furthest proposals to have a focus on the national debt and have us deal with it. i am concerned this might be short term rather than long term because we're in a recession. we need to create jobs. we need to spend. when you're in a recession, it may not be in america's long- term interest. if we do not deal with issues about tax policies that encourage savings, but i know my friends in the white house raised the issue of health care in this context, so the good news about the bills considered inñr the house and the senate is the two principal goals were to reduce the growth rate of health care costs in america while reducing the budget costs so we wereçó actually reducing health- care costs and the budgetñi.

at health care costs solely in light of the federal government's budget and say we have succeeded if we can reduce the entitlement costs of the federal government. we do not look at it as to how much seniors might be asked to pay. we don't look at as to how much businesses might be asked to pay. we don't look at it in the context of what individual workers are going to be asked to pay. at the end of the day, we might be weakening the economy, strengthening our federal government budget commitment as far as reducing cost. reducing our economy, certainly reducing the standard of living for people in this nation. i have a concern as to how we focus today in a recession and focusing on how to get and what our debt. we're all saying the right things, we want to bring the debt down and increase national

savings. but what to increase the standard of living for people living in our nation, but if we tunnel vision this health care debate in to the federal budget and don't look at health care costs as growing, long term, we're doing a major disservice to the people are country. how do you put this in context? how do you deal with the current recession? how do you deal with the current crisis americans are facing and still allow our economy to grow and deal realistically with the problems americans are facing, of whether a small business owners trying to maintain health insurance for employees or a senior is struggling to decide whether they can afford madison this month for workers find themselves falling further and further behind, when they look at their payroll and look at how much might have to spend on health care, they are wondering

what happened during this prosperous time and why should we trust you now to get this right when you didn't do a when the economy was growing -- didn't do it when the economy was growing? >> my view is if you create a fiscal commission with everything on the table and people regard that as being a credible step forward, which i think they would if it came with the right framework, that gives you the scope in the short term -- >> if the commission's charges to deal with the federal budget deficit and we are in recession when this commission is required to issue its ruling, how does it overcome those two major obstacles to the long-term issues that you raised on the tax code, for example? >> the good thing about being

the united states in our current position in the world, we have the only reserve currency. the euro is seriously under pressure. this gives us time. it means, to go back to the german's mask, we will be able to run up more debt -- the chairman's comment, we will be brought word that are unsustainable tax base. we have 10 or 15 years, maybe the budget, we have 20 years to confront those issues. the fiscal commission's mandate would not be to slash the budget now. it would be to get the budget on to a sustainable basis and take it on according to cbo projections. will allow us to --

>> i am not sure we have other options. i'm not sure there are any better suggestions that have been made. all i can tell you is a lot of us worked on the savings issues and we did not have a lot of support out there to try to do things to bolster national savings. we got some things done, relatively minor when you look at the overall problems that a nation. it was not easy getting that done. i just hope the political will will be there to deal with some of the fundamental issues that have been raised here. when you start looking at we shouldn't be talking about how much revenue to raise but how to raise its, -- how to raise it, i happen to believe our tax code does need major revisions of lead to rely more on consumption-based revenues and we have to do it in a progressive way.

i will be interested to see whether the type of political support -- dr. reinhart? >> i would like to address the issue you raised that in good times, our policies have tended to be pro cyclical, namely in good times, there are two things the government can do. can save during good times directly and that it can create incentives for the private sector to save. during the last boom, we did not do either. i think the role of the commission to ensure during boom times, we did not congratulate ourselves too much. the seeds of the next crisis are sown during the boom. that's when over spending has this directly to ending --

tended to take place. i do agree that -- i said earlier, no stone left unturned, the tax code, this is also simon johnson's point -- we need to address the issue of low savings rates and dependent on borrowing from abroad as part of the medium term issue. one last comment i have is i do not know that we do have 10, 15, or 20 years. we just do not know. the sooner we can articulate a plan -- you raised the issue of uncertainty -- people today, if the debt is perceived to be growing out of bounds, that will create uncertainty not only about future investment, but what people expect as to future benefits. so a credible plan cannot be

articulated. >> thank you. i would just say this to my colleagues. i have just gone through an exercise to get the deficit down to 3% of gdp by the fifth year of the budget and to balance by the end of a 10-year budget window. i've just gone through that exercise. i ask all of my colleagues to go through that exercise before we get into our budget negotiations. i think you will find it as sobering as i have i think you will find it as sobering as i have. what it really takes, in 10 years to get the balance, on a very modest downward trajectory of deficits and debt to gdp. it is very sobering. when we go to the question of political will, what is going to

be necessary to get this under control. that means to get back down to 60% of gdp. by publicly held basis. -- on a publicly held basis. it is very sobering. senator sessions. >> that is an insightful challenge to us, mr. chairman. i think you are correct. i would just share a few thoughts that -- i think we have to light a treatment to the wasteful spending now. contain spending now that is not producing much for the economy. the $800 billion for medicaid, welfare, many things that need to be strengthened, but the extent of it was so great that

we have not had enough emphasis on job creation to pull out of this. i would just ask you to think about how will we pay back $800 billion? the president proposed at the state of the union, saving $15 billion this year and that might amount to two under $50 billion over 10 years. that's a lot less than $800 billion. now we're talking about another stimulus package. these numbers are so large that you cannot spend today in an unlimited way. we will pay this back one way or another. going to be a burden. my democratic colleagues have to recognize that we just cannot ignore the year that we are in and the next year as if we are in this severe recession and

therefore all the rules don't apply and the money we borrow is not going to be a burden on us. will be a burden. -- it will be a burden. dr. reinhart, i would like to follow up with your comments and that of the chairman about the amount of debt that we have. maybe all of you discussed this generally, between the internal debt and the public debt. would you not agree that 30 years ago, 20 years ago, there is a bigger difference than there is today because we did not see quite the dramatic actuarial and soundness of our entitlement programs? . .

for anybody analyzing the soundness of the united states financial situation would consider internal debt, too. did i make that clear? in the debates of health care, the president asserts this plan would have $130 billion surplus, but that was not true, and the cbo eventually made that clear, because it created a $300 billion surplus in medicaid, but it spent it on a new plan, and they did not score the internal debt.

we have got to understand the reality of the internal debt is more significant than it was when johnson for started doing that. would you comment on if you think it is significant? >> i certainly think it is significant in a major way. the work i have done emphasizes gross federal debt. ultimately, we feel it is the federal government, whether the debt is held by other branches of the government or by the public, that we care about gross

federal debt, but it does not take into account important liabilities associated with our social security system and all other unpleasant guarantees. simon johnson -- other implicit guarantees. >> if it does include the internal debt the treasury opposed to medicare and others? >> partially. >> but not totally. >> partially. >> for us, we're worried about the health of the american economy. the you think we should consider it as more than just a public debt. >> i think when one looks at the issue, we are going to be

looking at very different measures of debt. i would start out with gross debt, but i would not end with gross debt, to take into account that susceptibility. it's just so happens that gross debt is something we can measure more readily and more transparently, because of some of these other explicit or implicit liabilities we have. >> would you allow me to interject? i think it is a hugely important point you're making. >> the company felt that was the money borrowed by the public, 60% of gdp.

the gross debt is that 90%. to the trust funds it's confusing. so it's important they understand that the gross debt. the reason you're focused on it, i'm focused on it is because all the debt has to be repaid. and from a budget standpoint, debt can only be paid out of current income. by definition the only money we have to the social security has to come out of current income. so there is a real budget consequence when those trust funds that have been producing more money than was needed all of a sudden flipped and now all of a sudden they are spnding more money in social security and medicare than is coming in trust fund income. that has happened to both those programs today. both are cash negative today.

that's why i wanted -- sorry for interrupting. it is so important -- >> i couldn't agree more. >> to understand the implicailingses of this. >> when i came here i kind of ackquiested into the idea that public debt, we'll argue over it as a basis, the public debt, and use those numbers. as i have come to realize the actuarial unsoundness of medicare and social security you really can't do that. of course they do show up, mr. chairman, as you know to be fair, they are showing up on the surge of the public debt increase as these bonds that are the treasury executes to these trust funds called. that's one of the reasons is it not, mr. marin, that's one of the reasons the public debt is moving as dramatically as it is.

>> right. the debt subject to limit. >> it's beginning to move. transfer. we are having less and less internal debt, i assume, because it's being converted to public debt inevitably as we go forward because there's not enough money to fund social security, medicare without calling the bonds that are out there. i'm just -- would say that anybody you would -- my time's about up. so if any of the two of you who haven't commented, i wish you would -- >> just a couple thoughts. you notice whenever i speak of the debt i focus on the publicly held debt which is the notion of debt we need to go play with world capital markets to finance ourselves. it's not because i don't worry about the other ones. when you worry about the other issues, the gross debt understates the scope of the problem from those programs.

we have raised money for social security into a much lesser extent for a part of medicare and labeled them as trust funds for budget accounting and adding those up we can have a larger measure of debt. if you take seriously the commitments we have made for medicare for the other parts of it not covered by a trust fund, you have seen these numbers millions of times. here people come in with the $40 trillion number, and $60 trillion number. these guy nantic numbers which are an attempt to measure the overall commitment. i won't call it a debt because we can dial it up and down, hopefully down in the future, i think even the gross debt understates just how severe the trajectory is that we are on. >> understates. do you agree with that? >> yes. i think dr. marin said it very well. in addition the conbegin tent liabilities of which we know is there, that doesn't fit our sentiment as all. we have one or two more crises we'll change that methodology.

dr. marin, i think is right. don't think of the gross debt as the extent of our problem. focus on the -- focus on the publicly held debt for what you have to sell and find for the market will or will not buy. then you have to look at the projections going forward, including the contingent liabilities. >>ç briefly, the uncertainty tt dr. marin and others have mentioned, i believe a lot of that and throughout the entire economy, throughout the entire financial world is the concern over the debt. would you not agree it creates a cloud of economic growth and productivity psychologically as well as otherwise, and that the sooner we get a clear path out of this fix we are in, the better it will be for -- to restart economic growth.

>> i think one of the scenarios that i alluded to earlier is one in which if there is no plan for -- containing debt and deficits medium term, i think uncertainty is a enactor -- factor why we get the results that we get. that higher debt levels are associated. >> you are factoring that in. yes. dr. johnson. >> i think we should take events of the past few weeks in europe, senator sessions, as a wake-up call. exactly on the lines you are suggesting. you need a fiscal commission, you need it now. if you don't have it, in the second half of the year it is a substantial slow down, which i'm expecting, you room for

maneuver. the root doesn't matter. whichever way you want to go you won't have that room because financial markets will become more difficult. that's what the europeans have woke yield back the balance of my time up to. tomorrow they have a big meeting in europe, summit, this is for them is the topic. how do you limit the damage. how do you make the fiscal judgments credible. we don't want to go there. that's raising tax, cutting spending, you don't want to do that in the second half of the year. if the financial markets force you into it, that's a disaster. >> do either of the other senators want a second round? senator whitehouse? >> if it's not too much 6 an ordeal -- of an ordeal for our witnesses. >> they are here and ready to answer. >> thank you. dr. marin, in your written testimony you looked at the 11 million households that are under water on their home mortgages and conclude, a, they

are likely to default, and b, that that will eat away at the thin capital cushions of many banks. to what extent do you believe that the liability for these mortgages has already been written down by the banks, and would you distinguish between mortgages that have been securitized and mortgage that is are actually held by the bank? >> i don't have a good answer to your first question. maybe dr. johnson does. on the second, there are, as you know, some of these mortgages have been secure advertised and have been moved in various places including back on to the federal balance sheets. you have other ones out there held by the banks. the reality is, this goes back to the uncertainty point to what extent have we realized the difficulties we are in. financial institutions still differ in the degree to which

they have recognized their losses. some have been more aggressive about it than others. and that that cash continuing uncertainty over the financial viability of various firms is ultimately hard to track this through. >> isn't it advisable to move through that uncertainty as quickly as possible? >> at some level the ends that you want is where everyone honestly appraises what their losses are and moves on in life. the difficulty we faced over the last couple years it's very -- very hard to get people to go through that process. >> go ahead. >> i think the lack of success of the government programs have had, particularly the one that's supposed to buy distressed assets from the bank, just haven't got up to stale because the banks don't want to sell. i don't think they have written this down. but i think that the strategy that they have had, been encouraged by the previous administration, this administration, sit on your

losses and wait for the economy to recover. that works unless you have a double dip or further losses or more strategic default which i think is, to my mind, what we are looking at here. >> the reason that i was asking that question is that it strikes me we are prolonging the agony by continuing to forbid the residential mortgage holder if they are in appropriate financial circumstances to simply go to bankruptcy court and settle their debt the way everybody else does. in fact, i saw a news article earlier today, the mortgage bankers association argues developmently against allowing -- vehemently against allowing regular folks go to bankruptcy court and get that debt settled the way every other debt can go

to the bankruptcy court and get settled. i guess it turns out that they may have written down their own mortgage on their building here in washington. because it's a commercial mortgage, they can get away with it. so they are -- they know it's the right thing to do. they know it moves you quickly to a market based solution. then everybody can adapt and move on as opposed to being in this sort of throws and states in which banks are asked now to determine what their losses are going to be mortgage by mortgage and then the nightmare begins for the person on the other end. we don't have a balance sheet that quantifies the nightmare for the family that has to put up with this, but clearly it's a nightmare. we don't have a balance sheet that quantifies the loss in property values around that house as it gets forecasted and abandoned and stripped. quantification of what that means in revenue to municipalities that are struggling. there's a whole piece of collateral damage that i think is avoided if we solve that

problem. in addition to moving quickly to a market base for those. it's so disingenuous of the mortgage association to be here lobbying against it for regular people when they are doing it with their own darn building themselves. and i would just -- i would be interested in your thoughts on -- wouldn't that be the quickest way to find the bottom. as soon as people could cut to bankruptcy court and have a quick, fair final determination of it, then everything adapts. there's your finality. mr. marion -- marron. >> i'll take a stab. i'll confess i haven't thought about chapter 13 in those issues for some time now. my memory is hazy. i'm an economist, i'm going to invoke many. on one hand i'm generally reluctant to do things that are changing the rules in the middle of the game. i'm sympathetic. i may not find it dispositive, but i'm sympathetic to the argument the mortgages were initiated under a set of

expectations about what the rules of bankruptcy here. >> over the past year -- >> i know. i'm going to be whatever the many handed right thing is. i'm sympathetic to that. with the passage of time, the emphasis i place on that goes down as we seem -- i don't know what federal program we are on, six, seven, eight trying to address this problem. i no disparagement to the previous administration, current one, and the congress it's a hard problem. it's not surprising it's taken this long. i don't remember -- there is an issue that houses are different than most of the assets that normally go through chapter 13 bankruptcy procedures. you need to think about ways -- most of those things are cars, boats, whose asset value is depreciating rapidly. it's more challenging to apply that to housing. you need to figure out a way to do it. over time i have become more sympathetic to the notion that some reform in bankruptcy could be part of the help. the numbers i saw a year ago

when i used to think about this more seriously suggested that even if you did kind of your dream scenario on that front. it's still only a relatively small fraction of the homeowners who are facing these difficulties. but would be a portion of it. >> can you think of any other circumstance, ever, in which there are actual market losses that need to be processed through and a system whereby you didn't get to the actual market loss but instead allowed an interested party to be the definer of how much they are going to lose on something with going to lose on something with an efficient or effective way of >> so the first part is, yes, i can think of that. commercial real estate would be a classic example. there are plenty of balloon mortgages under water for which lenders are trying to put off the day of reckoning and hoping the economy will bail them out,

so the problem is not residential real estate. then you have the second part of your question -- and then it works well, and history suggests it does not work well. >> clarity works well. >> let me get both of you to answer, and then i will conclude. >> it makes sense. this did come up last year. it was defeated by lobbies, and that is a problem. this is a no-recourse learned -- loan. i honestly think over time, this will change. most bankruptcy has emerged in response to big debt crisis, and it is this kind of compensation and crisis. this will change, too. in 5410 years, you will be able

to modify -- 5 for 10 years, you will be able to modify. it does not do much good now. >> when we talk about over leverage institutions, restructuring is a viable way of bringing down at least partially the over-leveraging. . inevitable, in the case of banks, and the common -- your comments delaying the inevitable on the parts of households are doing just that. delaying the inevitable and making the slowdown much more protracted than need be. protracted than need be. >> making the slow down much d than need be. thank you. >> thank you. i would like to just conclude by trying to make sure that we clear up for those who might be listening the gross debt publicly held debt, then we got into unfunded liabilities which

is a third category. so that we don't leave that confused in the record or confused perhaps in public mind. the gross debt is all of the debt that is owed by the federal government to all of the entities, publicly held as well as to the trust funds, medicare, social security. for example. the publicly held debt is just that debt that is due to the pub lick. that doesn't count the debt to the trust funds. the unfunded liability is still another concept that looks at the differences between the promise that is have been made in legislation versus the revenue streams that go with those spending commitments. that is a more future oriented look at where we are headed. and the unfunded liability of the united states is in the trillions of dollars. and the biggest part of that is

medicare. medicare is the unfunded liability, my memory serves me correct, in medicare six or seven times the unfunded liability in social security. so they are three separate concepts. the reason that we were focusing here i think, i can't speak for senator sessions, but we were talking about that as from a budget standpoint. from what we have to deal with. we have to produce the money in this committee to meet those debt obligations. both the publicly held and the gross debt. because those obligations to the trust funds are backed by the full faith and credit of the united states. they are real obligations. but they can only be funded out of currentok resources. so when medicare's cash negative, social security's cash negative that has budget

consequences. we are the budget committee. i know economists like to look at publicly held debt. dr. rhine heart -- reinhart is demuring. but we have a special obligation to our colleagues to deal with the revenues that are going to be needed to meet these requirements. not only of the publicly held debt but also the gross debt, the obligations to the trust funds. and that has significant budget consequences. we have been in this long-term period where the trust funds were producing more money. there was more money coming in than going out. that has been a very happy circumstance. that is all changing now. and i think when the changes occur that it's often least recognized.

it kind of gets missed by our colleagues. this is going to have very, very significant budget consequences. it's important for our colleagues to know that and it's important for those who are watching to understand. let me just -- >> follow up on that. with regard to -- the way we account for the money in our government allows this confusion to continue. it was very dramatically revealed to me, and i didn't fully understand it until just before the final vote on the health care bill, president obama submitted a score from the medicare that said if you raise medicare taxes and you cut medicare benefits as they propose to extend the life of medicare for nine years, i believe, i think -- as it was stated, that is a true fact. but in the report from the

c.m.s. chief actuary from medicare, he had a little parenthetical and it said, but of course you can't simultaneously use that money to fund a new program. and also extend the life of medicare. all right. but the c.b.o. score, dr. marron, you used to be at c.b.o., the c.b.o. said that you could. because the c.b.o. scores does not score internal debt. and so the president also used the c.b.o. score to say that he could fund his medicare program and extend the life of funded new health care program, extend the life of medicare by nine years. and he had a c.b.o. score that agreeed with him. and basically what -- they don't score the internal debt. so the -- you had an increase in

revenue out of medicare and it was spent on the health care, new health care program, and it didn't score as increasing the debt. where didi] the money come from? it was borrowed from medicare. a debt instrument shows that debt.

i believe he said that he was cutting medicare benefits and i think it was clear that he was cutting spending. >> yes, without reducing benefits. >> the insurance company is making 14% profits over medicare. >> that would not extend the life of medicare in nine years without extending benefits? let's do it today. you cannot use that saving to fund a new program, which the ad -- which the cbo was absolutely crystal clear. >> it is going to be an interesting year. let me just say this.

i think we have an extraordinary challenge, and the question for all of us -- are we up to this challenge? in the short term, and there are differences on this issue, but i think this is been quite clear, it would be a mistake to start to reduce the deficit too soon. we have seen in the depression when that was done, the japanese have warned against doing that, and at the same time it would be a profound mistake not to have a plan to deal with this debt challenge longer term. this burgeoning debt funnily threats the economic growth and economic security and the position of our country and the world. this is not just numbers on a page. i want to emphasize that. i think people listen to us and they harass talk about this number and that number.

why are these numbers important? they are important because they ultimately affect people's lives. the ability of people to have a job, to buy a home, to get a college education, all of these things are directly affected by the strength of our economy, and the strength of our economy is fundamentally affected by the decisions the united states makes with regard to its budget obligations and its debt obligations. the federal government represents 20% of the economic activity in the country and has a broader impact with respect to our long-term economic position. as we take on too much debt, as dr. rinehart has testified very compellingly here, looking at the history for extended period

going back and looking at countries that face similar circumstances and then saw what happened, what she is telling us very clearly is taking on too much debt, it affects the rate of economic growth of a country adversely. that translates into people's quality of life, so it is important for us to connect the dots. it is not just numbers on the page of interest to government accountants. these things contribute to the economic strength of the country or the depletion of our strength, and that is going to have an affect on every single american. and more broadly, it is going to have an affect on the global economy. we have a very serious burden here, a serious challenge.

we have got to prove that we are up to it. we have got to prove that we are up to it. i just want to thank the witnesses today for assisting us in that task. dr. reinhardt, you were terrific and we will invite you back. you are a great help to date. dr. johnson, as always, good to have you here. great clarity of thought as well as the ability to articulate these issues in a way that is understandable to those of us who are not economist. and it is always good to have you back as someone with great credibility before this committee. i thank all of you and i thank my colleagues. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010]

>> president obama met with house and senate leaders at the

white house today. that is next on c-span. in a few minutes, we will hear from republican leaders who attended the meeting. after that, the president's in a news conference, and later a conference on the economy in the federal budget. on "washington journal," tomorrow morning, we will talk about how congress is dealing with the economy and jobs. our guest is ian swanson. a former assistant for homeland security daniel kaniewski about the homeland for -- homeland security plans. and we will talk about literacy from -- with richard brake. a look washington journal" is live every day at 7:00 a.m. eastern. >> his movie was the subject of a supreme court decision.

daniel kaniewski -- david bossie sunday night on "q&a." >> congressional leaders met at the white house to discuss areas of agreement on a jobs bill and the economy. republican leader spoke with reporters afterwards. >> part of what we would like to see is the ability of congress to move forward in a bipartisan fashion on the key challenges that the country is facing right now. it is fair to say that the american people are frustrated with the lack of progress on key issues, and although the parties are not going to agree on every single item, there should be

some areas where we can agree. we can get some things done even as we have a vigorous debate on issues we do not agree on. a good place to start and what i hope to spend a lot of time on in these discussions today is how we can move forward on a jobs package that encourages small businesses to hire, helping to create the kind of environment where that we have economic growth and people are starting to add to their payroll. there are some ideas on both the republican side and democratic side that will allow us to lower rates for small businesses on their taxes, help to spur on some growth. hopefully both the house and the senate will see package is moving in the next several weeks to encourage hiring. another area where i hope we can

find agreement is on the issue of giving our deficits and debt under control. both parties have stated their concerns about it. i think both parties recognize it is going to take a lot of work. i support the idea of a fiscal commission and i am going to be discussing both with my democratic and republican colleagues how we can get that moving as quickly as possible. i think the american people want to see that in action. i am also glad to be talking about more mundane matters, these like making sure that we have our government personnel in place in critical positions that involve our basic government functions. accelerating that and trying to find people in those areas. and then i am going to spend

some time listening. there may be some things that both republican and democratic leaders have that they want to raise in this meeting. i hope that this is not going to be a rare situation. i hope we do this on a regular basis and i am very thankful that everyone is taking time to come. i'm confident if we'd move in the spirit of keeping in mind what is best for the american people, that 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 what i would like to emphasize is that there are areas of potential agreement. he mentioned in his state of the union his support for nuclear power, for offshore drilling, for clean coal technology, and for trade agreements, presumably with colombia,

panama, and south korea that had been languishing for a year-and- a-half or so. i think that these are areas that could be broad bipartisan support to go forward in a collaborative basis. obviously there will be areas of disagreement, but emphasizing the things we might be able to work on together and i would mention those four areas, all of which i think would be job generators. nuclear power, offshore drilling, clean coal technology, and passing those languishing trade agreements which we know create jobs here in the united states. we also have a long conversation about spending. the american people know washington has been on a spending binge for over a year. i told the president if you are serious about cutting spending, why don't we do it now? why don't we start with the rescission package? i urged him to put a recission

in each bill and send it up to the hill and led members followed up and down on washington spending. we don't need to thought this off on some spending commission -- to fob this off on some spending commission. health care's not been discussed for several ways, but i understand what we're trying to accomplish. that is why eric and i sent a letter down here yesterday and we're hopeful that we will get some answers as we consider what to do about this february 25 meeting. [inaudible] >> we are interested in a bipartisan conversation with regard to health care. but a bipartisan conversation ought to be that, bipartisan from the beginning. we have been asking to be involved in the health-care

conversation going back to a letter that we sent last march. we get no response to it. we outlined our concerns about this conversation that the president wants to have. we certainly want to have a bipartisan conversation, but we need to know where we're going to start. [inaudible] we will like -- we would like to attend the meeting and we are interested in having this bipartisan, recession and we look forward to it. we are considering this. >> did you make any progress on the jobs legislation? did you trade any ideas in the process? >> there were a lot of conversations. the house's already passed a stimulus bill. >> we discussed the senate package is that have been percolating, all work in

progress. some members of the finance committee say that it is not ready yet. most of our members have not seen it yet but we are open to it. if there's a chance we can move this forward on a bipartisan basis, we hope it is not just another stimulus bill but truly a job generator. i think that there is a chance that the senate can pass a small package. >> any concern about the health care talks? >> a good way to start would be to listen to the american people. they are overwhelmingly opposed to the to thousand page bill that the house and senate have looked at. what we need to do is start over, go step-by-step on a truly bipartisan basis and try to reach an agreement. my members are open to doing that. >> start over where? >> costs of the problem.

the rising cost of health care in america. we need to target costs by doing things like targeting junk lawsuits against doctors and hospitals, potentially equalizing the tax code to make it possible to have interest on the individual market have the same prices as corporate market. there are ways to reduce the number of uninsured and target lawsuits. [inaudible] >> we need to start over. they need to listen to the american people. the surveys are overwhelming. the last in p r poll -- national public radio indicated that by 58-38, the american people are opposed to this bill. why would they want to keep pushing something that the public is overwhelmingly against? obviously the answer to that is that measure should be put on

the shelf and start over, step by step, and get it right. >> there things that you have opposed like allowing people to purchase insurance, that was in the bill that has come together in the discussions. do you ever response to that? >> we're going to have a health care meeting on the 25th. what i am telling you is -- what i am saying is what he said, put that bill on the shelf, the 2700 page bill, start over with more modest goals to go step by step and solve the problems of people like us to deal with. >> the present was to have a bipartisan conversation. it will be difficult to have a bipartisan conversation with regard to to a 2700-page bill that the majority in the house

and senate cannot pass. why are we even talking about a bill that cannot pass? it is time to scrap the bill and start over and let's talk about common sense things that we can do to make health care more affordable to the american people. >> de think the president is sincere listening to your concerns? what specific areas do you think should be addressed? >> it is hard to predict. this jobs package is a work in progress. we want to make sure it is not just another stimulus bill that will create no jobs. it is too early to tell what that package will look like. and the weather is interfering with our ability to do business as well. thank you.

>> after the meeting, president obama made an unscheduled appearance at all white house briefing. he talked about health care legislation in iran sanctions. press secretary robert gibbs continue to talk with reporters after he left. this is about an hour. >> hello, hello, hello. >> you are a lot earlier than gibbs. >> we are trying to bring change that you can believe. hello, everybody. i am glad to see that all of you

braved the weather to be here. a 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 there 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 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 a collection day in washington. at this critical time in our

country, the people sent us here expecting a serious 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, for example, that when one in 10 of our fellow citizens cannot work, we should be able to come together and help businesses create more jobs. we ought to be able to agree on providing small businesses with additional tax credits and much leave it all lines of credit. -- and much needed lines of credit. we ought to be able to invest in crumbling roads and bridges, and agree on tax breaks for making homes more energy-efficiency. many of the job proposals that i have laid out have passed the house and sooner 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, we 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 also 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 in 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 am going to be creating this commission by executive order. and during our meeting, as 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 in two zero weeks i will be holding a meeting with people across the parties, and as i told the congressional leadership, i am looking for 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 that that -- by the industry -- by the insurance industry? does it make of portable coverage available to tens of millions of working americans who do not have right now? and does it help us get on a path of fiscal sustainability? we also talked about why this is so urgent. there was a report that anthem blue cross in california is planning on raising premiums for many individual policyholders by as much as 39%. holders 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 that country is going to win the race in the 21st in troy what is also true is that given our energy needs in order to continue economic growth and produce jobs and make sure our businesses are competitive around the world, we're going to need some of the old traditional energy sources as we are developing these new ones and ramping them out. so we cannot overnight convert

to an all-solar or an all-wind economy. that just cannot happen. we're going to have to the traditional sources. 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 whole is that my 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. over time, 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 have 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 positions, 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. thank you, guys. that was pretty >> now that the warm-up band has played, i cannot imagine that there is a lot to say, but i will do a few of these and we will get going. >> following up on

bipartisanship, the president said that it cannot just be the democrats yielding. what about the guilt of the white house? can you offer any specific ideas? >> you're the president discussed in the interviews that he has done the notion of talking more fully about medical malpractice. that is something that you could put on the table and we could discuss. understand this -- the republican ideas already in the legislation consist of high risk pools for pre-existing conditions, following coverage to be sold across state lines, catastrophic plans for the armed, grants for prevention and wellness programs, and the small business pools that a fault -- that offer affordable coverage. there are republican ideas and

the latest figure i had from nancy are 150 amendments that were offered in the committee process that have been put into this bill. . 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 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 $17 billion worth the spending $20 billion in spending c if congress wants to do better than that, the president is happy to look at it. they talked about this.

the president will look at that. >> they made it clear to the president that there is no compromise and the bipartisan commission and health-care reform. isn't he engaging in the political theater? >> no. he said he supported it >> it is political theater to do something like that. 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. .

to a person, everyone in the leaders, including the president mentioned that getting capital to small businesses and allowing them to borrow money is one of the most important things that we can do. 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. >> [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 u.s. economy and federal budget. after that, mike brown's addresses his state. the michael chertoff.

here is an update on the $787 billion economic stimulus program signed into law a year ago. more than three and a $33 billion has been committed with more than 179 billion having been paid out by the government. you can visit our web site to keep track of the stimulus money, reed reports, and listen to other information. go to c-span.org/stimulus. now hearing on the economy and what it means for the federal budget. kent conrad of north dakota shareschairs the budget committ. they create a bipartisan commission to look at long-term budget issues. the measure was voted down last week. this hearing is 2.5 hours.

>> if this hearing will come to order. i appreciate very much witnesses being here with conditions as they are. i appreciate colleagues who were here and you are on their way and i especially want to think -- thank him for being here to represent the republican side of the aisle. senator gregg said he is not been able to get back to washington at the moment. he hopes to be with us soon. airports have been closed. anyone who was out of time has had a difficult thing that -- of town has had a difficult time getting back. i do not know what did the boats are going to come off or not.

for those who are thinking about tomorrow, we have a hearing scheduled for tomorrow. we will make a decision about that soon. we have witnesses lined up. one thing we are considering is moving tamara's hearing to the next day in light of the threat of additional snow. if we do get another 10 inches or 12 inches, it will probably be very difficult for witnesses to get here. i am fortunate i live 10 blocks away. i can always get here. i want to very much think the witnesses. this is an important hearing. we are joined by extremely distinguished panel of witnesses. welcome. it is good to have year. dr. simon johnson, director of

entrepreneurship. . . at the peterson institute for international economics. he has appeared before this committee in the past for it we always enjoyed his commentary. and his testimony. dr. donald marin from georgetown and a former acting director of the congressional budget office. always good to have you back for the committee, as well. he has served in a very he has served in a very distinguis way in the congressional budget office. we have always been indebted to him for his service there. this is dr. rhinehart's first appearance before the budget committee and we want to make her feel at home. dr. johnson and dr. marin are both well known here before the committee. as the title of our hearing

suggests, we will focus on the nation's economic outlook and the rest we are facing that could affect the outlook, the federal budget, and the nation's debt. i would like to begin with a brief review of our economic situation. i think we all know that when a president obama took office, we were in the midst of one of the worst recessions since the great depression. the president moved quickly to follow up on the steps that have been taken by the previous administration to avert an even sharper economic decline. those policies, i think, are clearly working for the actions taken by the federal government or the last year have clearly helped pull us back from the brink. we have seen a dramatic turnaround in economic growth in the first quarter of last year. it was a -6.4%. but last quarter of last year, it had improved to a positive

5.7% growth. it is important to say that none of us anticipated that that level of economic growth will continue. many of us seek a more tepid level going forward. we have seen a steady improvement in the jobs picture. according to the estimates we received last february -- last friday, in general lester, the economy was losing more than 800,000 private-sector jobs in one month. that was up from a previous estimate of 700,000. looking back, we can see that in january of last year, the job loss was running about 800,000 per month. by this january, the economy was losing about 12,000 jobs in one month. that is a dramatic improvement but still short of where we need to go in terms of dramatically reducing unemployment. i must say that all of these numbers, to those who are

suffering the consequences of a weakened economy, their numbers on a page. if you are someone who is unemployed or cannot find sufficient work or are underemployed, these numbers are cold comfort to you. it is important to realize that things are improving, at least the freefall that we are in has been stabilized and we are starting to move back in the right direction. according to estimates we received friday, 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 that the impact on economic growth probably peaked during the third quarter of 2009. according to an estimate from goldman sachs, the recovery package provided 3.3% of the increase in real gdp at its peak during the third quarter. following the third quarter, the

contributions to growth from the recovery package start to diminish. given the high unemployment rate, the continuing concerns about the economy, and the fact that they impact of the recovery package has started to wane, i'd think it is appropriate for us to consider additional job creation measures at this time. i would like to hear from our witnesses, their views on the benefits of enacting such measures at this time. the economic downturn and the federal response to it has contributed significantly to the worsening of our budget out loud. this is the other side of the picture. in the short term, measures that were taken to stabilize the economy and stop a precipitous collapse, have been affected. we know there is a price to be paid and the price to be paid is increases to our deficits and debt. this chart depicts the projected

deficit under president barack obama's proposed budget over the next 10 years. it shows the deficit coming down from a high of $1.56 trillion in 2010 to $706 billion in 2014 and then slowly resuming its climb back to $1 trillion in 2020. i have said before that i can understand increases and deficits and debt in the short term to deal with an economic weakness and to prevent economic collapse but i am increasingly concerned about the out years. we're 0(ñ on an unsustainable path. i'm concerned that the president's budget does not focus sufficiently on our long- term need to deal with the debt threat. athe nation's debt outlook is even worse, particularly 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. in the 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 control our debt. the economic security of our nation depends on it. with that, i will turn to senator sessions for any opening remarks he might want to make and will go to our witnesses and we will have a chance for questions from the panel. again, senator sessions, thank you so much for being here. it speaks very well other man from alabama to be here with the weather conditions we are currently experiencing in this city parade in north dakota, no big dea. i am sure in alabama this would. be an all-out emergency.

>> it is fine for me. i walked around and saw the beauty of the snow. it is really a stunning sight. it causes difficulties for travel. >> if you like the beauty of the snow, i would like to invite you to north dakota. [laughter] any time in january or february of next year, maybe spend all of january and february. >> maybe we can invite you south would be a better idea. thank all of you for coming and i look forward to your discussion. i, frankly, don't know how well our actions worked after the collapse in the financial markets. those who supported it, promoted it, funded it, ran it all tell us that if we had not done it, we would be so much worse than

we are today. forgive me if i am not sold. i just believe that a lot of things had to be done. i supported a number of things but the fundamental actions that we took were troubling to me. we know we had to act and the congress had some things that we needed to do. i am troubled by it all. tarp -- $700 billion had to come in before the asian markets opened the next morning, they told us. when president bush left office, he had not spent half of it yet. one man was allocating $700 billion. 4 give me if i am uneasy about that. that $700 billion was

distributed in ways directly contrary with what congress was told her we were told it was about toxic assets. in one week, there were buying stock in companies, insurance companies, then by an automobile companies. just forgive me if i am not happy and the american people are not happy. second, the stimulus package, the $787 billion, is now $840 billion because we are spending more under the commitment we made in intended when we passed it. i think it has produced little. in fact, 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 single expenditure in american history. i don't think it has gone very well. i don't think it has created

jobs they projected it would create, even. the bill that some of us supported for half the cost, according to christina romer's analysis would have created twice as many jobs and have the debt impact in our country. we have some serious problems. one thing that happens with budgets that the cbo might be aware of. most americans are not part of the only year that really counts is the year you were in. the year we are in, for as a result of the stimulus package, like a house

version that he praised the state of the union, it has $100 billion more. he is counting 170 billion in the next 10 years but he is not counting the $100 billion this year. it is a violation of last year's budget. we will have to have vote sufficient to raise the spending levels through emergency designation, i guess, to spend that money this year. i guess what i am saying is that what i am hearing from the incumbent administration that concerns me is is it is always next year, next year. we have to do all this this year. we will not worry about how much debt is being run up this year. we will worry about it next year. the chart you put up, mr. chairman, is, however, the

budget that they are sorting. we have to. reduce the to -- we have to reduce the budget. the democrats are saying to take the budget we passed last year and follow those numbers. that was basically to% increase over the next five years but we did not get the 60 votes necessary to pass it. that would have been a real step, i think, to help us send a message to the whole world and the american people that we are going to contain discretionary spending, at least, for a while. mr. chairman, you have discussed how we can reduce our entitlement spending. we have to act. i hope to look forward to hearing from you. the american people are unhappy with us. they're not happy with us.

unemployment is high for the numbers were not good as last week. another 20,000 increase in unemployment and i think it takes about 800,000 increase to begin to reduce the number, the total unemployment number. i am really worried about unemployment. we want to have growth and ñ=rhopefully, we can. mr. chairman, thank you. i'm sorry senator gregg is not here. i know he has difficulty getting here. i know you and he had worked on a number of issues that i hope to be able to work with you, too. >> thank you, senator. thank you for being here. we will now turn to the witnesses. dr. carmen rhinehart, professor of economics at the university of maryland. it is timely for you to be

given developments on the international front. please proceed with your testimony and we will go to dr. johnson and dr. marin. >> thank you anmembers of the committee for the opportunity to comment on the u.s. economy and e@@@@@@@g@ @ @ h@ @ @ @ & @ @ @m that includes other economic con sequences. cross-country's and over time, severe crises followed similar patterns. in a paper over your ago, we examined the slump that

inevitably followed financial crisis. 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. equity prices collapsed 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 can reasonably argue that as we wait for financial reform to the europeans have this problem on a much larger scale. they are much bigger relative to their economies, and they cannot sustain an additional -- an additional big financial shock. switzerland has two massive banks with assets and liabilities six or seven times the gdp of switzerland. we can argue about the right metric, but if the banks fail,

the situation in the united kingdom is not much better, and i think senator sessions is exactly right to stress that the tarp experience it turns out there used to buy shares in banks and other companies, i don't think that is off the table in europe, and that fear it will come back to haunt us and you as budget matters in the united states. the continued liability is very important. if you follow the book carefully, it would even be greater than that. now how will this affect the financial system? it is very hard to say. the market is on reform, opaque,

and the issues of derivatives have not been addressed since 1998 when long-term capital management failed. and in conclusion, i would like to stress what senator session said about the necessity of an intermediate framework. it mere -- if you're swings into problems, 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 additional lift to the economy if you had some credi >> absolutely, using fiscal stimulus is something we moved away from in terms of the long and variable lack. but there is a case for it on a temporary basis if you can pursue the -- if you can persuade everyone that you are

not on an explosive path and you can have legislative and other institutional mechanisms in place. the british government today has commitments on the fiscal side and not credible. if you need fiscal commission to ensure that, it will work -- it will create a lot more room for short-term maneuvering. >> it your responsibility is to advise this panel on short-term or long-term, what with that advice be? >> i'll let the sea and numerical argument that you want to accomplish. >> just make up numbers are plausible, something like growth to gdp in 2013.

>> i seemed some of my students from alabama, an excellent school in montgomery, they are coming on to the front row. that is the no. 1 football team in alabama, saint james. >> wait a minute, in north dakota we have a good team. >> you have a comparative team and we usually lose to them in the playoffs. thank you for coming. >> thank you. >> i had a hard day and this know you're probably enjoying it. sorry to interrupt you. >> no problem at all. >> 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. . . when we talk about the tripling of the dead and the next 10 years, with the chart the senator showed earlier, that is not being scored? >> in the official budget the president put out, there is a small amount of money in there for future cash flows. but the several trillion dollars have not been scored. >> and the two big to fail banks are also an explicit

contingent liability of the u.s. government. if those banks fail, they will come to you and ask you for tarp ii, senator. and this is usually part of the banking committee, but i think this is a budget issue as well. is this unavoidable one? this is a huge conversation. we have to discuss that and the tax base. a contingent liabilities, they are largely avoidable if you regarded as a budget matter. it is a step in the right direction. >> i like to welcome the st. paul's kids from montgomery, alabama. we're talking about things that

you said earlier affect them. they will have to pay this as they grow up. >> if i could interrupt for one moment, on this question of fannie and freddie -- my understanding is that is in -- that it is in the cbo numbers. we made a determination that we would follow cbo and put them into our numbers, because that has got to be on budget. we can be off somewhere in the wilderness unaccounted for. we made a determination that it would be included in the numbers that we use. >> but that has not been in the past. >> no, not in the past. >> thank you for that distinction. >> my understanding is that the