back to the kind of growth you might want. in addition to that, net exports, which has been a brighter part of the picture in the united states over the last 12 months, is likely not to be so strong over the next 12 months. the fiscal stimulus continues butted in packs as growth -- but it impacts as growth weakens but we should expect the federal reserve to withdraw support as we go into this spring despite the weakness of the economy and despite the high unemployment. this is what the fed is very clearly indicating. this adds up to a difficult second half that is not the worst part of the picture. the worst part is i am afraid that a serious crisis is brewing in western europe. there are many people who claim that this time is different.

i would apply the conclusions that greece has a serious sovereign debt problems. these issues are spreading to portugal and spain. there may be implications for ireland and italy. there's a great reluctance on the part of the stronger european countries to help the weaker european countries. basically, they don't have an institutional mechanism in place. they will not, in my assessment, bring in the international monetary fund. i will be happy to expand on the procedures behind that assessment. put all this together and you're looking at a substantial shock to government credit. you'll see this in interest rates and credit defaults swaps spreads. ñ'the big unknown in this pictue is what will happen to the financial sector.

we still have too big to fail banks. we can reasonably argue that as we wait for financial reform to come through, this problem has not been addressed. it has gotten worse. the europeans have it -- have this problem on a much larger scale. they're big banks are bigger relative to their economies. some of these big banks are in small economies that cannot sustain, from a fiscal point of view, and additional big financial shock. switzerland has two mass of banks with assets and liabilities roughly six or seven times the gdp of switzerland parted we can argue about the right medicare but if the bank fails, -- about the right metrics but if the banks fail, that will not be a good situation. there's a mass of contingent liability. it is the same on our balance sheet. it is right to stress that the

experience where you asked to derive money for toxic assets to buy shares in banks and other companies, i don't think that is off the table. in europe, i fear it will come back to haunt us in the united states. that continued liability is very big. g the issue of derivatives have not been addressed since the crisis of 1998. we are a lonely behind this.

in conclusion, i would like to stress or reinforce what you said about the necessity of the framework. have fiscal austerity member that would not be the right measure. if you're swings into this mode, that would be bad for growth. the euro will weaken any way in my assessment anyway. they and we need an exit strategy and a framework that tells you how entitlements will be handled over a 15-year from work and what the tax base is and what the gap is between those. when you said the debt has to be controlled, you are absolutely right. japan's sustained as for a long time but this is catching up with them in the last 20 years. most of the debt is held domestically. a large amount of our debt is held by foreigners this has a

large consequences. think you. >> thank you. dr. marin, welcome back, always good to have you here. please proceed. >> thank-you for having me up to talk about the economic outlook and fiscal situation. i want to say that i have previously appeared before you in a professional capacity working for the congress and i am appearing as a private citizen and i find this incredibly liberating to have my own opinion. so, watch out. as this committee and its members are aware, our nation is on an unsustainable fiscal path. we will run $1 trillion deficit in the years ahead even after the economy recovers. persistent deficits and rising debt will undermine prosperity and weaken our position in the world. those threats deserve immediate

attention but as this committee is well aware, our economy remains fragile. payroll employment has fallen by 8.4 million jobs since the beginning of the recession and unemployment levels are record highs. we had strong gdp growth in the fourth quarter but the economy has a long way to go. you face a difficult challenge of balancing concern about current economic conditions with a meaningful response to our fiscal crisis. the first point i want to make is that we should not expect a rapid recovery. it is a good sign that the economy grew in the last quarter of last year but for a whole host of reasons, i would not anticipate that to continue. we're in our recovery path but it is a moderate or modest path.

second, uncertainty is one factor that has been holding the economy back. uncertainty discourages investment and hiring and undermines a growth. put yourself in the shoes of someone to -- who might make an investment or hire someone. the good news is that economic concern has gone down dramatically. the economic environment has improved and is more conducive to grow pretty bad as that policy uncertainties are high. some of your constituents are met with you and i spoke to some business people and many of them are upset about the uncertainty. they do not know what is happening with tax policy or health care in addition to what they don't know what is happening with theb economy having worked in government for a long time, i understand that these uncertainties exist but i think there are opportunities to get rid of unnecessary uncertainty and to give people more clarity about what the

future hold pretty extreme example would be what is happening with the estate tax which is a personal thing. there are many other examples on the tax side. number 3, persistent deficits and rising debt poses serious risks to long-term growth. concerns about the near-term economic outlook should not deter congress from taking steps to strengthen our fiscal position over the next decade. fiscal consolidation should not take place immediately. congress should begin now to plan for deficit reduction and stabilization in later years. we need an exit strategy and that include clear goals and credible means for achieving them. president barack obama outlined some steps in that direction in his budget but i feel they fell short of what is required. vgxsto address that concern, the president proposed the creation of a fiscal commission that log

up until 2015. first, i don't think the target is aggressive enough. it would have the effect of stabilizing jet -- debt to gdp. my own personal preference would be to see it come down to a number by 60% of gdp. i would like the target to be more aggressive. the institutional procedures of the proposals are troubling. in natural -- a natural -- a national statutory commission i have concerns about whether a statutory commission can get there. i would look for something that has the power where everything would be onwc÷ the table. i am troubled when some people say that social security should be off the table and tax revenues.

i think if we try to address the fiscal concerns, you need to look at everything. i am looking forward to seeing with the details of that corporate we need an exit strategy, definitely fourth, bringing long-term to the present day, a credible plan to reduce future deficits is not just about the future. if we do it well, it will help keep long-term interest rates low today. that will help the recovery. fifth, g restraints. that should receive greater emphasis because spending is the primary driver of our budget balanced and higher government spending retards growth. as policy-makers consider how to finance a larger government, they should give special attention to figure out ways to make our tax system more efficient. think about ways to tax

consumption rather than income. think about ways to broaden the tax base rather than increased rates. the about ways to tax undesirable things like pollution rather than desirable things like working. thank you. >> excellent testimony, all three,mwi just terrific. i appreciated very much. let's go right to it. this committee has special responsibility to our colleagues with respect to the budget and it is hard to find a time in our entire history, since the budget committee was formed, when budget policy can have such a profound effect on economic issues and economic growth and all the breast. so, dr rhinehart, you have this responsibility -- if you have this responsibility, what would you pursue?

short term, long term, with respect to deficits and debt with keeping your eye on the effect on the economy. what would you advise this committee to do short-term and long-term? >> let me begin by saying that in my remarks, i highlighted that i think this is the time to lay out a credible plan for deficit and debt reduction but it is not the time to start implementing that. i would like to elaborate on that remark especially as it pertains to the experience of other episodes including here in the united states. in which victory was declared prematurely and stimulus was withdrawn. this was the case in japan which

has had a decade-long lingering crisis. this was the case in the great depression. my work as documented these episodes. that risk is one that should be borne in mind and that is what i stress the credible path. the credible path, i think, we could benefit from looking also at the experience of our neighbor to the north, canada in the mid-1990's which implemented very significant debt reduction programs. >> what was the result? >> the result was, i would describe it as a three-fold. one was they achieved their

intended goals in bringing their deficits and their debt, the canadian debt profile, that has been reflected in their risk premia which had risen and was moving in tandem with the emerging markets by the mid- 1990's. >> higher interest rates? >> higher interest rates, higher debt servicing costs. more volatility. let me add that a second element of their program was also, which i highlighted briefly in my remarks, is paying a lot of attention to how when you have a lot of debt, how dead is managed. d and reducing their reliance on short-term debt end their currency issues. >> dr. johnson, same question to you. what would your advice be to this committee, short-term and

long-term? >> i am not a fan of fiscal stimulus i testified before this committee more than one year ago and i said that it was only the extraordinary circumstances due to the collapse of our credit system and the other problems that led me to suggest that we should have a stimulus around $500 billion. roughly speaking, i think we wound up in the same ballpark. i would hold back again from further stimulus. i think we need to see what happens. within the menu that the correctional -- congressional budget office assessed for you, addressing payroll taxes, if we comecw that, may be an appropriate approach to consider. i am not ready to do that. in terms of the short term, i am not advocating for stimulus at this time buried in the longer d5lg >

is an important one. dr. marin hit the key points like not leaving anything off the table. this is not a call for fiscal austerity immediately. i fear that may happen in europe which will have a negative impact on the global economy. that should be avoided. i am calling for them to not do that in europe and by the ways to help themselves. i think that the fiscal commission addresses the colmes of our debt where the project three -- where the trajectory is going. everything should be on the table. that is absolutely critical if you have a credible medium in the united states now, you would have a lot more room to maneuver on short-term measures. i might even right now call for a reduction in payroll taxes if we had a media from work but we don't. that is dangerous.

>> you are, in some ways, linking the two in your mind. it would be more credible to do something with respect to payroll taxes, to provide additional lift to the economy if you had some credible process in place to deal with a longer- term debt? >> absolutely. fiscal stimulus is something we have moved away from in industrialized countries in the last 20 years because it comes with a lag. it tends not to hit the economy as you hoped. and also when you open. -- and also when you hope. if you can persuade everyone that you're dead is not on an explosive path and you have the legislative or other institutional mechanisms in place that this is not a big promise -- the british government faces huge problems because of their commitment on the fiscal side which are not

credible. we don't have that problem the in the united states, yet. you need a fiscal commission to you need a fiscal commission to make sure tha >> dr. marin, the same question to you. what we do it devises panel for the short term and long term? >> i would personally like to see in numerical targets that lays out what it is it for the latter part of the window that we want to achieve. if you want to cap the growth of debt to gdp at 70% to 72% in 2013. >> some of my students are from alabama st. james school. you see that lady in the front row with the red hat?

that is the no. 1 football team in america. >> wait a minute. in north dakota, we make the same claim. >> we have a competitive team. we usually lose to them in the playoffs. thank you for coming. >> thank you for acknowledging that. >> sorry for interrupting. >> 70% of the debt to gdp ratio in 2013 is a goal. >> 70% by when? >> and then 60% by the end of the budget window.

the peterson commission put out a goal of getting to 60% by 2013. i'm talking about being less aggressive than they are. this morning, i looked at a plan that would get us on that path. >> it is daunting. >> it is, it is truly daunting. i hope that my colleagues understand how serious the situation is that we confront. it is dire. the long-term circumstance that we confront is truly dire. we are not in as bad a shape as japan, debt to gdp. we are not in as serious a shape as parts of western europe that confronted debt crisis today but it is very clear that we could, in very short order, confront

our own debt crisis and the consequences to this country would be enormous. i wish it were not so. i wish it were not so. if you study the trendline that dr. marin and dr johnson, and doctors rhinestone, if there's anything that jumps out to you 10 years and out, we are really facing consequences that could have enormous adverse impact on this nation's economy. do you agree with that statement? >> absolutely. >> what leads you to that conclusion? i said something that in some circles is very controversial. why do you think that is true? >> this is something i have relied on the research of my colleagues. if you look at history where

this has been experience in other countries, getting a path ends in tears. it is something where we remain foot the cost about as a beneficial thing to do. we have not covered all the reasons for iit. there might be a snowball effect and you have yourself a much worse a circumstance. our ability to borrow is our rainy day fund. we have used up -- it has been raining so he had used a lot of that opportunity walked that back down so if something unforeseen happens eight years from now, you can go to the world capital markets again and borrow more money. you lose that flexibility if you do not get a more sustainable path. >> i have used my time dirty cinder sessions? -- i use my time. senators sessions?

>> i disagree with that last statement. there is almost too much margin you have a crisis and we are using that up today as if we will never be another crisis. i am a little disappointed that you seem to be going along with the idea that we cannot begin to ask about spending now. i just do not believe that we can afford to throw another $270 billion of stimulus package when we have so little from the one that we have done dr. johnson, you said you recommended $500 million but it is $845 billion which is quite a bit over, in my view. we have used this margin of. i would criticize the thinking during the bush administration.

word leaked out that deficits don't matter. that is what it seems. >> not from me. >> it did and mr. greenspan has talked about that, actually. he did not realize what was occurring politically and morally in the country, what was happening was we were losing our discipline and people were buying into that language. yes, we could have carried more debt in 2001 and 2002 but was used -- lose your discipline, it seemed like we went forward as it did not matter and we are now reaching this level of debt above which we are endangering our nation if we go above. i'm just really word about it. dr. marin, you mentioned one thing that is important and i

need to put on the table, economists, masters of the universe, i call them, think they could pull the strings to manipulate this massive economy and that is a lot of us and a lot of american people do not believe in a growing government. you mentioned that in your remarks about. that about if we get a bigger government. many of us oppose that. we don't believe in that. some modest contentment of spending today may be not enough to satisfy my concerns. and doctors rhinehart, you read commentators and the essence of a lot of things you see in financial magazines and newspapers and articles in all this, a concern the real world out there where people are

buying and selling and loading money -- following monday is that it could lead to the devaluing of the currency and a surge in debt can lead to a difficulty like the brits have had in selling their debt and could drive up interest rates and a flight to currency. one man called me after a speech last week when i was expressing concern about the debt, he said that we will inflate our way out of it. that is what we always do and don't worry about it. would you share with us any thoughts you have about the danger of that kind of thinking? is that a danger? >> i think the danger -- there are two kinds of danger that i would like to highlight. one is one what i mentioned about higher risk. that will translate to higher interest rates which we are taking for granted the very low,

near-zero interest rates and we should not take that for granted. we are on the same line. the second risk i would like to highlight which i briefly mentioned in my remark is the growth. one has to take seriously that at high levels of debt, and we are close to the gross debt being at that 90% threshold 3 we are close to it. growth declines by about 1%. this is a fairly robust results. lower potential output growth in and of itself is absent and a source of concern. a weaker dollar would not hurt us. one of the things that has been

a drag on this recovery from the crisis is that of one looks at the typical recovery from such a crisis, exports and other episodes, we have not had the benefit because a good chunk of the rest of the world is in crisis and in part because the dollar has not really, relative to other experiences, budged. my concerns have to do with the interest rate, the risk, and with the growth of what happens to the dollar. it has been known to go up and down. there is less of a lesson there as far as i can make it. >> dr. johnson? >> i think the situation is considerably worse than you might think. first of all, the debt numbers we are discussing, our federal

government debt and if you look across the country, usually the imf procedures are for general government debt which involves other levels of government and that would increase the debt target in dr. marin's target and pushes closer to the dangerous threshold that profess rhinehart mentions. the taboo subject is fannie mae and freddie mac. the imf would say to you if they were in a position to speak to the united states, they would say that unless you show was a plan for privatizing these entities which have been talked about, we have to start thinking about these as liabilities to the u.s. government. they hold assets. i would not exaggerate losses but if you're talking about debt owed by the public sector, fannie mae and freddie mac would enter into that picture.

. . in the official budget that the president put out, there is some money for cash flows from our support for the two of them. but the several trillion dollars are not there. >> the too big to fail banks are also an implicit contingent liability of the u.s. government. if those banks fail, they will continue again and say, we need tarbes, too, senator.

-- we need a tartarp, too. i think this is a budget issue, too. a contingent liability of this magnitude -- we have to discuss that and the tax base who hopes to support paying for health care for people over 65. ñrif you regard this as a budget matter, it is the right step in the right direction. >> i would like to welcome the kids from montgomery, alabama. we are glad this group could join us this morning as we're talking about things, mr. chairman, he said earlier, that will affect how much they have to pay growing up.

>> on this question of fannie mae and freddie mac, my understanding is is in the cbo numbers and not in the other numbers. our determination was we would follow cbo because we think it has to be on budget. if you cannot say this is somewhere off in the wilderness, not accounted for. not accounted for. we have made a determination >> but that has not been in the past? >> neveknowno. they have larger numbers in the deficit for the conservatorship, if you will, of fannie and freddie. they have publicly held debt numbers.

they have taken a step, but they have not gone quite as far as would be suggested. the beginning of your question was about inflation and the concern that our fiscal troubles might lead us to pursue inflation as a way to deal with it. it will not really work very well for the united states. on the spending side, we have an enormous number of spending programs, social security being the most obvious, that are indexed. as inflation goes up, there is a one-for-one increase in our spending. increasingly, we have started issuing an inflation index. we have treasury index four protective securities whose interest-rate will rise as inflation increases. we also have a decent portion of our debt that is relatively short term. its value could go down for a couple of years because of a surprise in inflation.

but then the market will charge a premium interest-rate. premium interest rate and say you fooled us once but we will charge you a higher rate on your three-year bonds. in practical terms, inflation is not going to be an effective strategy, even though it may be a legitimate concern to some folks. >> thank you. we do expect, according to the cbo score, interest on the public debt last year was $170 billion. they are projecting in the 10th year of this budget and $800 billion annual interest payment. hugely significant as to how much that would actually be in the out years. thank you. >> thank you. >> thank you for your testimony. professor reinhart, you know that government debt tends to soar in the wake of a financial storm. that is often a result of a drop

in revenue rather than spending on stimulus. could the deficit we incurred in the united states have been even larger if we had not invested in building a financial bridge through the stimulus? >> one of the things about this situation, to answer you honestly, as we do not know the counterfactual. in the fall of 2008, confidence worldwide was shattered. the stimulus package played an enormous role, not just the stimulus package in the united states, the stimulus packages that went into effect in different orders of magnitude in restoring confidence. you pose a very difficult question for me to answer. i do think that absent a

stimulus, i cannot quantify or give a counterfactual as to the student -- as to the stimulus would have been worse. our gdp declined relative to declines in other severe financial crises is smaller. our unemployment increases are close to the average, but are still below average. i would have to imagine that given the magnitude of this crisis, which we have not seen the likes of since the 30's because of its global nature as well, absent those actions, we would not be below the average in growth declines and unemployment increases. we would be doing much worse. >> for me to restate that, although you cannot prove the counterfactual, it's possible we could have had the same levels of debt but no signs of the recovery that have been created

partially by the stimulus or that we might have even had lower-level of employment and had additional current year deficits, which would be the worst of all cases. >> which is why i tried to highlight the japanese experience in that regard. japan, in the mid-1990s, assuming the crisis was over withdrew stimulus, so i'd double dip, and wound up with the worst of two worlds. it is important to remember japan's debt, which today stands at about 200%, was around 70% of gdp before the crisis started. they wound up with both. >> thank you. prof. johnson or mr. marron, with either of you like to comment? >> i would give this to military

positive assessment. i'm not a fan of stimulus in general. by think this was a very unusual set of circumstances and i think it saved jobs and prevented damage to potential output you would have seemed otherwise. the price of confidence was global and everywhere. the stimulus was an essential part of leadership in turning world economy around. remember the g-20 summit in april where president obama took a very positive brought role and brought a lot of companies with him in recapitalizing the imf and also help to rebuild confidence. that would not have been possible and would not have been credible without the u.s. fiscal cent -- that the u.s. fiscal stimulus. i don't again would have been higher in the short term if we had not been a stimulus, but the medium term prospects would have been much more bleak for this country. the medium term budget issues

are mostly, not entirely, about medicare. that's a longstanding problem we have not got around to addressing even though it has been in the cards for a while. that is driven by demographics and the rising cost of health care. i would say in contrast to other countries, they're almost all in the same place, they just don't recognize it. the european commission is counting and they are much less obvious than the cbo cost accounting. we're looking at getting growth back on track, preventing the destruction of potential output is very important and helpful, so the stimulus was worth doing. hopefully it will help us tackle the medium term problems. >> i had a bunch of other questions and i am running out of time. >> the standard model and that the cbo uses to analyze the

stimulus have technical multipliers that would imply a stimulus does not pay for itself. the choices that you end up with more debt as dr. johnson suggested but you also get economic bang in the short run and there's a tradeoff. >> thank you. you had noted that uncertainty is a problem and you mentioned establishing the estate tax. what about the rules of the road in general? prof. johnson noted we had not addressed credit defaults swaps and proprietary trading, derivatives, leverage, many of the risk factors that were inherent in completing the trio here -- professor reinhart noted that following financial crises, there are problems with output. this is the rules of the road for a financial community that does not result in high risk taking followed by a collapse.

how important is that we get the rules of the road back in place to address these risks with our financial structures? anyone who would like to jump in on this, i appreciated. >> it is fundamentally essential. the problems you just laid out are all wrapped up in what happens if there is another financial crisis? what if major financial players have failed? how does that add to the system? if it's a big enough shock, you could be called upon to use automatic stabilizers are a good thing -- but the problems you identified are fixable, they're not being fixed, they must be fixed for at a responsible budgetary point of view. >> in your written territory -- your written testimony, you addressed europe and greece and so forth. the argument that the stress

test we put our banks through has not been -- was not i high- level stress, if you will. if we do not prepare for that, we may have another wave of stress coming that could result in a second financial crisis. is that a fair summary? >> yes. the financial system is undercapitalized. the stress tests or not enough. they were not that stressful. i don't think we're facing more financial collapses, but we're facing banks that do not have big buttresses against bigger losses. you'll see a tighter credit conditions throughout the united states and this is a global side -- a continuing weakness in the consumer sector. >> i am out of time. >> because others have gone over and because of the attendance we have because of the weather, i think you should feel free to

use another two minutes for 2 1/2 minutes. senator white house, i would do the same for you. >> thank you. >> the issue is that we need good rules and if possible, it would be good to get good rules sooner rather than later so that everyone can begin to plan with -- plan with the new environment looks like. i emphasize there are a lot of policy uncertainties hanging over everyone at the moment that makes them difficult for them to plan. some of them in both the previous administration and current one, where it -- we fell back on a lot of discretionary government actions. there was confusion about the role of park and other things. those may have been necessary in the heat of the moment they have created doubts about how we run the system. in clarifying that and clarify ways for firms to behave -- for firms to behave appropriately is a very important. >> we face two issues -- the

challenge in the commercial real-estate world that will be coming up. it is here now but will continue over the next year or two. the second is undercapitalized community banks and their ability to do additional lending. on the community bankside, i have proposed in the administration proposed recapitalizing banks to enable them to do more lending to small businesses and unable those firms to recharge the economy. on the commercial real estate side, i have heard very few ideas for how we address the challenges folks are rolling over balloon mortgages but trying to do so with a drop in the value of their assets and decreased cash was due to tenants and have lost during the recession. should we pursue strengthening community banks to lend more to small businesses and what we do about commercial real estate?

>> the issue of recapitalization, i think helping banks recapitalize should come with a carrot and stick approach. one of the concerns i have about the way we have gone about addressing the toxic loans is that it is to japanese. meaning it is too much for parents. i think if -- to much of forbearance. that's very important for lending behavior going forward, if you feel you have a lot of bad debt overhang, it will be reflected in your lending practices. that's the lesson i have taken from the very long japanese experience. even helping the banks that lend

to small business recapitalize, a proviso toward more capital write-downs is important. >> thank you. commercial real estate? >> i think commercial real station left to itself to sort itself out. unsympathetic in about trying to recapitalize community banks -- i am sympathetic about trying to recapitalize community banks. it will be worried about the signal their sunday, but i would be surprised if we could run a program begun to have a macro impact, unfortunately. >> final comment? >> building on the uncertainty point, the other issue for community banks is to what extent there are strings attached. that may discourage them. >> thank you very much. >> thank you, senator, excellent questions and interesting

responses. >> thank you. thank you to the witnesses were being here on this challenging day for travel in washington. we are caught between this is your blades here of on the one hand wanting to support the economy so people are employed and we can begin to have the nascent recovery we're seeing work for everyone and not just ended years. on the other hand, having the overhang of debt that has dominated our discussion today. it strikes me that where we have a very significantly degraded or in the in rhode island, we have a

bridge through one of barren -- one of our major cities. it is under the weight restriction. trucks have to take. around it appeared that is going to have to be fixed sooner or later pared we can have that. he is getting worse, not better. -- it is getting worse, not better. there is a bypass in provinces that the department of transportation is refusing to put any more made its money into because it is so degraded. it needs to be replaced. local budgets are so stressed that it is hard for people to get those jobs done. does it make sense to focus under the old fashioned seriethy that, if you're going to have to fix it anyway, it is not really adding to your debt.

and a stitch in time saves nine would reduce the overall cost? ructure ructure that will have to be repaire . ay to increase employment without adding to the nation's overall actual liabilities? >> the remarks i'm going to make have to be taken with a grain of salt because they weigh heavily with the experience of one country. in the structure spending is at the forefront of the japanese the forefront of the japanese plan. the streets of tokyo were paved every other week. it does add to that. >> of the streets of tokyo don't have to be repaved every other week. if you are creating make work,

if you are building bridges to know where, that's a different proposition. that's why i focus on things you have to fix any way. if my roof had a whole lot in it, and rain comes in, the sooner i fix it, the less the long-term cost of repair. if my son needs to make money for the summer, it seems to make a lot of sense. why doesn't that simple wisdom prevail? or does it when you are dealing with truly irreplaceable necessary and the structure like bridges that are condemned? >> if we're talking about things that need to be replaced, the subset of the more general proposition of in the structure as a way to go forward in terms of channeling, which is what my

remarks were addressing, in the end, anything, be it in the structure or be it a transfer, it does impact that. -- it does impact debts. i cannot discriminate across types. they just add that. >> done we have a defective accountability, for accounting in an all in way, who -- if i were budgeting and it was my house and had a hole in the roof had been together a family budget, i would put in there that i had the sixth hole in the roof. whatever the cost, i would put it in, even if it was five or 10 years, if i had to put something away to cover it in the meantime --

>> i understand and i take your point, but i would just add that we should go toward looking at any activity as activities that do have that consequences over the short run. >> i have used a lot of time on that question and would like to shift to another. since it is just the two of us, -- >> i will give you some additional time. >> i would look at the cbo's scoring dan the advantages of payroll taxes over infrastructure spending. second, your point about having a proper capital budget is essentially right. one way to think about that in the context is toll roads. we should be discouraging things are bad like ingestion on the major roads. as somebody who is unhappy user of an easy pass scanned tag on

my card, and this is not a federal issue, but if you move people toward a system where they are paying to use roads that are more expensive to maintain, that will help address the issue and raise revenue for specific issues which are much broader than rhode island. >> i think -- i agree with you on the theory. if you could end of fighting she would have done anyway and move them up, that's incredibly logical stimulus, but there are some is in there. the first is the have budget discipline that says if i spend an extra million dollars today, i literally will come at myself to spending a million dollars less in 2013. you know how highway funding works. that's a hard discipline to institute. the second concern is that in our political system, this is the mean and flip a diversion --

-- a mean and flippant version -- our system requires us to fund 435. this theory yet described maybe true for a handful of projects -- >> the theory is true that the politics make it hard. >> yes. >> let me jump to health care. you have said twice that medicare is a big item. i'm not disagreeing, i just think it's important we look at this. medicare is a big item. according to a variety of different sources, the amount of waste, duplication, excess cost, and efficiency in the health- care system runs between $700

billion and a trillion dollars a year. we have ways to get at that, but as cbo has testified, it requires a certain amount of flexibility and experimentation. it's a continuing management problem to work your way through it and it requires providing the executive branch with some tools. but i happen to believe significant savings can be achieved that way. when they are, they are achieved in a beneficial way. it's the extra test you did not need. it is the hours in the hospital waiting for your paper records to get there and having tests redone in an emergency. it's all the clutter and clumsiness of our existing health care system. what i worry very much about is if we get into a physical condition, statutory

commission, it gets very narrow and is given a very urgent charge because it's an urgent problem. if you do not have people who understand the possibilities to understand taking advantages of the efficiency gains in health care system, and they're hard to quantify -- cbo cannot quantify them effectively -- you can not quantify it because it requires executive administration to make it succeed and they cannot predict that. but it worries me that we are laying out an incredibly easy short cut for fiscal hawks to take hold this thing and say i can document we will have real savings in the medicare system if we just throw these people off the system. the pressure to do that becomes irresistible because we have whipped up a great panic about the debt and given people only

understand those jewels decontrols over this expedited, high-powered system. i think that would be a terrible, terrible mistake. when you look at a system as wasteful and complicated and grotesque, more doctors are paid for doing more procedures rather than out of, everywhere you look at it, the system is somewhere between $700 billion and a trillion dollars in waste and excess cost. how do you go with that in the time frame? let's say it takes four or five years to deal with it. how you relate that in two -- how would you relate that to the urgency of the fiscal that given the primacy of the medicare problem and that this will that equation? -- and that fiscal that equation? >> the fiscal situation we're worried about here is something that approaches this over the

next decade or decade and a half. but we are fortunate and we should look at countries in europe that are now is set by the financial crisis, particularly in blood. they have a decade or decade and half. -- particularly in england. they don't have a decade or decade and half. >> the date the efficiency gains could be somewhere between $700 billion and a trillion dollars a year? do you think we can get it out question but i'm not an expert, so i would not want to comment. >> that is systemwide and not just medicare? >> some process of rationalization would make sense. also, i'm sorry your colleagues have left, but passing an unfunded prescription medicine component to medicare under the bush in restoration was

unfortunate in this context also. they're going to be some very tough choices about who gets access to what kind of care. the big difference between our projections and yoursçó are expected cost of technology will change for treating patients, which has been very much the same across the u.s. and other industrial countries. we are more honest about it. europeans only take into account demographic changes. there are very tough choices at and i'm not on the side of saying throw people off medicare. i think that is acceptable. but the budget issue we cannot duck forever. >> i have gone well over the time and i think you. >> -- i thank you. >> let me just say to the gentleman from a profile of that i believe the rest is the flip of what you see. i believe the risk to medicare and social security recipients is a failure to act in a timely

way to deal with the long-term debt trajectory that virtually every expert that has come before this committee says is unsustainable. that is, as i look ahead, i am the beneficiary of social security. i lost my parents when i was young. social security helped me through college. i have seen it in the lives of my family and i have seen that care in the lives of my family. i have seen it in the lives of my constituents. my great fear for the very positive things those programs do, is that our failure to act to deal with the long-term trajectory is what really threatens them. that is my belief. >> mr. chairman, i cannot agree with you more. i think we have a window of

time, as the witnesses have said, we're fortunate. we have a window of time. the wolf is not fully at the door right now. the fiscal my aides do not have to come up in an emergency way you are suggesting. the will have to if we do not get ahead of this. we have lost a year in this administration already before we can deal with this and that fact is agonizing for me. while we are in this window, we should be focusing relentlessly on that while we can because that is the tool that evaporate as it gets closer. the fiscal might will always be there. you can always throw people off programs and shut them down. it would be a human tragedy to do so and we can avoid it if our responsible about delivery system reform in the time we have. >> i agree.

delivery system reform that for some reason got no attention in this debate on health care. yet every serious expert that came before us told us it is the single most important thing. frankly, i think the media have done a grave disservice to the american people for chasing every red -- chasing every rabbet of an issue that matters very little to dealing with that -- dealing with what has to be done. i'm largely pointing the finger of blame on network media that has a minute and half for a story and never has a chance to story and never has a chance to explain to people what are t instead, they obsess on things that are complete side issues. i think that has been an enormous disservice to the

american people. i would also blame ourselves for not doing a good job of coming back to what really matters, and it is that reform, that every expert has said is the number one opportunity to get things under control, but it is almost nowhere in the debate. instead of kesse panels and things that do not even exist -- instead, it is death panels and things that do not exist that get attention. dr. reinhardt, you testified one you get to a debt of 97% gdp, your research says that has an adverse effect on economic growth of 1%. is that right? my calculation is made this year we will hit gdp of just over 90%.

on the path we are on, that will continue to rise with no policy changes, no policy changes to 97% in 2012 and then start coming down very, very gradually. almost imperceptibly. according to your research, we already face the consequences of reduced economic growth in the future because of debt levels today. would that be a correct interpretation of your testimony? >> that would be a correct interpretation. i try to highlight that in my remarks and written statement that while the plan should not necessarily start today because of weakness in economic activity, a conception of a clear plan to reduce the debt would be or should be forthcoming today. one thing we can say with a fair

amount of certainty is that we never know when the wolf will be on our door. the wolf is very fickle and markets can turn very quickly. a high debt level makes us very vulnerable to shifts in sentiment we cannot predict. >> thank you. what i have heard the three of you say -- very clearly, you would not take immediate steps to reduce deficits and debt because of the risks it could create to a double dip. what i have heard each of you say is that you do have to put together a credible, long-term plan to deal with the debt threat. if we do not, jury of the country going forward. is that a correct restatement of

the testimony? >> if i could clarify, my position would be falling what is the imf practices, to focus on next government debt. the numbers would be slightly lower than yours. >> we should say for people who might be listening, when i talk about gross debt, and talking about the debt owed to the public plus the debt owed to the various trust funds of the united states. i use that figure of gross debt because in a budget context, that is what matters the most. all of that debt has to be serviced and serviced out of current income. economists like to look at what is called publicly held debt, which is a lower percentage, in a 60% range of gdp, because they

look at the effect of government borrowing on the public sector. >> general government would push it higher toward 80%. the imf position is that all industrialized countries to face a similar situation. new taxes or revenue between 4% and 8% over the medium term. that's my position which is not inconsistent with the spirit of what you're saying. >> i cannot speak for senator gregg, but he and i have gone on this effort to have a commission because we have been convinced that you have got to have an overall plan. when that takes account of where we're headed in recognition that dr. reinhart's research is accurate and as you add that, you fundamentally weaken

economic growth. let me go to the next point, if i can, and we're going to come back -- i will stop and recognize him next because he has not had a round. as we look ahead to this medium and long-term plan, spending has got to be adjusted, and yes, that means shall security, medicare -- social security and medicare have to get on a lower growth trend. it has to be because that is where most of the spending is. i also think the revenue side cannot be exempt. we have the lowest revenue of shares of gross domestic product in 60 years and the highest spending at a share of gdp in 60 years. so we have the lowest revenue, the highest spending, i don't

know of any logical conclusion that you don't have to deal with both sides of the equation. that goes to the question of what should the balance beat? i would like each of you to answer this question -- going forward, in the longer term, should most of the emphasis be on the spending side, should most of the emphasis be on the revenue side, or what do you think the appropriate balance should be between spending and revenue? contributions to dealing with this long-term debt. dr. reinhart? >> i think both the spending and revenue side have to be addressed. i had mentioned in my earlier remarks that looking at what canada did it would be useful. nose down with a downturn. -- no stone was left unturned. unemployment insurance,

decisions involving retirement age, and of course, the revenue side as well. when one is dealing with gaps that we're dealing with right now, even abstracting from the cyclical component that is very big right now, you cannot leave any stone unturned. >> but less you bend the curve for medicare -- unless she bends occur for medicare, that is first and foremost. >> that the 800 pound gorilla. >> absolutely. and it's a very unfortunate thing. it is perhaps more about ethics and economics to decide what to do there. that's a very hard social conversation. but taxes, you have to address that. this is a fantastic country.

it is based on a thin and fragile tax base. if the united states wants to be one of the leading powers in the world, i see any alternative but tax reform. i would emphasize what dr. marron did before -- our tax reform group and we have not redesigned this in a long time and not try to think about what do we tax to discourage, rather than taxing income, which will allow people to earn. we have to address the low private savings rate. witnesses them where people don't feel they have to save and as a counterpart to our foreign borrowing. when they haven't talked about today as we finance so much of the budget deficit by borrowing from china and the chinese government. it makes no sense at all in geostrategic terms. even if you address and we come up with a strong fiscal framework, you still have the current account issued a low

private sector savings. and as you wish for the united states to slip into the right of second-rate powers, that has happened to many countries in the past. >> i could not agree with you more. if this fiscal commission does its work, one part of it should be fundamental tax reform. we have a tax system that is an efficient and by that, i mean a high percentage of what is owed is not being paid. we have incredible leakage through offshore tax havens. if anybody doubts that, go punch in offshore tax havens and sewage you get. google that and see what you get. we also have a tax system that was never designed for the time we're in. it was designed when america was completely dominant in the world and we did not have to worry about our competitive

position. we have a tax system that now this incentivizes savings and this incentivizes investment. -- dis-incentivizes investment. it's almost an upside-down system, given the circumstance we're in today. dr. marron. >> the first point is a budget process in terms of where should the emphasis be on taxes or spending -- we are in a situation where it's going to be difficult have an intelligent conversation about that. if there is one view that has taxes expiring, -- as you saw on the recent cbo report, if you add them up, the difference is three percentage points of gdp in 2012. i'm not going to have an answer of which one is right or wrong,

but politically it's hard conversation to have intelligently because people will differ in what they choose. in terms of substance, the basic story is, once the economy is on a recovery path, what happens every year is spending makes the situation worse because it grows faster than the economy and tax revenues make it better because they grow faster than the economy. it has to be the case that spending is going to get more of the emphasis than the revenue side because they're growing faster and that is what is causing the challenge. but if you look ahead and ask and we go back to a historical 18% of gdp tax level and finance types of things are government and society appears to want our government to do, my answer to that is no. the arithmetic does not add up. that finding a way to raise more taxes in the future seems inevitable given introductory whereon. if you are going to do that, scaling up our existing tax system is not an intelligent way to do it.

as you just described, what you want do is revisited and ask what that system makes sense the economy we have today, if we have decided instead of 18%, we're going to raise 20% in terms of tax revenues. >> thank you for calling this meeting. i think this discussion is critically important to our committee and to our country. thank you for doing this. i welcome all three of our witnesses, particularly dr. reinhart, but i thank all three before your testimony. the bottom line is, what are we doing about the standard of living for people living in our nation. i know we cannot rewrite what happened in the past, but we need to understand and learn from our mistakes. i find it inexcusable that when we had a growing economy, we still allowed the dead to go up.

there was no excuse for cutting taxes and increased spending without paying for it. we had a booming economy. dr. johnson's point about savings, when our economy was performing the strongest in the world by far, when we were a leading indicator on every good economic indicator you want for america, during the 1990's, into 2000, then defined our savings ratios during that time to be among the worst of the industrial world, and we said that's ok. we have to worry about saving because americans are saving because they're getting the value of their homes increasing by a dramatic amount. then to find out what happened to the value of our home, we need to learn from the mistakes we made when our economy was growing.

it is the mismanagement of debt and the failure to enact policies that encourage savings. many of us, including the chairman, tried during that time. i was proud of the work we did on the house side to try to focus on policies that would increase our national savings. we did not do what we needed to do. now we're in a recession. so now it is difficult to get attention to reducing the debt or cut spending or increase taxes when you are in a recession, or it's difficult to develop policies for americans to say because you want them to to say because you want them to i guess my concern is that we look at how we are going to deal with the national debt, and the commission is one of the