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ghe ftshrgh to you on the issues in such a clear and concise and decisive way that the debate can start again. because you cannot debate when you are lost in the tsunami that has engulfed this over this past year. with that in mind, please listen -- don't just here, but listen -- observed, don't just say -- and make your own judgments. let's get going, let's get to the facts, let's define the issues, throw away the smoke in the mud and the dross, and get back to what we need to do to reclaim liberty in the united states. [applause] >> it is my pleasure to introduce this first panel and in order to make sure we move along as rapidly as possible, i will provide the introduction for four speakers in the order

in which they will be speaking and then just call on them. this is a very distinguished array of speakers, so it is my pleasure to provide the introductions. the first is diana furchtgott- roth, and i had a great pleasure of working with her after his stint -- at the hudson institute richie is been the director of our center for a form of policy. prior to joining us, she was the chief economist at the u.s. department of labor from 2001- 2002. she served as chief of staff at the president's council of economic advisers. she has been the editor of overcoming barriers to entrepreneurship, and the author of the feminist the limits of, what success is not enough. she was the weekly economics columnist for the "new york sun," and now contributes to real clear politics. she is also a columnist for

reuters. betsy mccaughey, one of my dear friends and one of the most remarkable people i know, there were not too many people who did not -- sheet expose the dangers of the clinton health care bill and change history. today she is doing the same thing. you will very often see her on television programs talking about health care in america. she is a patient advocate. in 2003, she launched a national campaign to protect patients from hospital infections. she is succeeded in changing laws in 23 states requiring hospitals to make their infection rates known to the public. you can actually find out which hospital in your area is safest. she served as the lieutenant governor of new york state and during those years, she battled

hmo abuses and stopped drive from a sect of bays and childbirth, patient care bills which were some of the most important from the attack the administration -- from the pa taki administration. through an analysis of the dangers of the clinton health care bill, she won a all wards for the best article in "the nation" on public policy. she has taught it for institutions and she is among the most powerful people in the health-care business in the united states. the third speaker of like to introduce his peter morici, and prior to joining the university, he served at the trade commission. he directed a professional economist working on

international trade investigation and provided economic policy advice to the house ways and means committee and the senate finance committee. the u.s. trade representative and other agencies. he received his ph.d. in economics from the state university of new york in albany in 1974. he then taught at oxford college in minneapolis. he joined the federal a minute -- federal energy administration. he served in positions of increasing research and manage oral roberts -- responsibility and was and that -- an elected vice-president in 1983. he was the director of the canadian-american center, and and and knowledge expert of international agreements, macroeconomics, an industrial policy. he served with the forecasting panel and has served on television as many if you know what the financial network,

bloomberg news, cnbc, fox, on and on three the fourth of our speakers this morning is gary wolframñr. he is president of the hillsdale policy group, specializing in tax policy. he serves as the treasurer of the board of trustees for university. he served as a member of state for education in michigan to 1999. he was chairman of our rules commission and members of the michigan enterprise zone authority. his public policy experience includes a chief of staff for congressman, advising governors, and others. he graduated from the university california and received his ph.d. from the university of

california at berkeley. he has taught at several colleges and universities. his publications include an introduction to markets and the political system, and several works on michigan as well. he was named professor of the year in 2004, and he was also named as one of the top 25 runners in the state of michigan. i hope he does not have to run too fast today. in anyñi case, we're going to start with diana. you can speak from their or appear, whichever. -- you can speak from the air for up here, which ever. >> thank you very much for attending. what a great pleasure to be here. i like to thank everybody who helped the conference. gore particularly like to thank herb for making events like this

and putting them together so that everyone can come out. reclaiming liberty -- all large topic. to strike a balance between individual freedom and the socialism. we do not have unvarnished freedoms. i don't have the freedom to shout fire right now, if there is not a fire. i don't have the freedom to take out a gun and fired shots into the air. i do not have freedom these days to smoke because it is considered to offend other people. but this administration is tilting the balance between freedom and the social good, to removing freedom that arms nobody, and removing freedom that allows us to grow individually and as a society. what should be our objective is economic growth, because economic growth gives us individual wealth which

generates tax revenues to do all kinds of things that we want to do, including funding benefits at the lower end of the scale, national defense, clean air, clean water. i could talk all day about how this administration and congress are trying to whittle away individual freedoms. freedoms that make us more productive, but i do not have the freedom to do that. so what about 10 minutes remaining, i like to briefly go over three areas -- labor, capital, and property rights -- where it this congress and this administration are trying to constrict the things that we do, things that would make us more productive. take labor, for example. the increase in the minimum wage to $7.25 an hour really means that an employer has a cost of $8 an hour, when you count

social security, workers compensation, other kinds of benefits. what we're really saying is that people who have skills that are less than $8 an hour are not allowed to participate in the labor market. they are not allowed to work. and this is a substantial said -- step in the wrong direction that adversely affects the most vulnerable people among us. few people know that the african-american unemployment rate is about 48%, and partly that is because these low- skilled individuals do not have the right to work at a reasonable wage, a wage that makes their skills. teen-age unemployment is 28%. these are all people that cannot get their first foot on to the wrong of the latter, they cannot take the first out into entering the labor market. they cannot get that low-wage job at mcdonald's that might enable them to be the managers

of mcdonald's, and later on the manager of a morton's steak house. the administration wants to increase mandated benefits and force employers to provide mandated benefits that will drive more low-skilled people out of the labor market. take another issue -- the employer -- the employee free choice act, which would take away their right to a secret ballot in union elections. they would be card checking. someone would sign a card that say that he wants to be part of dominion -- of the union, allowing the possibility of intimidation. there is nothing more it that can illustrate the taking away of liberty and taking away the secret ballot. [applause] another provision of the same bill would make mandatory arbitration the law.

so newly unionized firms and unions that cannot come to an agreement within 120 days would go to a mandatory arbitration, arbitrators being political appointees from the federal mediation service. and both sides would have to except whatever this group came up with. even if -- accept whatever this group came up with. even if it makes employers paying more them what their workers are worth, even if it means pensions -- the pension plan's going into an underfunded pension plan of which i can assure you there are many union sponsored underfunded pension plans, such as the central state teamsters plan. under this new law, employers would be forced to contribute to underfunded pension plans, workers would be forced to give up their 401(k) plans, into ponzi schemes that make bernie madoff look very good.

there is also in the labor area the increases in taxation, not just income taxes. people can argue what level of taxes are good, but individual industries, specific ones, taxing 50% of bonuses from banks. we're not talking about taxing waitresses steps, a similar form of compensation bonuses, but we're picking on one particular industry. that brings us to capital. banks need to land but they are putting more constraints. the latest headline in the "financial times" was a tax on bank liabilities, but more liabilities, the higher taxes. if you want banks to lend, then they have more liabilities. why are we trying to shrink their liabilities? it does not help any small business that wants to borrow

from we have credit card regulations where credit card companies are required to take anybody that comes. there are certain types of transactions that are not allowed. it hurts the most vulnerable among us. then there is what we can do to physical capital that this administration and congress want to constrain. just take the cap-and-trade bill. we would be charged for admissions for pollution emissions. there would be rules as to what we can do in terms of producing goods for it certain energy- efficient goods would be required. we would not be allowed to use our domestic oil or coal, or our natural gas. all of these would be priced higher. that brings us to the question of property rights. property rights, as we saw last

year, that genuine creditors to g.m. and chrysler just had their property rights abrogated. the president went on national television say that they had to make a sacrifice for the common good. and there by their legitimate claims were turned over in favor of gas to? the united autoworkers, the major contributors to the campaign of democratic congressmen and president obama. if this happened in venezuela, we would be parading hugo chavez, but it happened right here in the united states -- the rating -- berating in the show was -- hugo chavez, but it happened right here in the united states. this is not taxing people to say where you public, but a goal to reduce travel miles.

and there is the federal office of livability, believe it or not. for them, livability means living in smaller areas so you cannot have cars, if you cannot have large serbs, you cannot have a large plots of land. livability means living in small quarters, rather than giving the people the choice as to where to live. and i want to move on to make -- to betsy mccaughey, i have not even talked about health care because that is the subject of her presentation. but to show how hypocritical these people are, on november 17, the assistant secretary for transportation gave a speech on how important it was to reduce vehicle miles of travel and how people should use buses and subways or trains. afterwards, she got into a chauffeured limousine. [laughter]

someone asked if she should be taking the bus. she said, i am in a hurry. so she is in a hurry, they are in a hurry, they get to pick and choose what you would not see a member of congress and washington, d.c. going on the metro or a bus, but they want to constrain us from doing what they would never do. it symbolizes not only the freedom they want to take away from us, but the hypocrisy that goes along with that. with that, i'd like to turn it over to betsy. [applause] >> thank you. i am so glad to be we're -- here with you today. the health bill is being rushed through congress, putting government controls on the

decisions of doctors treating privately insured patients. even if you have a gold-plated plant from exxon, the government will be instructing your doctor what to do. these bills also if this rate medicare, and they take away from use up -- in disarray to -- eviscerate medicare, and they take away your liberty. i'm going to back up these claims with specific language from the bill. instead of quotes that i will be referring to, you can take this home and have a reminder of what is at stake here. the president has promised that if you like your healthcare plan, if you can keep it. but the bill proves that that is not true. the house bill specifically says that if you get your health plan through your employer, your employer will have a five-year grace period and then beat relief -- legally required to

move you into a plan the government wanted to head, the so-called government qualified plan. if you buy your own insurance, you will not have a grace period. you will be legally required to move into this government- designed plan, and the kinds of things that generally change yearly. 18 months after the bill is passed, the secretary of health and human circus -- the secretary of health and human services will make the important choices for you. what you are legally required to pay for, and how much leeway your doctor will have. that is like a banker telling you to sign this loan agreement now, and 18 months from now, how will fill in the interest rate and the repayment terms. not quite. not only will it be of one size fits all health insurance plan,

but the government will be transferring these bills -- these bills transfer the decision making power from your doctor at bedside to the government. never before has the federal government interfered what doctors treating privately insured patients do, except small issues such as drug safety. but the senate bill requires you to enroll in a qualified plan, and then provides, and this is your next slide on page 148-149 of this bill, it then stipulates that qualified plans may contract only with doctors could do what the government dictates. the secretary of health and human services is literally given unlimited authority to impose whatever health care legislation are deemed appropriate in the name of

health-care quality. that covers everything in medicine, from cardiac care to childbirth, but your doctor should use a stand or choose to bypass, whether you should settle for a pass near or to a public sonogram. the controls, the framework for this control of your doctor was slipped into the stimulus legislation, signed into law last february. the stimulus bill provided a set of goals that everyone's medical treatments would be recorded and a national electronic data base -- in a national electronic database. and the protocols would be delivered to electronic -- to the doctors electronic the about cost-effective than appropriate care deemed by the government for the secretary of health and human services was given total

discretionary authority to how that would be defined and to make that definition of meaningful use more stringent over time. doctors who failed to be open quite meaningful users" of the system would face financial penalty, first under medicare and medicaid. the senate and house bill, several provisions put doctors in this situation of choosing between deciding what is best for their patience and avoiding a penalty. the congressional majority claimed that these bills will make health insurance more affordable. but in fact, the number of uninsured is brought down largely by enrolling people in medicaid -- 60%, 60% of the newly insured will be enrolled in medicaid. in fact, it paid for your own

health insurance, you're going to face an increase if this bill is passed. the congressional budget office has reported that your premium is likely to be raised up to 30% more than that the bill did not become law. 14% more than if the bill did not become law. a family of four will also get clobbered. take a look at the cbo estimates of what they will pay. a family of four with a household income of $54,000 a year will be expected to pay 17% -- 70% of their income for premiums, copays, and deductibles after getting the subsidy. as you can see, that amounts to $9,000 a year.

people with fancy, generous -- what they call cadillac plans -- that they get from their employer also are clobbered. the 20% son of health care plans will be taxed at 40%, and excise tax. since when is it a sin to provide generous health care plan for your family? the congressional budget office says them -- has warned that employers will respond by either cutting back on the benefits they offer their workers, or by passing the cost along to their workers in the form of lower take-home pay. seniors bear the biggest brunt of all. the subsidies and the expansion of medicaid are paid for, in part, but tax hikes -- everybody

has heard about those. but also with nearly $500 billion reduction in future medicare funding over the next decade, when 30% more people will be enrolled in medicare has the baby bear -- as the baby boomers reach 65. 30% more people and a substantial reduction of dollars -- those numbers do not add up. it means fewer hip and knee replacements, less heart surgery, lest angioplasty, less of the procedures that have virtually transformed the experience of aging for americans over the last three decades. people used this bill that -- spend their later years trapped in fuel chairs crippled by all products or stuck in a nursing home because they worked out of breath, now they have active lives toward the end of their life. these cuts will undo some of that progress.

richard foster, the chief actuary for medicare, has warned that the cuts to reimbursements under these bills are so severe that some institutions will simply stop accepting medicare. what are seniors going to do when their local hospitals stops taking medicare? and it is already happening. i'm sure you read last week that one branch of the mayo clinic will no longer accept medicare because costs are so low in treating their patients. the bill proves that this is not true. the bill -- and you will see the language right here, section 41 05, authorizing the secretary of health and human services to modify or eliminate coverage of preventive services currently provided by medicare. these cuts are authorized to

begin this year. these bills rob seniors to fund a new social agenda, which huge giveaways. i cannot put dollar figures on them because they are not scored by the cbo. huge giveaways to community organizations, for example, preparation classes. i thought that meant jobs. no, it means dating and interpersonal relationships. another section of this bill fund's sizable go ways to community organizations for virtually anything. infrastructure projects, lighting, playgrounds, or any kind of activity that would reduce racial and ethnic disparities or promote wellness. but congress did draw the line somewhere.

take a look at this. there is one thing that grantees cannot do it, use the money to create video games or carry out other activities that may lead to higher rates of obesity or inactivity. clearly reading is out of the question. there is a better way. the president should throw out this bill and give us a 20-page bill in clear, honest english, right? a 20-page bill that curbs the worst abuses of the insurance industry, that provides for reform, that allows all of us to buy health insurance across state lines, and perhaps to extend cobra assistance to americans, workers when they are laid off.

he can be done in 20 pages. the framers used only 18 pages to establish the entire federal government. but before we do that, we need to defeat this bill, and the next battle line, perhaps, will be the u.s. constitution, we will be fighting in court. there some provisions in this bill that violate the constitution. let me mention five. a provision in this bill creates an independent medicare commission to cut medicare further in the future, states that provision cannot be amended or repealed by a future congress. wrong. no congress has the power to put its work in stone and deprive us of the right to elect a new congress and on to this. no one has that authority. secondly, a provision in the amendment to this bill

allocates $100 million to, ", "a public university that has the only medical and dental school in the state in which that university exist." kiosk -- what deceptive language. this was authored by senator dodd to win his bill and pass the money on to the university of connecticut. if they had written that in polish or russian to deceive the public, it would be unconstitutional. and this deception is, too. congress assumes the power to make every american by a product. nothing in the constitution and best converse with that of authority, although it is the easiest way to increase the number of injured. we could do the same thing to cure obesity, require people

that -- require people to buy fruits and vegetables and ban them from eating anything else. and this is so important -- congress has the of authority of directing the decisions of doctors treating privately insured patients. nothing in the constitution permits that. and finally, the takings clause of the fifth amendment prevents all of us from government seizure of our property and our ability to earn income. that provision was designed to protect everybody, including the unpopular, including insurance companies. but this bill puts a cap on the profit margin of insurance companies at about half of what they currently earn. shareholders and others be damned. next year congress could argue that food is too expensive, and for that reason, there will be a cap on the profit margin of

grocery stores, forms, and your business could be next. and that is why the byline will probably be honest cop -- will be constitutional, and we will need ordinary citizens to stand up for their constitutional rights. we all remember the poultry -- that kosher poultry brothers who stood up against government meddling in 1935 and turn back ational industrial recoveryack act. it is time to do it again. the stakes are higher than they have ever been. if you are seriously ill, the best place to be is in the united states. a woman diagnosed with breast cancer here has of 90% chance of surviving it. diagnosed in europe, she is twice as likely to die from it. a man diagnosed with prostate

cancer has a 99% chance of surviving it in the united states. it is not a death sentence here, but in europe, one out every four men diagnosed with prostate cancer dies from it. and that is why this fight for medical excellence is the fight of our lifetime. i thank you. [applause] >> betsy, as someone experienced in the media can tell you, you need to be more animated and passionate. [laughter] i am always told to lower my voice and calmed down in front of a camera because i tend to be excited. in a coded to what you said, and then i will get on to my own remarks, we've heard over and

over to this administration, how progressives, the new word for liberal,, like -- kind of like former offender an ex-con -- president obama tells us that he wants to change america. you only change something if you do not like it. but that comes down to it that we have the self empowered group of people that feel compelled to do whatever is necessary to change america in the image they think it should be, despite what you think, because if they do not like america, who really do they not like? they do not like you. that is what is like to live inside the potomac. it is so refreshing to be here rather than the university of maryland this morning. everyone is polite to me there but no one wants to discuss my

ideas. i'm viewed as a heretic. i'm going to talk about some things that you may find her radical today as well. and would it take you to places that are uncomfortable for conservatives to be at times. as a professor, when i was asked to do this -- and i am not often as to think about civil liberties although i think about them constantly and i am fearful of mine disappearing -- i would say, let me go back to the founding documents, that the relation of independence, but constitution, and all that fine language about the pursuit of happiness and so on. it is very important to remember that those documents and the conditions which gave rise to them had strong and significant economic underpinnings. george washington was converted from an empire loyalists to a revolutionary, to someone who led an army against the king's army, because this economic rights were constrained.

he was not a great thinker like jefferson. he was a very practical, an engineer and an entreprenuers. the had won the french and indian wars, and they shut down the access to ohio, and that turned washington into our revolutionary. it was the economic reasons that caused him to act. it was very foolish to upset him. but to me come up those freedoms basically mean, face it micro economic things. to act as you please so that you can earn issue -- so that you can earn a living. and to be able to do these things to the extent that you do not violate the reciprocal rights of others to do the same. the old story -- my freedom of expression is that your nose. in all this, we have to read knowledge -- and this is this comforting for conservatives -- but we have a state and

government, and the state has two conflicting roles 31 is to ensure that markets work so that people do have the ability to act and participate and so forth -- they have access. and to some degree, and force the public purpose. we have to have roads and an army and personal security. what is very difficult about this is that the state is both, because it ensures the public purpose and creates an army and does all the things it has to do, it is both a player and a regulator. it is both the player and the referee. it is difficult to imagine a fair game where one of the players is a referee. and that has always been the challenge of democratic government, to ensure that the government performs both actions were both roles without basically deciding who is going to win all the time and

nationalized health care, 20% of the economy, and use it to control the way that we live. it reminds me of where i will be 20 years from now. i am 61, so figure out where i will be. not a good place. in any case, the abuses and the threats to our liberties come from two places in my mind. one is for the government advocates its role entirely -- abdicates its role entirely and the other is where it abuses its role by imposition. it basically forces its values on clause 3 what the values are, the people inside the potomac, the ones that they think you should have. things that employ the heck out of me, employee free choice, so we can alleviate the necessity

of elections. elections are now burdened if you are progressive. the most burdensome election may be 2010, but in any case, elections are burdens. let's look at banking. everybody was outraged as i was and as paul volcker is about the outrageous bonuses paid in the industry. those are not free market bonuses. they are beyond the pale per 140 million, more than the u.s. grew in the fourth quarter. but we have to look at where it came from. and the beginning, we provided banks with an fdic insurance scheme, because we decided that banks are a vital facility like electric lights. so we have to protect that

industry from self destruction. that is fine. but to accomplish social purposes, the government has required banks to make loans and establish competing banks, that make fannie mae and freddie mac that make loans that they should not make, which make the banks themselves ineffective and sometimes insolvent. at the same time, what we guaranteed banks their survivability, and we're really doing that we generally do is put it into another bank and cover its losses. that is what we do when we close the bank group we have a group of people that close banks every friday night in washington. they're people that work and custodial work in the department of commerce, but they have a line of seniority over the fdic. they pick out some banks and shut them down and that is why the "wall street journal" is

published on saturday now. we have to read about which banks were closed. you have to remember, they do not generally work on holiday weekends. at the same time, we permitted banks to become involved in activities they should not come -- the end. a lot of regional banks are failing because they have been trading in securities. it is something we cannot guarantee with the insurance scheme more than that, we have allowed large new york banks to essentially become merged with what we call in the cnbc business, the casino. j.p. morgan is a bank, but jpmorgan is part of the casino, investment banking which is more like permit -- betting in derivative markets. if you do not think it is betting, consider this -- before the crisis, there were 0 $11 trillion in mortgages in the united states backed up with $45

-- $44 trillion in swats. how can you have $44 trillion in swaps insuring $11 trillion in mortgages? the capital value -- those are insurance policies that should be backed up by assets. the capital value of the data states is $30 trillion. how can you write that many swaps? no one is keeping score and no one is watching, no one is doing their job. when the whole thing fails, what do they do? they print money. but tarp did not bail out the banks. we pay back the tarp so they should not worry about the bonuses? they loaned the bank's $1.50 trillion, mostly to nine banks at near 0% interest rates. so they ran off the printing

press. this has a lot of the effect on people around the country. it keeps them from earning their living because the banking system is now the pact -- incapacitated. people with sizeable incomes cannot get jumbo mortgages, which means they have to get a government mortgage. are they cannot get one at all. if you're not with fannie mae are freddie mac, it is difficult to get one. that is the example of the government not doing its job and keeping you are earning a living. but let's get to more insidious things. bus switch gears and talk about china. myçóñi favorite place. let's be clear about what is going on here. china is not the united states of america circa 1986. this is not the centennial exposition in philadelphia. we brought to the world a very simple message. markets and democracy, and individuals pursuing their run

self interest in the marketplace and expressing themselves at the ballot box, it is the best way for people to build their lives in a noble way so that they can enjoy our reasonable amount of personal security. the chinese people do not see that at all. that is not the united states of 1876 over there. they offer a different model. democracy is not a well embraced concept and asia. acis specializes in one-party governments in one way or the other. they offer the government security and prosperity in exchange for a small price. they control the individual. the control the companies that control the individual. we saw something remarkable this morning. google stood up to china. the question is, why was obama over there on his kneeling pad? why did we have munich replayed

in 2009? the answer is, barack obama likes china better than he does america, and he wants to remake america -- think about it. the empire state building celebrating the anniversary of the communist revolution with red streamers. i love it. i love it. not only are we ashamed of america and we want to change america, but now we are revealing what we admire. people say to me, he is a rending -- surrender and to french. it's pretty close to what is going on in washington. we should be so lucky that it is only france. we should be so lucky. i could supplicant, he had been at work explaining what we do with the money that would bar appeared let me explain this mess with china. we got involved with a free- trade agreement.

if you object to it, somehow you are a protectionist, which is the scarlet letter. that is the scarlet letter in academia. that is the scarlet letter in washington three people would call me a protectionist and then you have to justify yourself. what china practices right now is a virulent form of 17th century french mercantilism. it undervalues its currencies to accumulate >> in the process. that is why we have a trade deficit. china exports to west, but we should be exporting to china because resources and prices are so low that to an undervalued currency that it creates by essentially intervening in markets, reading currency markets every day. without this trade deficit, he uses that to buy the bonds. if we did not have this problem with china, if we did not have this trade deficit, we would not

need them to buy the bonds. what's more, we would not be depended on them to buy the bonds as mr. obama would have you think. essentially chalked up by dollars every day and the currency market to keep the price of the u.n. -- yuan low. he uses them to buy >>. our money supply has shrunk and then ed buys bonds to put them back. if china did not buy the bonds, what happened to the dollars? that would stay in the vault at the people's bank of china. that would of left circulation. the fed could print new dollars and by the same bonds. it does it all the time. that is out expands the money supply. the money that you read about yesterday, that was exceptional.

the normal number is between $25 billion a year. it buys bonds every year, every day, to expand the money supply to expand the american economy. we do not need to be beholden to china. we only give it the power that president obama and larry summers is used to getting it. that abdication of responsibility to protect american industries, not a protection assist, so that it has a reasonable chance to compete. if you do not think we can compete, one of the most popular vehicles right now in china are bewick's --buicks. but none of them are made here. why? they will not have them tended to have a 25% tariff, and undervalued currency, and they and various ways subsidized domestic automobile fuel production, and it will not allow an american manufacturer

to own 51% of an operation. in the ventures there are 51% chinese down. in a situation like that, we are empowering a society that is five times as large in terms of population, providing them with $2 trillion in foreign-exchange reserves in order to buy resources to build an army and navy that holds in contempt of values that we hold dear. this would of been like using the brooklyn navy yard to construct votes for germany circa 1935. -- to construct boats for germany circa 1935. if we had a reasonable trade policy, and i'm not talking protectionist but a policy that requires the far and michaels -- the foreign market be as reciprocal and open as ours, those jobs could reappear, people could earn a living, and

are never these would be secure. we cannot challenge china because they hold our bonds. if we keep on this path, where will we be in five years? the answer is not in a very good place. one of the more insidious things i see going on in washington -- for example, health care. for all the things that betsy went through, think about one of the most basic elements of this bill. it requires you, because you breathe air in the united states, to buy a health plan or be taxed. is there anything more insidious than a poll tax? that is a poll tax. is there anything more insidious than that? but listen to obama atoll -- talk, like elmer gantry,

promising to open salvation. he has promised us hope and prosperity. this into hentoff. if you want car, you have to get insurance. why not, you have to buy health insurance. the answer is, i could live in new york city and ride the subway and not on a car if i chose to. health insurance? i have to buy a policy or i have to pay a tax. under the house bill, it is enforceable by the irs. they can come and take my home away and put me in jail and whenever they please. that is absurd. there are so many of certain things that go on, and it is funny to watch it, actually, like harry reid. when you think about what he said, he was really just reflecting on the electability of barack obama. he was applying a calculus that

networks apply when picking anchors, and political parties applied when picking candidates all the time, how far have we moved away from our biases. what can be sold. he did make some mistakes in the use of language, but i can tell you, to some extent that can be attributed to age. it is hard to be constantly changing the words that i use, whatever word is used, or did visit my relatives in northern new england where high use the word oriental, and everyone jumped up and said asian. what is accepted usage keeps changing. and harry got caught in that. it is that simple. but think of what is going on because of it. think of what is going on because of it. and it is not comparable to trent lott. but trent lott said was far more amenable.

is it a violation of your liberties, absolutely. if you're in the workplace in your harry reid, if you would have lost her job. thinking the way prescribed by nancy pelosi and her friend so that you connect that with your ability to earn a living -- you would be fired if you said the wrong thing. that is absurd. and over and over again we see this. .

>> well, i was going to thank herb and jedd for inviting me here but then i realized i was going to have to follow such a great set of speakers that i was going to look like an idiot now. but this is a great -- just a great event. as you know, the cleng has a mission to -- college has a mission to define what america is and to talk about free markets and limited government and what you folks are doing here is exactly what needs to be done. you're coming in to become armed with the tools that you can go out and really affect what america isçó about.

today i've been asked to talk about how government activities have affected the capital markets and investment environment in the united states and this is a very important topic because what we've heard is that government is going to save us from the failures of market capitalism. and that greed somehow is what dominated the system and that's why we're in a ditch. we're in the financial situation that we are not because market capitalism is at failure, because it is a system that creates enormous wealth. i mean, we were talking earlier about seeing and observing. you know, i got on a plane yesterday about noon in orange county, california, and i flew all the way here and i was sitting -- and you know, i was sitting in the person next to me and this is what markets are

like. i got in this chair and i flew across the united states, had a pleasant conversation with you. now if this had been 1850 i would have -- people would have died along the way. it would have taken so long. right? children would have been born along the way. i mean, you'd have a whole different group of people by the time you got there. you know, we just really have to understand how amazing markets are and how amazing the market economy is and to realize that when we have problems you can almost always look to government intervention. there are numerous ways that government affects capital markets and affects investment and as economists we talk about investment as being building machinery and building buildings and things which will make us more productive in the future to produce more stuff in the future. so, stuff is sort of an economic term that george caroline used to use, if any of

you remember him. but what happens is, the federal government decides that it can be a central planner over one of the goods and one of the prices and that good is money. and the supply of loanable funds and interest rate is the price. now, just as the price of toilet paper alerts toilet paper manufacturers when there's not enoughñr toilet pap or when there's too much toilet paper, the interest rate alerts people in the loanable funds market as to what's happening with the supply of loanable funds that consumers are willing to provide, people willing to -- are willing to save, and it tells them, ok, they're willing to save today in order to buy stuff in the future. and that market interest rate then if it goes up it says that, well, you know what? people don't want to buy stuff in the future, they'd rather have it today. and if the interest rate goes down it's telling people that,

wow, we should be able to borrow money today in order to make machinery and build houses and build cars and things that people are going to want to buy in the future. now, what happens when the government increases the supply of loanable funds in order to keep the interest rates at the rate that they would like to have them, people are really not saving, people are really spending and people are encouraged actually to borrow themselves. consumers are actually borrowing and not providing the funds but instead the government's providing the funds. and so now what happens is investors, they go ahead and borrow and they produce assets which they expect to sell in the future but the actual demand is not going to be there in the future. and this mismatch of the -- of the interest rate, this noise that's put into the system, causes what the austrian

economists call malinvestment. people who have studied the austrian theiry of the business cycle that started a lot long ago, but a man in his book, "theory of money and credit" that he wrote in the early part of the 20th century just sort of led the debate in this issue and he won the nobel prize for discussing this idea. what happens is we build the wrong investment. rather than building things that are to be consumed today we go ahead and we build machinery and we build goods and things that are going to be used in the future for which there's really not going to be a demand. and so we get -- we get -- that's why they call it malinvestment. because what's going on is that assets are produced for which there's not going to be demand. now, if we think about that, that's a pretty good explanation of what we've recently experienced. the federal reserve after 9/11

reduced the interest rates and they reduced the interest rates down to 1%. once they got it down to 1% they held it at 1% for a year and this was -- and then in june of 2004 they began to move interest rates up and as they began to move interest rates up we begin to see a crisis in the housing market, that is -- they move it to 5% and by 2006 we begin to see a disruption in the housing market. housing prices start to fall, home construction starts to fall. now, why -- so what really happened from an austrian per spectacularive is that we encouraged the production of housing and also the production of other consumer goods, in particular automobiles, for which the demand was not going to really be there. then when the government found that it couldn't sustain this continual production of credit,

this continual influx of money because as economists and everybody else that thinks about it a little bit, once you make lots and lots of money relative to the amount of goods, what's going to happen? you get inflation, right? and the value of the dollar gips to decline and your currency becomes unstable and so what happens is at some point the federal reserve has to start raising interest rates and restricting that supply of credit. and when it does, interest rates rise and as interest rates rise we begin to get this quell again in the supply of loanable funds and this tells us that, you know what? you guys built all these houses for which there's really not a demand. and so what we did was we ended up with this massive inflation in the housing prices because you created this article demand because of the credit that was produced by the monetary authorities. why housing? well, this particular asset

bubble and we can go back and historically if you look at murray wrote a really good book called "america's great depression" that no one read, but he has a very good discussion about why the great depression happened. similar, very similar story, only the asset bubble at that time turned out to be stocks and then, of course, a colleague of mine has written very well on the new deal, raw deal, discussion about why franklin roosevelt, you know, chief of staff used to walk by this monument to franklin roosevelt and you'd go, why would you build a monument to that guy? right? i mean, the policies of the roosevelt administration kept us and turned a recession into a depression and then kept us in a depression and so we build monuments to those people. but that's just an aside. nonetheless, burt has written very well about that bubble way

cass -- was caused by the monetary authorities and of course milton friedman and anna schwartz wrote their famous book 20 years after the great depression or actually longer than that, 1963, on the monetary institute of the united states and they discussed this exact thing. that why we are in the situation we are, why do we get business cycles? we don't get business cycles because all of a sudden all the businessmen have decided -- or business women -- keeping awrong with the politically correct, all the business men and business women make all the wrong decisions at all the same time. right? i mean, you can see that certain individual businesses might make wrong decisions but why should it be that every now and then all of a sudden we produce too many automobiles or we produce too many houses or we produce too many of such things? why do business cycles come up and down? it can't be that the market is doing this, it must look to

government, central planner that's doing this. so why housing? housing came about because the government decided that you guys weren't buying enough housing and you were too -- you know, we want you to all own your own home. and i was on the plane i was with a guy that was very articulate guy, 28 years old, he's the vice president of an investment banks banking firm now, went to n.y.u., he rents anle 50-square-foot apartment in manhattan. somehow if i were in the government i would think this guy is an abject failure because he hadn't bought his own house. of course when i told him that there's a house in hisdale down the street from me, it's for sale for $49,000, you know, he thought that was amazing. he pays more than that just to store his car. [laughter] so what goes -- what happened here is they decided you should have housing and so we started

a whole series of events, a whole series of government programs to do this. rerefer to fanfan but you look at the tax provisions, the tax provisions provide for this, right? you can deduct the mortgage interest, you can deduct payments on your property taxes, we change the capital gains so you don't have to pay taxes on your -- generally pay capital gains taxes on your house. so what we did is we created all these incentives to go into housing. and in fact if you look at what happened with fannie mae and freddie mac between 2005 and 2007, 58% of all fannie mae and freddie mac -- and 67% of all freddie mac mortgages were subprime. they decided -- and of course you have the community reinvestment act and you have all sorts of reasons why this bubble occurred in the housing market. now, that is the primary method by which government has affected the capital markets

and investment is through itsñr monetary policy and you just -- john taylor has a very good book that you might want to take a look at and his book describes exactly what has been happening with interest rates and the housing mact markets and he's an economist from stanford university that is very good on this issue. so if you want to follow up on that i'd recommend john taylor's new book on that. now, but there are other -- quickly there are just a number of other ways that the government affects these markets. the second of which is government expenditure and taxation policy. the enormous deficits that the government is running, which are tiny compared to what social security and medicare's underfunded liabilities are going to be, they're around $85 trillion in underfunded liabilities in social security and medicare which are going to be paid for sometime or else we're going to have a political

meltdown because everybody that's my age or older is going to expect that these programs are going to be interest and so we're all going to vote against -- we're all going to vote against the constriction of these plans so somehow you're going to have $85 trillion in unfunded liabilities. how's the government going to pay for that? it's going to borrow and when it borrows what's going to happen? it's going to start to drive up interest rates. and as it goes to drive up interest rates, what's going to happen? everybody's going to get irritated that now they have 15% consumer loans and they have 21% mortgages which you happen to see when a guy named jimmy carter was president. they get irritated with that. so what's going to be the response? the federal reserve is going to buy the bonds and as the federal reserve buys the bonds there's going to be an increase in the money supply and we're going to have inflation. and so this government overexpenditureçó causes all sorts of things to you to now

guess what's inflation going to be in 10 years? because if i'm buying a 10-year treasury bill or if i'm buying ford motor company bonds that are due in 2023, i got to guess what the inflation is going to be. so now what happens is investors now try to anticipate what the government's doing. rather than deciding what businesses are going to need to produce goods and services in the future, with you now begin to guess -- we now begin to guess what the government activity is going to be. a third way is they directly affect investment by deciding that we're going to give a tax credit for this, for solar power, or we're going to give a tax credit for that, we're going to give a tax credit for whoever has got the best lobbyist. that also causes people to start to guess, what's the government going to do? rather than, what should i be producing to match up for goods and services? a very important thing that a lot of people haven't talked about as much as they should

have is the government creates what bob has termed regime uncertainty. that is, investors don't really know what the rules of the game are. now, bob's -- bob wrote a nice piece about the depression and one of the things he argues is that the reason private investment collapsed during drg during the depression is no one knew what the roosevelt administration was going to end up doing. people thought, wow this thing can go totally socialist, why should i spend all sorts of money building a factory when the roosevelt administration might take it over in two years? we get the same thing here. we see that bear stearns gets bailed out, then lehman brothers collapses and then we bail out a.i.g., well, if you're running a $20 billion a year hedge fund, you don't know what the rules of the game are. now you have complete uncertainty as to what the rules of the game are. and in fact a lot of people have pointed out that the markets really started to falter not when lehman brothers

went down but rather eight days later. now we might not remember this because we probably didn't keep track of everything that paulson and bernanke and george bush did, but lehman falls on september 15, then what we have is on september 23 the chairman of the federal reserve and the secretary of treasury come into congress and they testify that they need $700 billion, they've got a 2 1/2-page bill, they don't know what they're going to do with the money, but if you don't give it to them then the world is going to end. now that makes you a little currentble if you're deciding what you're going to do with your investments. not only that, but the next day the president of the united states comes on national television and says the following, speak to the american people, just to get them, you know, calm down a little bit, he says, financial assets related to home mortgages have lost value during the housing decline and

the banks holding these assets are are restricted credit. as a result our entire economy is in danger. so i propose that the federal government reduce the risk posed by these troubled assets and supply urgently needed money so banks and other financial institutes can avoid collapse and resume lending. this rescue effort is not aimed at preserving any individual company or industry it is aimed at preserving america's overall economy. so now you have the president of the united states coming -- you know, the day before you have the treasury secretary and the federal reserve chairman saying, oh, my gosh, the world's coming to an end, give us $700 billion by friday, we don't know what we're going to do with it, but trust us, we're going to fix the thing and then the president says the entire economy's in danger. that's when you get the credit markets start to collapse. you create all this uncertainty and no one knows what the rules of the game are and they know that the people in charge don't

know what they're going to do. why would we expect that the economy would turn around in that kind of atmosphere? finally they encourage risky behavior. you know, called moral hazard. by encouraging risk behavior because as was mentioned earlier, you know, we've had the federal deposit insurance corporation and other things which guarantee activities, we create what the insuranseó company calls moral hazards. what you know is that if you get too big to fail you can pretty much do any old darn thing and you can gamble insecurities and you can leverage everything because you'll be bailed out. let me close with a little bit of a question. we saw the fall of the berlin wall, right? and we saw that as other countries have moved towards market economies they have done much better and we said, look, the central planning system just doesn't work. right?

the little red book went out the window when they wanted flat screen tv. so we see that that doesn't work, we're pretty sure central -- we're pretty positive central planning doesn't work. yet what we do is we give the power of central planning over to an agency that can now determine what the market interest rate should be. somehow we can't figure out what the price of toilet paper ought to be but the price of interest, right, that can somehow be determined by a central planner in washington, d.c. or new york city. of course, you guys probably -- new york city is probably ok with you, right? so, my -- my quest that i have out here is, what should we be doing? we should be -- we should be questioning what is the role of government? right? what is government supposed to do? and examine that it is -- and to see and observe.

if we see -- most of our problems, business cycles and credit crunches and all these things are caused by government activity, not by the market system and individual liberty is the important -- is the very essence of how markets work, where you act according to your own plan, then we have to do what the hudson used to do and human events is asking to do which is reclaim american liberty. thank you very much. >> i'd like to thank the members of this panel. not only do we select the people on this panel very carefully but we selected members of this audience as well. so there's a few minutes to ask questions and i'm reminded of a controversy that took place in a synagogue nearby where half the synagogue would stand during the prayer and half would be seated. the young rabbi tried to deal with this problem and he said to members of each group, what tradition do you stand by?

and none of them had an appropriate answer. so the young rabbi decided to go to see a different rabbi in his 90's when had great experience with jewish tradition and he had members of both groups attend. first group said, i think that we should stand during this prayer. the elderly rabbi listened and he said, it's not part of our tradition. the other rabbi, the rabbi then turned to the other group and said, we should be seated during this prayer. the elderly rabbi listened and said, it's not part of our tradition. the young rabbi was therefore quite perplexed. and he said, i don't understand. we will simply have controversy and contentiousness in this synagogue as a result. the elderly rabbi said, now you've found the tradition. now this tradition is part of what we stand for. but let me urge you to recognize another tradition, that is when you ask a question, please be brief. and make sure there's a

question mark at the end of your sentence. yes. we're going to start with you. >> [inaudible] >> is that question directed to an individual or to anyone on the panel? [inaudible] >> -- to be in my position to maintain. isn't it on? ok. maybe i should leave that first joke alone. my feeling is that we need to return to market disciplines and in some cases that means a more active government and in some cases that means less. and we need to acknowledge that as conservatives that governments are responsible for maintaining competitive markets. the most important thing we could do is to get everybody

working again. and the single most important thing we could do to do that would be to straighten out the banks, two things, straighten out the banks and i don't need 2,000 pages of legislation to do that, i don't have the liberty right now to give you a five-point program to straighten out the banks but i would be happy to, and to straighten out trade with china. if china were to revalue its currency, i want a tax dali. so as to neutralize their effects and simulate a free market valley in currency. it's the second best solution but the chinese give me no alternative. beyond that the last thing on earth i want to see is that bill passed. that is a nightmare. i've been writing about it as well and it's the camel's nose in the tent. >> one thing i should point out, we'll get to your questions, there's a microphone over here by the way, if you haven't turned off your cell

phone, please do. so i have been to a cardiologist very recently and had to go through a stress test. this is the new stress test. if you can carry this document, you can pass any stress test. >> this is only 1/3 of it. this is 1/3 of the bill. >> use the microphone, if you don't mind. >> morning. thank you for the opportunity to ask this question. to you, betsy. your analysis is to powerful that if you had a room of 1,000 people it probably would be 999 in your favor. but i'm sure there's another room of 1,000 people where it's against you. what would they say in response to your points? >> they would say, and i hear this often, just about every day, i want to support this bill because i want to cover the uninsured. and actually there's something just about everybody shares. what they don't realize is that there are ways we can make health insurance affordable for

just about everybody and actually even provide a debit card or a voucher or some sort of assistance in purchasing it for lower, middle income families for a very small fraction of what this bill costs and without taking liberty and medical excellence away from those who already have health insurance. so the guise of passing this bill to cover the uninsured has obscured what this bill really does which is to put the federal government in charge of everyone's health care, the kind of hidden agenda here is a great equalizing of health care and taking the decisions away from patients and their doctors and investing those decisions in bureaucrats. so that's the first thing. i would propose an alternative. and the republicans probably have gotten a bad rap as being the party of no and in fact there are quite a few bills in congress right now sponsored by republicans that address some of the fixes that need to be done to our health care system.

including helping lower, middle income families buy health insurance. the truly poor will record -- are already covered. to the 46 million to 47 million, quote, unyou insured, 14 million are eligible for medicaid, they just haven't signed up. it's that lower middle income group, many, 20%, who are uninsured for a small fraction of the year as they're changing jobs, as i mentioned before, they could use help with their cobra payments because cobra payments are very expensive. so, there are ways to help the uninsured without taking over health care. the second thing i would mention is that the american health care system has been misrepresented and that's why i closed my remarks with those two statistics about cancer. there are so many more i could offer to support the statement that american health care is the best.

and unfortunately it's been misrepresented in the press and by the advocates of bills such as this. you hear all the time american health care is broken. but the fact is, if you're seriously ill, the recovery rate for almost every major illness is far higher here than in any other part of the world. and you don't want to lose that. it's not a system that you can rebuild overnight. the third thing i would add, finally, is this, another misconception that has driven this debate in washington is that we spend too much money on people toward the end of life. you've heard the president say that, suggesting that people should take a pain pill instead of getting a hip replacement, you've heard members of congress say it again and again and the controls to very much ratchet down what the next generation can expect under medicare are in these bills, plus permanent commissions established to make further cuts with impunity, without any

political repercussions. but if you look at the data, you will see this, most doctors , once they realize a patient is dying, spend much less than on a patient who has a good chance of living. a university did a very important study on that in 2006 and there have been several others. but doctors don't always know. over half the time they can't predict which patient is going to make it, recover, go home and resume their lifestyle, and which patient really is on the way to the end of life. and that's why it's so unfortunate, the dartmouth study, for example, which you hear the president cite again and again, claims that hospitals that spend more per patient on made care and hospitals that spend less on patients who are medicare eligible get the same results. read the fine print. that study which is cited every

time these cuts are defended, that study looked only at patients who died. it studied patients in the last two years of life. of course the results were the same whether they spent a lot or a little. they all died. but in the november issue of circulation, a cardiology journal, this fallacy is discussed. the study looked at six hospitals in the los angeles area and looked at what they spent per capita on medicare-eligible parents -- patients. the hospitals that spent more per patient had far better results. the hospitals that spent less had higher mortality rates. so when they tell you that they can take $500 billion out of medicare when 30% more people will be in it and it will not shorten your life, don't believe them. all the data prove it's not true. >> thank you.

[cheers and applause] ruth. we got two more questions. and then, allen, i'm afraid we're going to have to move on. ruth, please, use the microphone. >> [inaudible] >> it's not true. >> could you please comment on your 20-page bill? would you include something like the cat strofpk bill that was floated by -- catastrophic bill that was floated by ronald reagan? >> catastrophic health insurance is a very important idea and people should have the liberty to buy it. what it really means is what our parents called major medical. the kind of insurance that covers you when the unexpected owe curse. that's what insurance used to be for. the unexpected illness, the unexpected accident, the trip to the hospital. young people especially should be able to buy catastrophic insurance because they don't get sick. a 25-year-old man needs about

1/3 as much health care as a 55-year-old man in a state like new york where the insurance laws are stacked against the consumer, the 25-year-old has to pay the same as the 55-year-old and has to buy all kinds of routine care that that 25-year-old does not want. so catastrophic insurance is a very good idea and it frees people to pay for routine care out of pocket. that in itself makes it cost about 1/3 less and gives you all the choices you don't have when you're trapped inside a managed care plan that pays first dollar coverage or almost first dollar coverage for everything. so catastrophic insurance is a very good idea. >> allen, why don't you use the microphone, please? you have the last word, sir. >> over 60 years ago in college i had the occasion to read the constitution of the united states, every word of it. and from what i remember great many powers are given to the federal government, great many

and everything else is left to the states. and there's reasons that they did that then. why is it that here we are in the 11th minute of the 11th hour thinking about the constitutionality of these matters which are clearly not within the power of this presidency, i don't want to use bad language, this presidency, and now we're thinking about things, is this constitutional or not? why wasn't this done in april or may when this document first came out that would cause people all over the country, some democrats, some republicans, to rush to get copies of the constitution and read the damn thing and they planned out against and it and we wouldn't be standing here today? >> most members of congress appear to be ignorant of the constitution. they ought to take a coarse the way doctors and airplane pilots

have to do because they're totally unfamiliar with it. i heard steny hoyer say the other day that he thought the congress was empowered by the general welfare clause to write this bill. well, there is no general welfare clause. the general welfare -- the phrase general welfare actually limits the powers of congress to tax and spend money. it does not invest congress with an additional power to make any law to promote the general welfare. >> peter, you want to make a comment? >> yeah. what you've got here is the legacy of three generations, perhaps, of judicial promise cute. in the early days of the republic, the congress would sometimes consult with the supreme court the way state governors do and legislatures do, their attorney generals would say, would this be constitutional? and we have no longer do that. that service is no longer provided or no longer -- stopped being asked for. so now the rule is, you try something and see if it's

constitutional. we've done that in an era when legislatures are not inclined to do what they say and say what they mean, just provide agencies with general goals and see what they can get away with in the courts. so basically what you've got here is a congress that's going to see what it can get away with. it's going to pass a huge law that's going to change the way health care works and then it's going to be very difficult to unravel, much like unscrambling eggs. so it's going to be very difficult for the judiciary to say things, even when it might be inclined, that they're unconstitutional, because of the disruption it may cause, and also, let's face it. any judge is only going to throw out little pieces of the bill. you're not really going to get rid of this whole thing on constitutional grounds. don't think you can hang your finger on that because can't. the basic problem here, the basic threat that we face is that this is passed, even if we have a change in the congress in 2010, which is not likely to

be, you know, both houses and so forth, it's going to be very difficult to undo this bill simply because there's no way on god's green earth the republicans are going to have 60 senators. so if they pass it, it will not be -- well, i understand. but it is likely this is going to happen and it is likely that it is going to be very difficult to be repealed. >> gary. >> if people ask why this is such a bad idea, just point them to the example of food stamps. we have people who don't have any food. we give them food stamps. we don't send them baskets of groceries to their door steps or they would be saying, i don't want corn flakes, i want graduate nola or i want cheddar cheese, i don't want vellveeta. and basically the idea of sending baskets to people's doors is what we're doing with this health care plan and instead we should use the example that we have now of food stamps. we give them stamps, they go to the grocery store, they buy

what they want, betsy's right, we need to be giving them refundable tax vouchers, $6,000, $7,000, something like that, and they then they go and choose their own health insurance plans and at the same time we allow insurance companies to market across state lines so that just as we have auto insurance companies saying, call us for a 15-minute quote, we'll save you bundles, we can have health insurance companies doing the same thing. we have the systems in place for other kinds of insurance, for other kinds of areas where people do not have some type of good and we could use those now. >> gary. >> hayworth in the 104th congress put forth a bill that would require the congress to put the i numerated power it had whenever any bill passed, like, within the title of the bill. and even in the 104th congress which is the one that was the contract with america, etc., that bill never got out of committee. >> seems to me we need sunshine

provisions on all of these laws. i want to thank members of this panel. betsy and peter and gary and diana, thank you very much for starting us off. give us -- please give us two minutes to transition. we're going to move into the next panel. but thank you for being so attentive. [captions copyright national cable satellite corp. 2010] [captioning performed by national captioning institute] >> up next on c-span, the funeral for john murtha. after that, remarks from former u.s. comptroller general david walker on the federal budget deficit and debt. and later, president obama talks about clean energy and jobs. >> with your wildest imagination if you were writing fiction could you not have made this story up. >> this weekend, ken on the

death of american virtue, clinton versus starr. on "after words." >> pennsylvania congressman john murtha died last week. congressman murtha was elected to the u.s. house of representatives in 1974 and was the first vietnam veteran to be elected to the chamber. his funeral was earlier today. here's a portion of the here's a portion of the service. >> good morning. i'm donna murtha >> good morning, i'm donna murtha. my family pleshes -- appreciates you coming. father would be overwhelmed. he would be so overwhelmed. you know him as a world leader and as a congressman and as it were separate of profiles in courage.

you know him as mr. chairman, hawk, and as a patriot and as a marine. he would talk to me every day. we did not talk politics or economics. we talked about teaching. we tried to meet the individualization of every child. we also talked about health care and how would met my children's needs, their families, my friends, and my family. we also talked about his marriage to my mother for 54 and half years. behind every man is a great woman. my brothers and i are not involved in politics. i think that helped him.

ever he would go out and he listened to us and talked about our past, it helped him the constituents and fellow citizens. he was proud of his brothers. they were fellow marines. siemper fi, dad. he left sherlock holmes and an occasional "murder she wrote." he loved nature. he loved to watch the deer that would come into the yard. he would watch the gold finches. out with the squirrels. he could not stand it if the squirrels were outwitting him. he loved the bounty of this garden and the bounty of each season. he was a world leader.

he met many prestigious leaders. when they made dad, they broke the mold. he lived by the model, one man makes a difference. we love you, that. -- he lived by the motto, one man makes a difference. [applause] >> a lot of good marines, out of pennsylvania. john patrick murphy was such a man. it was in his blood to be a man of action, a patron, and a warrior. he had ancestors who built -- who fought in the revolutionary wars. his father and uncles served during world war ii.

he felt guilty others were off to the fight while he was measuring in football and basketball. in 1952, he dropped out of college and in listed in the marine corps. he never made it to korea. he had orders in hand. fate had already been at play. he had passed a college equivalency test, completed trading, and was commissioned as a second lieutenant. he had met joyce, the love of his life, and he learned during boot camp and officer training that enthusiasm, aggressiveness, and attention to detail would carry him a long way in life. the vietnam war brought him back to active duty.

33 by then and the father of three children. he felt strongly. he felt it was his duty to serve. joyce needed convincing but she eventually agreed. on arrival in country, he was assigned as an intelligence officer. fitness reports showed him to be forceful, energetic, and enthusiastic, and that is best when in the field with his marines. the words of his commander were simple but elegant. "one of the finest officers i have ever served with." he would believe for the rest of his life that sgt understand the needs of the trip better than the general said. one man indeed can make a difference. his vietnam service earns him a bronze star, two purple hearts

as a result of action in combat before return to pennsylvania. i served with colonel murtha but did not know him before retired in 1990. we met for the first time in 2006. he was the ranking member of the house appropriations committee and i was a new common down. we talked budget and i remember he said, you cannot have everything. but tell me of the free things you have to have and i will get it for you. i thought at the time it was a marine think and that it was good to live if fellow leatherneck in such an important position. i have come to realize he had almost identical conversations with all of the service teams. [laughter] he loved his core. his sense of duty transcended

all else. during our subsequent meetings on the hill there was a pattern. each meeting would have its serious moments where we talk requirements, the force and other wars were going. there would be some moments where one would tell a story or perhaps recall a humorous incident. he did like to laugh. there was his analysis of the mood of the congress. he would assess formic the probability of this program or that one getting through the congress. he used first names as it cited positions of the various congressmen. i had no idea who they might be. i always nodded in the affirmative what was always right there with him. [laughter] you cannot afford to do that when you have great respect and confidence in the man seated before you. he had a way to get what he

wanted. one early morning visit a recall he was drinking coffee from an army mug. he flashed it in front of me several times. i finally said, why are you drinking from an army mug? he gave me a look like, i thought you would never ask, and said because the marine corps has not seen fit to give me one yet. and by the one, i like the ones we drank from a breakfast a few weeks back. he had in his possession four new mugs before the sun set that date. for those of you in the audience who were his constituents, he loved that barely. at our first meeting, he gave me a knife. he said he was presenting it on behalf of the people of pennsylvania. i have been given a lot of

knives in my line of work. the knife he gave me was special. i have kept it in my top desk drawer. my wife and i are now residents here. i do believe it is representative of the people of this state. it is a good chance 30 knife. it keeps a sharp edge and performs a multitude of functions. it has a green pattern on the handle. scrolled across the pattern is a name written in white script. from now on, and for the rest of my life, when i look at the knife and the name that is on it, john. murtha, i will remember a fellow marine, a patron, a warrior, and

a great american. -- a patriot. [applause] dr. stevens, thank you for welcomeing us here today. to joyce, to donna, to the precious grandchildren, there is great sadness that i lead a congressional delegation to extend our condolences to you and our thanks for sharing jack

with us and to bid our friend is a very sad farewell. jack was greatly mourned in congress because of the respect and admiration which was accorded him there. those who served with him were honored to call him colleague. many of bust or privilege to call him friend. president clinton, all those who love jack in washington extent our appreciation to you for the honor of your presence here to the family and to those who loved jack. [applause] thank you for your friendship and that of secretary clinton to jack murtha. the outpouring of accolades over the past week and in the thousands of people who have arrived here to pay their

respects to him bring to mind passage from ecclesiastics honoring the heroes of the old testament. now let us praise great man, the heroes of our nation's history. some lead the people by their knowledge of our nation's law. out of their wisdom, they gave instruction. their bodies are buried in peace but their names will live forever. the people will tell us their wisdom and the congregation will show forth their praise. as this conurbation show's fourth its praise, it is fitting jack was escorted into this church but a pennsylvania congressional delegation, because that is how jack served in congress, surrounded by pennsylvania congressional delegation.

they were planning a celebration of jack's service in the congress on saturday, february 6. he became the longest serving member of congress from pennsylvania ever to serve. they were planning a celebration. today presented him to us for celebration of his life. many of you who are familiar with congress know about the pennsylvania corner. for those who do not, let me say, in congress, jack held court. that part of the house chamber that was respectfully known as the pennsylvania corner. members from across the country and across the aisle would come to the court to get jacks laughing. great-grandmother belt would be satisfied that jack made a difference. it was a sight to behold.

there was jack, always smiling, twinkling eyes, flanked by his lieutenants, mike doyle on the west, bob brady on the east. they had a twinkle and a smile, too. sometimes. [laughter] jack passed on a pride in the institution that he learned from his friend and mentor, tip o'neill. jack was known for his irish sense of humor. he was never funnier film won the regaled us of historic as a lieutenant to tip o'neill. jack loved tipped and continued his tradition of honor, authenticity, and loyalty to your constituents. every member of congress believed that he or she

represents the best congressional district in the country and that you have the best constituents. jack murtha was absolutely certain of that. he loved this district. to watch jack murtha legislate was to see a master at work. more indicative of was to watch him communicate with the men and women in uniform, whether right off the battlefield or at the bedside at a military hospital. many of us have had this experience and while visiting walter reed or the naval medical center. he always answered their knees are responding their call -- he always answered their needs and responded to their calls. he bonded with them. i will never forget one time we

were visiting one of the hospitals. we went into a room and wounded warrior was standing by his bed to welcome jack murtha into his room, saluting him wearing a steelers jersey. the nation saw his integrity when the privilege spoke out against the war iraq. he taught us all to make a distinction between the war and the warrior. jack was committed to our national security and measured our strength not only in our military might but in the well- being of our people. he was a much decorated champion. he was a much decorated champion in addressing scientific research to fight breast cancer, prostate cancer, diabetes, aids,

the list goes on. i know what jack is thinking now. do not go on much longer. i was the closing speaker and i got up there and talk about jobs, jobs, jobs. jack cheered and said i think that was the best speech you ever gave. [laughter] but i will say this. those of us who s invest in action travel across the country. he would be cheered in airports for his courage for speaking and helping with health issues. he brought power to diseases that affect so many people. semper fi.

the model was his life. always stay truthful to god and country, to his home in johnstown, and to his wife, children, and grandchildren. hero, a champion, giant. jack murtha. we will never see his like again. [applause] >> i want to thank all of our

speakers for the warmth and humor that you brought. my task now is to try to place some of this within the context of our faith and bgod's presence in our lives. speak to each of us deeply in our hearts. we may not hear a human voice but your voice. give us courage and give us will end by your spirit, show us the way to live. in the name of christ, amen. in the sermon on the mound, and jesus said blessed are those who mourned because they will be comforting. there is great comfort in the memory of john murtha's life, a life that was fully lived with

courage and a strong will. we say all good disks come from god. what we have heard from our distinguished speakers and what we are remembering today are the gifts god gave to john murtha enacted, lived out through his personality and character. they are in a real sense god's gift to us all. many may not have known the congressmen personally, but all of us have been touched by his life, his actions, his political skill and the practiced art of his vocation. john was able to bring people of different sides together, as you have heard, able to compromise and able to a big firm.

he lived his political life with the same courage that he showed on the battlefield. he did so for the people of this district and for the united states. it is also comforting to know that one can live a very public life and still share deeply in the love of family. he enjoys were married 54 years -- he and joyce were married 54 years. he saw generations, after them. they shared their love, their life, with donna, and john and his wife cathy, with patrick and his wife lynn, and grandchildren jack and and, clayton. for john murtha, family was the first love always.

his family knew it. he found a way to spend time with them, to encourage them, and to give them his values and himself. like many of us in western pennsylvania, john had an eclectic religious background. presbyterian and methodist and a catholic. from that background, he had a sense of god's hand on his shoulder. he might not have a phrase it this way. we presbyterians sometimes referred to that hand on the shoulder as god's call. donohoe reminded us of the words on this day. we're put on this earth to make a difference. those words came from his great grandmother.

john heard those words when he was 4. she was the wife of a presbyterian minister. those words helped shape his life and his religious background guided-shipping. john murtha made a difference. he made a difference as a marine in combat and as a marine force 37 years. he was the first collected in vietnam-error member of congress. he had a vested interest in wounded warriors. he visited the troops and talked about individual service personnel. he made a difference in this nation's security as mr. defense. in that realm especially, he spoke with courage and clarity.

he spoke as a patriot. congressman, murtha made a difference to the people of western pennsylvania in the nine counties that make up the 12th congressional district. he made a difference in people's lives with jobs, job training, insuring pensions, obtaining federal aid, especially after the 1977 flood here. with his tireless work, to help create a favorable climate for a strong economic conditions in western pennsylvania. he made a difference as the longest serving congressman in pennsylvania history. and john murtha made a difference with his many humanitarian efforts, working for the health of his constituents, brain surgery, brain injury program, fighting against cancer, to research, and

fighting for good and affordable health care. there is great comfort in this day in john murtha's life. he made a difference. comfort also comes to us from the scriptures this day. apostle paul roach that nothing can separate us from the love of god -- apostle paul wrote that nothing can separate us from the love of god. someone or something can come between ourselves and dgod. i think that is why sometimes people do not try harder in this life. they wonder that god may not be there for them. just the opposite is true. god calls us and gives us grace

to go anytime. god never failed him. many of the -- one of the many awards that he was most proud was the john f. kennedy profile in courage award. he took on popular -- took an unpopular stance when he could have remained silent. he was brave and a patriot. the message of the gospel is that in the resurrection of christ, god had shown the world the death of god's love. as paul said, "in every way possible, nothing and no one can separate us, not war, not lost, neither poverty, not the future, nothing."

this day, we look to the promise of a new heaven and a new earth in god's time and got's day. until that time, we are called to live faithfully, as christ has shown us. take risks for good, love one another, and trust the results to the living board. -- living lord. it is the revealed nature of god to help us to do what we cannot do. it is our nature, by scott's grace, to try. -- by god's grace, to try. john murtha did try. by god's grace he succeeded. let us trust john and all who we love, near or far, to god's

gracious care and to our lord, who told us that because i live, you, shall live also. i invite you to pray with me and we will conclude with the lord's prayer. let us pray. loving god, from whom we come, to whom returned, and in whom we live and move and have the very being of life. we praise you for the good gift of life for its wonder and mystery, its french ships and fellowships. we thank you you for the bonds that tie us one, too another. we thank you for your patience. for the meaning that lies hidden

in the heart of sarraute, disappointment and grief. for your guiding hand in our journey. we give you thanks, holy one, for your servant, john murtha, recalling in him all that made others love and respect him. we thank you for his family and personal nature, his integrity, his courage and strong-willed, his warmth and love, love of family, love of the people of this district and of the united states. we give you thanks, gracious god, for the goodness and truth that have passed through his life into the lives of others and truly made this world richer. we bless your name for the revelation of your love in our

lord, jesus christ, and for the hopes in the gospel. beat in the human heart is a trust that life does not end in death. we praise your name, that our hope has been so wonderfully confirmed in the life and words and resurrection of our lord and savior, jesus christ. grant us, wheat at -- we pray, the comfort of your presence, renewing in us all gifts of patience and faith and indoor in love. helpless to walk and did the things of this world with our eyes open to the duty of the eternal, so that among the many changes of this life, our hearts may surely there be

fixed, where true choices are to be found. through jesus christ, our lord, who taught us each and all to pray saying our father, who art in heaven, how will it be dining. my kingdom come by will be done, as earth as it is in heaven. give us this day our daily bread, and forgive us our people. lead us not into -- lead us not into evil. amen. [organ plays]

land where my father died let freedom ring

♪ ♪ ♪

[captions copyright national cable satellite corp. 2010] [captioning performed by national captioning institute] >> tomorrow, president obama delivers remarks on the economy on the one-year anniversary signing of the economic stimulus bill. live coverage at 10:25 eastern. a panel discussion on the achievements of the tuskegee airmen. live coverage begins at 7:00 p.m. eastern. >> the peterson/pew commission

is hosting a conference. we'll hear from former comptroller david walker. and thirdly, we need key national outcome based indicators, economic, security, social and environmental to help understand how we are doing on a basis and getting better or worse and very importantly, how do we compare to our peer group, because when we look at our peer group comparisons in private finance, in health out comes, education outcomes, investments

on critical infrastructure, we are below average. a great nation does not stay great by being a debtor nation and by being below average on a number of a key leading indicators that help determine whether the future is going to be better than the past. we are at a critical crossroads in the history of the united states and the decisions that are made or failed to be made within less than five years will largely determine whether the future for this country and our families will be better than the past. the ones that are made and the ones that are failed to be made within the next five years will determine our history in large part. the problem is not solely spending. that is definitely true, but the problem is primarily spending in many regards. george bush was the biggest

spending president since president johnson. he also expanded entitlement benefits, first one to do so in a major way since president johnson and president obama has significantly increased discretionary] spending based upon the two appropriations bills that he has siped. and there is a great debate about the size and role of spending. returning to spending, spending more money than you make is irresponsible. irresponsibly spending somebody else's money is unethical and if you are a fiduciary, a fiduciary breach. and thirdly, irresponsibly spending someone else's money when the person's money you are spending are too young to vote is immoral and all three of these things are going on right

now. two undeclared financed wars and a variety of other actions and it's understandable to have large deficits when you have a recession and a number of nonbusiness cycle challenges dealing with housing and financial challenges. that's not what threatens our ship of state. what threatens the ship of state are the large known and growing structural deficits that will be with us once the economy returns to growth, once unemployment levels are down and once the undeclared wars are over. when those three things happen,

we face large known growing and structural deficits that threaten our collective future. and we need to do something about them. and it's not just the issue of the deficits, it's the composition of the budget. when you look at the nature of the budget, it's changed in profound ways. today, less than 40% of the federal budget is discretionary, meaning that the congress gets to decide how to spend the money each year. and if you look at the constitution of the united states, you'll find that every expressed and enumerated responsibility envisioned by the founding fathers for the federal government is in discretionary spending, and that's what's getting squeezed. there is plenty of waste in defense and plenty of waste in homeland security. but the fact is, what the founders envisioned is becoming a smaller and smaller part of the federal government and something needs to be done about

that. we have to recognize that within 12 years, without an increase in interest rates, that the single largest line item of the federal budget is expected to be interest on the federal debt. and let me repeat. without an increase in interest rates, which is totally unrealistic. what do we get for interest on the federal debt? nothing. nada. absolutely nothing. and that's the path that we're on. so it's not just deficits. it's debt. and you know, quite frankly, we have been engaging in a number of creative accounting and self-dealing practices for a long time. it has caught up to greece. greece has someone to bail them out. we don't. if you look at the accounting practices, we have had creative accounting with the trust funds for all time.

in washington, they use words that don't mean the same thing, like trust funds. you can't trust them, they're not funded. like cuts. means reduce the amount of increase rather than an absolute reduction or requirements for the military, which is a wish list where you aren't supposed to consider the affordability and sustainability. no wonder the american people have low confidence and our representatives have so little credibility with the american people. we need to speak plain english and talk straight to the american people. so if we look at our situation, we see that if we were accounting for the trust funds properly, our deficits are larger than advertised and our debt is larger than advertised. we owe social security and medicare trillions and dollars in debt. we will not dault on that, but we don't want to call that a liability. so, therefore, our debt to

g.d.p. ratios that are talked about in the press only represent public debt rather than total debt. total debt is 85% of g.d.p. and over 95% by the end of this year and heading up. we will not default on that trust fund debt. we have to be more truthful. and the real challenge, frankly, is the fact that it's our off balance sheet obligations. $38 trillion for medicare alone. $7 trillion for social security. manageable. actually, it's not that difficult to solve that problem. by the way, these numbers don't count. the federal reserve. the government-sponsored entities, because those are self-dealing practices. we own, the american people, a significant amount of the sponsored entities and they aren't being consolidated.

the fed is engaging in a number of different types of practices because the congress and the president couldn't or woo and as a result, it has tripled and buying a tremendous amount of u.s. debt which serves to hold down interest rates in the short-term. you could have a short-term impact on interest rates. you can't change market forces indefinitely. the fact of the matter is, new and larger frankly, self-dealing practices in accounting practices have come to the fore in the last year or so and they are extremely troubling. dependency, the united states has become increasingly and imprudent dently dependent on foreign lenders to finance our deficits and debt. we are fortunate that china and japan have been willing to lend us significant sums of money at low interest rates, but can we

rely upon that? it is not in our our interests. you must pay attention to our foreign lenders. the reason that all of us and all taxpayers in america guarantee $5 trillion in freddie mac and fannie mae debt is because china and japan demanded it. and while interest rates haven't gone up yet, the actions of our foreign lenders speak loudly. they are reducing their appetite. they are buying shorter term priorities. they're looking for commodities and other alternative investments, looking for inflation index instruments because the factors say that inflation will go up over time and that will compound our problems. we must recognize that there are four key parallels between the

factors that caused the mortgage-related subprime crisis and the government's finances, a disconnect from prevailing practices and who paid the price and borrow the burden. a lack of transparency is the magnitude of the real risk. too much debt, not enough focus on cash flow and overreliance on credit ratings and failure of both corporate and government oversight, risk management and regulatory functions to act until there was a crisis at the doorstep. there are two big differences. first, the size, scope and potential adverse consequences of a meltdown in the federal government's finances and that would be a loss of confidence in our ability to put our financial house in order. and second, nobody's going to bail out america. we have to make tough choices. and we need to begin that

process very soon and before we pass a tipping point. the good news is, the american people get it. i have been to 46 states in the last four years down town hall meetings, business, commune leaders, editorial boards, local media, 80% of americans believe that escalating deficits and debt and increase reliance on foreign lenders should be a top priority, way ahead of health care and jobs and other issues. secondly, 2/3 believe that washington isn't paying enough attention and 70% support a fiscal commission where everything is on the table to help try and deal with the problem. there is no question it will take an order process because our regular order process in washington is broken. and the decision by senatory bayh not to run for re-election

is an indicator how broken the system is as long as other decisions such as senator greggg et cetera, these people are promoting fiscal responsibility and they are focusing on the future and they are disgusted not just with partisanship but the ideology call divide and the stale mate we face. there is one thing for a stale mate because government can muck things up. that started with an m. but when things aren't going well and when they are deteriorating with the passage of time, having a stale mate is a disaster, and that's where we are right now. i want to commend president obama for recognizing the problem. his steps with regard to fiscal 2011 budget were modest. they were modest with regard to

the short-term. they did not have the type of really goals that we really need to see, but i want to commend him for recognizing that we need a fiscal commission. it's sad, but we had seven profiles in caving in congress when seven sponsors of the conrad-gregg bill didn't vote for it when it came up for a vote in conjunction with raising the debt ceiling limit. john f. kennedy's book would be thinner today than it was back then. but having a presidential commission is better than having none. but there are key factors. the scope, everything has to be on the table. secondly, the role, it must educate and engage american citizens beyond the beltway on the truth, the tough choices, the prudentens of acting sooner

rather than later and the potential consequences for our families if we do not. thirdly, it must set goals and the goals of 2015, defendant to g.d.p. is not enough. we also need a debt to g.d.p. ratio for the longer term, which is what the commission recommended and i think we need to make meaningful progress on reducing the tens of trillions of dollars of unfunded off balance olingses. a triple goal. for membership, they need to have capable, credible and committed people who are not only credible and capable in washington, but in the real world outside of washington's beltway, because right now, that's a real problem. and thirdly, i mean with regard to committed, they have to be committed to come up with nonpartisan solutions that can achieve bipartisan short and have to be willing to spend the

amount of time that would be necessary to accomplish all these objectives. obviously the end result, recommendations that should be acted on by the congress. timing, this year is the year to depage the american people with the facts, truth and tough choices as well as other interest groups and to set the table for a tough vote either in 2011 or late this year, although i think there is clear controversy of a lame duck congress addressing an issue as difficult as this. in summary, we are a great nation. arguably, the greatest in the history of mankind. you know, greece cradeled democracy. greece was a great, great civilization, greece was once great, too. and we need to learn from history. not just greece, which is in the

news today, but think about the roman empire, it fell for a number of values, decline in moral values. over confident and overextended militarilyly around the world and fiscal irresponsibility by the central government. if those sound familiar, it's time to wake up and start putting processes in places to make choices before we pass a tipping point. we must learn the lessons from history and act before a crisis is at our doorstep. and to begin, i look forward to what president obama has to say about this commission and i'm hopeful that political parties won't play politics with it. and i think if they do, they just might be punished at the polls, because in my view, what happened in massachusetts was not a victory for republicans, it was a rise of independence.

it was discussed with the status quo. it was a desire for real action. and it was a calling for washington to become more connected with america. i know we can. i know we must. i hope that we will make tough choices sooner rather than later. and if we do, our future can be better than our past. and if we do, the american dream will stay alive. and to me, that's the only option we should be pursuing. thank you very much. [captions copyright national cable satellite corp. 2010] [captioning performed by national captioning institute] >> coming up, we'll hear from the president of the federal reserve bank of kansas city. >> i am definitely outside the beltway. kansas city is smack dab in the center of the united states and in many ways, it is very central

in its thinking. it has a broad base of individuals, conservative, liberal and you do get a nice mix and it gives you a very important prism on the world and prism on how people see washington and what is going on there. so it is a real delight for me to be here and it brings a perspective to the open market committee meetings that i do participate in. mounting long-term issues around social security and medicare and other growing demands actually put on the federal government have invited a massive buildup

of debt, both now and as far as the eye can see. the congressional budget office projections have the federal debt reaching unsustainable levels of somewhere between two and five times our until income within the next 50 years, which leads us to the ines capable conclusion that u.s. fiscal policy must reduce the fiscal buildup and avoid the consequences of not doing so. in managing our nation's debt, there's -- strikes me anyway, there are three options forward. first, the worst choice of our -- in terms of our long-term stability, but perhaps the easiest in terms of short-term political options is we can knock on the central bank's door and demand that it print money

to buy the amounts of public debt. secondly, perhaps more tolerable politically, but still damaging to our economy, we can do nothing so long as the domestic and foreign markets are willing to fund our borrowing needs at probably higher interest rates. or third, the most difficult and probably the least pal atable politically, we can act now to implement programs to reduce spending and increase revenues to more sustainable levels as far as our deficit and our debt look. now i recognize that this last option involves pretty hard choices. however in my view, it is as others have said, the responsible path to sustainable growth and the options lead to financial crises and greater losses in our until income and wealth of this nation.

the question of what combination of spending and revenue actions a country might choose is the purview of the congress and the executive branch. as a central banker, i look at it as my responsibility to anticipate and to avoid the consequences that an unprecedented, unchecked expansion of the debt may have on monetary policy itself. it is a fact that the current outlook for fiscal policy poses a real threat to the federal reserve's ability to achieve its dual mandates of price stability and maximum sustainable long-term growth, and therefore, is a threat to its independence as well. the founders of the federal reserve i think understood this conflict. they understood that placing the printing press with the power to spend was a formula for financial disaster. they designed our central bank to be responsible for stable prices and long-term growth,

emphasis on long-term and they gave it a degree of independence so it could carry out this mandate. the goal and policy cannot be just to get through the current challenge, but rather to rebuild a foundation of a stable and prosperous economy. looking at our long-run future. it's in this context that i appreciate the opportunity to address our fiscal challenges and the impact on policy. some lessons from history. throughout history, there are many examples of severe fiscal strains leading to major inflation. it seems inevitable that a government turns to a central bank to create budget shortfalls. too rapid, money creation follows and not immediately, but eventually to higher inflation. such outcomes require a

cooperative central bank or infringement on its independence. while many perhaps, most nations assert the importance and benefits of an independent central bank, the fact is when pressures mount, the immediate kind of wheams the long-term goals and the independence becomes expedient to be foregone. hyper inflation is cited with good reason. when i first became a president of a federal reserve bank, my 85-year-old neighbor gave me 500,000 marc german note. he had been in germany during the hyper inflation and told me in 1921 he thought that would buy a good home and in 1923, it wouldn't buy a loa fmp of bread.

your duty is to protect the value of the currency and the note is framed and hangs in my office. someone recently said about my comments about hyper inflation that i vote it for effect. many say it could never happen here in the united states, far too sophisticated and i ask, would anyone have believed three years ago that it was possible that the federal reserve banks would have $1.25 mortgage-backed securities on their balance sheets today? i think not. the unthinkable becomes possible when an economy is under severe stress. now, if german hyper inflation is not a great example, let's come forward. many have noted, in the 1960's, the federal reserve's willingness to accommodate fiscal demands and help finance

the spending for the great society and the vietnam war contributed to price increases. although the federal reserve was a reluctant participant, it accepted the view that monetary policy should work in the same direction as congressional and administration's goals and help finance at least part of the spending programs. monetary policy accommodation during this period contributed to an increase in inflation from 1.5% in 1965 to 6% in 1970 and helped in my view to stage ourselves for the great inflation of the 1970's as inflation expectations became unanchored. last friday, i read that an economist raised the question whether central banks should target a higher rate of inflation. while this may sound like a

reasonable theory from a credible economist, my concern is it is the process of rationalizing that too long and too often have effects on our policy path going forward that can be and usually are harmful. today, the united states is benefiting from the policies that were blashed established in the 1980's. confidence in the long-run stability of the u.s. economy and the federal reserve's commitment to price stability have kept demand for treasuries relatively strong, allowing the government to borrow at low interest rates. from citizens here and around the world. but i think it would be a mistake to take this current ability for granted and do nothing to address the mounting debt. while the last 30 years have been relatively stable, at least until recently, our long-term

history with debt is less reassuring. from world war ii to the present, federal debt, held by the public has increased over 30-fold and supported by steady growth in the money supply, the price level has increased by a factor of 12. to me, that's a huge increase in the general price level and represents the significant reduction in purchasing pour of the dollar over time. these are matters that demand our attention as we make choices involving the fiscal path forward and its impact on demands it will place on monetary policy. the immediate concerns is the size of the deficit. the c.b.o. projects the deficit was almost 12% of g.d.p. in 2009 and almost 8% this fiscal year. these are extraordinarily high levels by any standard. in the entire history of the united states, the government has run deficits over 10% of

g.d.p. in only a few instances and usually only during the immediate period of a war or following it. as troubling as these deficits appear, even more disconcerting is the longer term outlook that the federal debt caused by the aaccumulation of these deficits over time. the c.b.o.'s long-term projections clearly show that the current fiscal policies are unsustainable. we have all heard that. in one scenario, the liftoff point for federal debt, that is the time when debt starts rising without a sign of stabilizing occurs shortly after 2020 and by 2035, federal debt held by the public reaches 80% of our gross domestic product. a level only exceeded during or just after world war ii. in another more pessimistic scenario, the liftoff in debt has only begun or i should say

has already begun with federal debt held by the public reaching 181% of g.d.p. in 2035, exceedingly the peak of that ratio of 113% at the end of world war ii. so key part of the problem is spending on social security and especially medicare. over the next 30 years, government accounting office has estimated that the present value of future expenditures on all social insurance programs exceeds future revenue by over $50 trillion. that is nearly four times the size of our g.d.p. and is clearly unsustainable. adding to my concerns for the nation's economic prospects is the current level of private indebtedness. as with government debt in the united states, private nonfinancial debt has grown steadily over the post-world war

period from 40% of g.d.p. to 175% in 2009. every consumer and business that is a net borrower would benefit from lower interest rates. and just as noteworthy, it should not escape our news that rising inflation would trim the real value of their indebtedness. thus high private indebtedness will contribute to the political pressure of the federal reserve to inflate. now, the path forward, if i could return in a sense to my opening comments, i do see three ways forward in dealing with this current and fiscal imbalance. while each involves pain, only the third will resolve the imbalances without eventually also causing inflation to accelerate a financial and economic crisis.

the first option for dealing with this imbalance is for the central bank to succumb to the political pressure and monday advertise the debt. as deficits and debt levels rise, relative to national income, interest rates will tepped to rise as well. in this instance, the central bank is often pressured to keep rates low and encourage or require to assist the markets in facilitating the debt and the government's funding needs. if the central bank succumbs, its balance sheet will expand and banks will grow and money supply will increase. this process often appears benign. but if it goes on unchecked, the outcome is almost higher levels of inflation and immediately ultimately a loss of confidence in the value of the currency and

the economy. while the bank is famous, once their soundness is questioned, it is too late. at that moment, governments and their citizens are forced to make sizeable, painful fiscal adjustments. an example of both the political pressure that can be exerted on the central bank as well as the inflationary consequences is being played out not just in geast but in argentina. the president of argentina's central bank was forced to resign because he would not transfer reserves held by the central bank to repay certain government debt. inflation is running near 8% and i'm willing to bet it's going to go higher. now the second path is what i call stale mate between the fiscal and monetary authorities.

in such a stale mate, the fiscal imbalance grows while an independent central bank maintains its focus on long run price stability. although the u.s. government is privileged to borrow at favorable rates, the fiscal outlook would undermine this privilege, adding risk premium and the price of its debt in terms of interest rates would increase. also as the government competes with the private borrowers for funds as the economy improves, the potential exists for a fiscal imbalance to drive up the cost of real borrowing and capital to the private sector. eventually this combination of large debt, high cost of borrowing and capital weakens the economic growth prospects and undermines confidence in the economy's long run potential. slowly, but inevitably, if the fiscal debt goes unaddressed, the currency weakens as does

access to global financial markets and the cycle worsens, leading ultimately to a financial and economic crisis. to me an interesting example in this respect is canada in the first half of the 1990's. during this period, canadian federal debt increased from 55% of g.d.p. to roughly 70%. at the same time, following a joint agreement between the government and the bank of canada, the bank targeted a steady downward path of inflation from 3% to 2% at the end of 1995. but no monetary combination from the central bank caused real rates to rise while canadian inflation was below that of the united states throughout this period, canadians paid a substantial risk premium over u.s. rates to borrow. mover, the canadian dollar came

under consistent pressure and economic overall performance suffered with g.d.p. growing sluggishly from 1999 and it climbed to 12%. these economic conditions contributed to election of a new government, which made a credible commitment to balance the budget and the following years, the federal budget deficit fell dramatically. revenues did increase and government expenditures were cut sharply. by 1996, canadian interest rates had fallen below u.s. rates and real g.d.p. growth picked up and unemployment fell. so that brings us to the third and the canadian experience in the second half of the 1990's is suggestive of the benefits of the third. it is the only responsible way

to resolve our growing fiscal imbalance. by addressing its source in an environment all seem to agree this is the way we would prefer to go, but of course the devil is in the details. at the outset, it requires an institutional framework committed to having an independent central bank with the requirement to pursue price stability. this discourages the fiscal authority going to its bank and strengthens the bank a's ability to say no. the central bank policies provide a good example of the benefits that arise from the exercise of discipline of independent authority. during this time, high interest rate policies designed to lower the inflation were deeply unpopular, both among the elected officials and the broad public, but the federal reserve was able to exercise its

independence and pursue a long-term goal with reduced inflation and change the psychology of the nation regarding its expectations about the inflation path. as a result, the united states has had nearly three decades of relatively low inflation. inflation is not an alternative to strong fiscal management. a government must provide credible, long-term plans to establish fiscal balance. the plan must be clear, have the force of law and its progress measurable so as to reassure markets but also the public that the country has the will and the ability to repay its debts in a stable currency. to be broadly accepted, the plan must be seen as fair. there is a sense of shared sacrifice across all segments of

the economy. without being specific, these requirements suggest an approach that we are willing to disappoint a host of special interests, controlling budget earmarks, not because they are going to make a huge difference but because we need to establish trust. we need to trim subsidies and resolve the banking problems and the perception of wall street being favored over main street, all of which would otherwise would foster mistrust and sin sism among the public and that is a big part of the backlash going on. leaving these unaddressed would undermine the tough decisions needed to bring our budget into balance. finally, there are no short cuts. we currently must adjust from the misallocation of resources. that's why this recession is tough.

no way to avoid short-term pain in fixing the funnels of our economy. it is terrible to have 10% of our labor force out of work. but short cuts now mean people out of work again in only a few years because we again are trying to avoid the difficult adjustments that are inevitable. outlining a credible course for managing our debt now and into the future will accelerate the restoration of confidence in our economy and contribute importantly to sustainable capital, investment and job growth. as i mentioned in the beginning the fiscal projections for the united states are so stunning that one way or another, one will occur. fiscal policy is on an unsustainable course. u.s. government must make

adjustments in its spending and its tax programs. it is that simple. if preempttive corrective action is not taken regarding the fiscal outlook, then the united states risks precipitating its own next crisis. budgets that are severely out of balance are inevitably reformed by force of the markets or preferably by choice. unfortunately, nations must experience a profound crisis to focus the government's attention on taking the corrective action. usually, it is at this point that the governments establish fiscal discipline, renew their commitment and begin to do the cuts that are necessary. ironicically, these germly are precisely the reforms that would have prevented the crisis in the first place. the only difference between countries that experience fiscal

crisis and those that don't is the foresight to take the corrective action. in time, significant and permanent fiscal reforms must occur in the united states. and i want to make a couple comments in terms of this thought of the word populism. it's about the center, middle class who are looking for these reforms and if you give them the confidence that it will be shared broadly, from my experiences in the midwest, they will follow that lead, but they have to have the assurances. and i much prefer that. i much prefer a credible plan. i much prefer the time it takes than i look forward to hear the otherwise irresist tibble impulse of the government knocking on the central bank's

door. thank you very much, ladies and gentlemen. [captions copyright national cable satellite corp. 2010] [captioning performed by national captioning institute] >> according to the white house, president obama will sign an executive order on thursday creating a bipartisan commission on the nation's debt. the president will announce that former white house chief of staff and former republican senate whip will serve as the commission's co-chairmen. >> you are watching public affairs programming on c-span. up next, president obama talks about clean energy and jobs. and after that, the state department briefing on climate change. >> coming up on tomorrow's "washington journal", nuclear energy watchdog group and

nuclear energy institute will join us and will discuss the proposal to build a nuclear power plant in georgia. after that, "newsweek" on taliban's top commander in pakistan. simon johnson who served on the international monetary fund, will discuss the federal debt. "washington journal" begins each morning at 7:00 eastern. >> earlier, president obama spoke on the future of clean energy jobs and the economy. he also announced funding for the construction of a new nuclear plant, the first one to be built in the u.s. in 30 years. he gave those comments in maryland after touring a local job center there. this is 10 minutes.

[applause] >> thank you everybody. have a seat. before i begin, let me acknowledge some of the people who are standing behind me. first of all, two people who have been working really hard to make this day happen, secretary steven chiu. [applause] >> and my white house adviser on everything to do with energy, carol brown. [applause] >> i want to acknowledge the outstanding governor of maryland, martin o'malley and his lieutenant governor, anthony

brown. we've got mark ehres from the building trades and billy hype from the u.a. pipe fitters. [applause] >> gregory yatzko from the nuclear energy commission is here. and president of the ibew international. and i want to thank chuck graham and everybody here at local 26 for their great hospital. [applause] thank you for the warm welcome and thanks for showing me around. i got a chance to pull the first fire alarm since i was in junior high. and i didn't get in trouble for it