and touring a number of businesses and acting what they feel like the state of play is. honestly, i hear more about what congress is doing then what the banks are or are not doing or what the sba is doing or not doing. business meeting last week and they said congressman, we don't know what to doe. we're concerned congress is about to put these new burdens for health insurance and they are going to raise our taxes and >% tax that may raise our energy costs and enthuse huge deficit s that arebeing incurred and how we'll begin to pay that back. what may be the environment. the list went on and on and on. when i sat down and talked to

bankers, i said tell me why you're not lending and they said we would love to make some loans right now butçó  good customers are notñiñiñr asking us for loa because of theñr uncertainty. when they come, the amount of paperworkñi and regulatoryññr . to the people in their small communities because of some of the new regulations that are out there, particularly escrow accounts where a community banks have been making home loans in their communities for hundreds of years, or many years. they now have these new requirements. i want to redo some of the comments that i entered in the record here. this is from a community bank in abilene. >> the increased regulation proposed by congress will

continue to make our jobs more challenging and costly. our hope is that congress will stop much of this pending legislation and realize that community banks have not caused today's economic problems and are already overregulated. that was from a small business in abilene, texas. they are adding uncertainty in decisions and certainty of higher taxes. small businesses have no choice but to wait and see on any future growth. another said we should get a mirror and understand that it is not that we are not making loans but that we are being driven out of making loans by those who are asking us to make loans. that was from a mortgage lender in abilene. is the answer more government involvement, more oversight? i would say not. our government started regulating the industry, but

they do not understand. i suggest that free enterprise be allowed to bring us out of this financial mess. a community bank in plainview, texas -- community banks want to lend. it is what we do. banks are understandably anxious regarding extensions of new credit. i think one of the things that i have been saying is that the best thing that we can do for the economy, the best thing we can do for the american people, the best thing to get this economy going again, is for the government to stop all this nonsense we have been about. we are creating a huge amount of uncertainty. i am a former businessman, a former land developer. when i look at the environment today, the uncertainty that is out there, i am not certain i would be out looking for new deals right now. so i think i am listening to

the people in the 19th congressional district, and i think they speak for people all across america. they wish that congress would quit trying to micromanage our financial markets and quit this silly stimulus program that we are doing, where we are trying to borrow and spend our way into prosperity. honestly, how we got here was borrowing and spending. some people borrowed too much and cannot pay it back. that has created uncertainty in our marketplace. >> the gentleman's time has expired. the gentleman from michigan. >> thank you, mr. chairman. i will talk a little bit about manufacturing and build on the previous comments. we have a situation, mr. smith, we have a situation, mr. smith, in the manufacturing sector and otive suppliers where we are seeing increasing orders coming in and yet the working capital is not available to ramp

up the production necessary in order to meet those orders. it is a situation where there is a dysfunctional capital market system. there are orders coming in, you can hire people, but the capital is not there. if you could elaborate a little bit more about the challenges of manufacturing, where you are right now, why credit has limited your ability to create jobs even though orders are coming in right now. also you talk about the collateral support program and why that is direct help for you from the banking industry. you referenced the modernization act which many members of this committee have endorsed. if you could flesh some of that out for us, i would appreciate it. >> i have to disagree with what has been said before about the president's plan, injecting $30 billion into the banking

industry. i think that is absolutely what is necessary. when i sit on the board of a community bank, i think our situation in manufacturing is simple. we have a top line situation. we need more sales. i do not know what the banks are going to do. small community banks did not create this issue. in our area, and created a bank report for banks over $5 million in assets. of these, the total capital ratio was 7.7%. the fdic says in public cease and desist orders that you would call -- that you require a minimum capital ratio of 8%. the banks need to raise $45 million in capital before they can make one loan. the issue is that the banks cannot make loans because the

regulators have their foot on their necks. they cannot function. in order to make your capital ratios where they need to be, either you need more capital -- and if you do not have access to capital to a program such as is being proposed, you shrink the size of your bank. if you shrink the size of your bank -- you simply do not make loans. on my community bank, that is what we do. we have to shrink the size of our balance sheet. if you are a manufacturer or small businessmen, where do you go? it is a tool whole process. the banks have to have the ability to make loans. if you use a 10 to 1 ratio for banks, it becomes 10 times that which will be available for loans that could be created throughout our entire economic -- the portfolio that we have,

particularly in manufacturing. the other situation we have is that as companies we take a look at our deteriorated balance sheets. that is because banks are under pressure from the regulators. everything has to be reappraised. i can tell you that many of my peers have had regulators come in, take a look at your balance sheet, reappraise your assets, and all of a sudden you find you are taking a third hit to your balance sheet. you do not have the ability to make the loans. having a programmer year collateral is guaranteed by the government, such as the bill that is being proposed, is absolutely the other part of a two-step process. banks have to be able to make money. they have to have their capital ratios restored. the $30 billion is an excellent program. as a community bank, i can tell

you it cannot come fast enough. the rules of how it is be -- how it is to be dispersed are not really clear. we need to have our collateral positions guaranteed because we have taken such a hit. >> also, i have been hearing from our other suppliers that they have had lines of credit benighted not because of underwriting concerns because the bank is overexposed to the auto sector. can you tell us a little bit about that? >> you are almost better off being a really lousy customer to the banks, because they cannot get rid of you. if you are bankable, you are really in jeopardy. really, it is worse if you are in better financial stakhape. >> mr. gordon, you said if you

put together a business plan and take it to a bank there is nobody there that is qualified to look at it. >> there are people there. but what congress needs to understand is we are in a crisis. we have not had business loans and liquidity for three years. this is not a future problem. we are talking about how to solve this problem right now. there are businesses going out of business. >> with the government in charge of direct lending, do you think anyone in the government is qualified to look at a business plan? >> every sba office i go into, there are extremely smart people there. some of the smartest people around work for the sba, and they are really, really qualified. >> i have a number of questions here. mr. smith, you love made some great points.

as a former bank regulator, you are right on. with your experience with your manufacturing group, have you seen a tightening of credit across the board or is it just good actors and bad actors? >> it is across the board. >> dorfman, i have heard you testify on various committees, and you keep talking about direct lending. as a regulator, i guess i am old enough to member -- to remember the mid 1970's. farmers. that was an absolute disaster for agriculture. it wound up causing inflation in our real estate prices of farm land overproduction. once we got them out of that, we

solved a lot of our problems. what data, what information, do you have to think that the sba can be a better direct lender than banks? >> what we are looking for is making sure that small businesses are accessing the capital t$ey need. the sba, with direct lending -- there was a question about our they qualified. yes. they are qualified to oversee the process. there are employees that have been let go from banks that use to do the lending that could be hired into a program to provide this program. >> one of the problems you have with direct lending is who is at risk. it is not the sba. it is the american taxpayer. when the banks are on the hook, it is their stockholders. and that is a really big difference. when you have the government involved, the people lending the money do not care.

if you qualify, you get the money. it is not about whether this is a viable entity that will be able to survive down the road and be a good part of the community. if you qualify, you get the money. that is exactly the way it worked back in the 1970's, and it is the way it will work with the sba. i do not see how you can make direct lending viable for what we need with regard to small businesses. >> i would say, about the concerns of the banks being overregulated, the banks do not have to be involved. we are putting a program together that would make sure that we follow the five c's of credit, major businesses are just as viable as if they were at a bank. >> will the gentleman yield? may i remind the gentleman that we passed a direct lending in the house. it was voted by 389.

you voted for it as a temporary fix. it treats this economic crisis as a disaster. it will not compete with the private market. it would make the loans like the sba has done every time there is a natural disaster in this country. this will be a temporary fix. six months of performing loans will be sold in the private market. once the recession ends, we get out. once the unemployment rate goes down, the program will end. let me remind the gentlemen that let me remind the gentlemen that yo -- thank you for your comments. i think that my comments are apropos as well.

sheç is talkingçó about a permt fix from a previous testimony that many of the other committees in hearings that i have heard of, and i want to make it pointed it is a temporary fix. there are problems with that temporary fix. we have to be careful that this is not a road that we want to go down. mr. smith made the point fell one of the problems that we had with the banking institution is the regulators. and they have their boot on their net. most banks are small businesses as well. they have to make a profit and make things work. i am very concerned. >> i must say that i grew with the comments of the congressman. i would like to add the

suggestion that the small business administration could do a better job of commercial lending than banks and credit unions defy as if i am not leav. totally informed. the reason why our banks are not lending is not that they do not want to. it is a combination, as mr. smith and mr. turnbull have testified -- a combination of post-cyclical regulation. it is a combination of that with illiquidity in loan portfolios triggered by the fact that there is no secondary market, particularly for commercial loans. , and reserve requirements that

lead to a lack of collateral to back up their loan portfolios. with respect to the last issue, i would like to ask mr. turnbull why he agrees that a loan guarantee is a key to unlocking these illiquid portfolios. >> mr. minnick, some comments were made about the community banking system, whether they are the cause of this problem. i submit that in our market area we have good community banks and that community banks. that community banks were part of the problem. now, community banks are in the same soup because of this illiquidity. a large percentage of their loan portfolios are in real estate. they have no place to take those. because of that illiquid position, they are capital constrained. they could not make a loan if they wanted to.

there has been some guidance issued by the regulators, by the fdic, about how banks should be able to regulate -- how regulators should treat these banks. but it is not being uniformly administered. that is the key to the issue right now, these community banks. they have to be able to offload their commercial real-estate assets to be able to make lending available again. >> if it were to institute a commercial loan guarantee program, would it be feasible to direct regulators to put in guarantees based on some percentage of current replacement market value? would that value discount as a benchmark to deal with the issue of valuations coming in at

30% of current replacement value? >> that is the issue. >> in your opinion, that would be the key to getting this market unfrozen so that commercial banks could start lending again. >> yes. i think there are several things that have to be done, but i think that is the first thing. that is the only way we are going to get community banks lending again. i am a shareholder of a community bank. i have several close friends who are c.e.o.s of community banks. they all tell me the same thing. >> mr. smith, would you agree with that statement? >> yes, i would. in the community bank that i am on the board of, it is that issue that we have a re- evaluation of all the commercial loans that has dragged the ability to make any commercial loans. again, when you are shrinking or balance sheet you are not making

loans. banks have to be in a position -- with the original tarp program, the government picked winners and losers. unfortunately, the small community banks which support most of the small businessmen -- they were left in the dark. they need help. they did not create the mess. they are just being subjugated to it. so it is a two-step process. the banks have to be helped to make loans. that, or you have to change the regulation and the ratios that can operate on. one or the other has to happen. we have to improve the collateral position of the lenders. we have to temporarily get that help so that when we are asking for loans that there is that guarantee out there. >> my time is expired. we appreciate your expertise. >> mr. mccotter.

>> thank you. wes, you and i have known each other a long time. we have faced challenges at home and throughout michigan. i think i am the last speaker on our side. i would like to yield you the balance of our time and so you can tell this committee what is important to keeping manufacturing in our district, in michigan, and in america. >> thank you, congressman. i think what is really important is -- obviously, we are having a heart attack right now. we have to get that solved. that means we have to be able to have access to cash. that is number one. the programs that are being proposed cannot come fast enough. i think some of the real issues in manufacturing have to do, from my standpoint, with our trade policies and lack of enforcement. we are seeing in michigan, since

the recession, 400,000 jobs leave. in 2000, the recession in manufacturing started. there have been almost 6 million jobs vacated. for every tier one automotive jobs in michigan, it employed anywhere from four to seven other jobs. they are key jobs that we need to keep going, particularly in our state. they are good jobs. they are high-paying jobs. they had great benefit programs. i think manufacturing has been overlooked, and particularly not appreciated. i would say in michigan all of our congressional members sing from the same hymnal. they just sit in different choices -- in different churches. we understand what is important

for our state to work. clearly, we have to address our trade policies. we have to address the fact that our trading partners do not behave properly, whereas we kind of open up the doors and say, "come on in." unfortunately, that has put us at a distinct disadvantage. from low-cost countries and the way they are being coddled and handled by their governments, they suck jobs away from the u.s.. they see that and understand that. if congress and the government will not do anything about it, they're going to find someplace else to park their money. we have to address this policy. i believe that in my heart. you can see it since 2000.

i can tell you, from my standpoint, that in 2000 in my industry i have had to deal with 32 customer bankruptcy. prior to 2000, we dealt with one. it is absolutely catastrophic. we need manufacturing in the united states and it is not being appreciated. >> if i can reclaim the balance of my time -- i think there is a point you make that is absolutely necessary for congress. we have to support trade on a fair and equitable basis with free nations. we continue to see that how a nation treats its own people is how it will treat other nations. when you look at some of the packages -- some of the practices engaged in the domestic policies of some of our trading partners that some

americans would find reprehensible, i think you can understand why the united states would have employers like wes smith who tried to provide a decent job, why we work -- what we are at a distinct disadvantage when we are competing with other nations that have no regard for the rights of their people except as pawns to be used in the political game or in a mercantilist strategy. thank you for coming. i will see you afterward. >> your time is expired. let me take this opportunity to thank all the witnesses on this panel. the committee will stand in recess. we have seven votes. we will reconvene right after the votes. >> let me say one thing. several of you said that the banks want to lend money but the

regulators are saying raise more capital. i tell you i have heard that every day. i talk to bankers from florida. they do not know each other. they say it examiners would get out of their banks for -- >> we are going to have a panel with the regulators. i guess you will be making those statements for the regulators. you are all excused. thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] and a christian science monitor

jina moore discuss her article on private property rights in north africa. -- in south africa. sunday, on c-span, a replay of the entire white house health care summit. we will hear opening comments from the president and congressional leaders, followed by discussion on health care costs and expanding coverage. it all starts at 10:30 a.m. eastern runcie's band. >> c-span, our public affairs content is availablet( on television, radio and online. you can also connect with us on twitter,ççççoççt(çç faceb. çw3>>ççqa2now,çñrçç the wt talksçççççççiuçtuwñç's oo3çóçrole inçvççxd the(góoc

c pççççokççççxd spoievç pçi]çqi]qçç. itçt(okç is aimed a]çç[[ç. this is little over two hours. nt. this is a little over two hours. >> it is a great pleasure for me to welcome the 11th president of this institution, someone whose ability is well known but whose special contribution to this organization is becoming apparent every day. i think all people associated with the world bank are very happy indeed at your leadership, robert. thank you for your commitment and very hard work. bob's ability to lead the institution is based on a broad record, including a position as deputy eric -- as deputy secretary of state and trade

representative. before that, he held a variety of positions that interestingly fit him for this, ranging from his work in fannie mae to agriculture -- even a short stint in a little-known investment bank called goldmansachs, where he spent a little bit of time learning about the world outside. we have in this president someone who has an extraordinary breadth of vision, breadth of experience, and deep commitment to the challenges that face us now in the international community, and in particular in this organization, which is in such acute need to have additional resources, for which he is an exemplary advocate. bob is going to talk to us today about global recovery, the role of the multilateralism. it is a great pleasure to introduce him.

çaç[applause] i want to thank all of you for coming here today. i first encountered the committee when i've worked with secretaryç baker at the treasuy apartment. i know that this institutionçs played a very important role on ç sceneçó. pull together a bipartisan supportw3çç forç the institud ççmultilateralism. thanks toç jimi]i]çw3 and oth. t(w3çxdçóçóççiçç alsookq wl word ofçxdi]ç appreciation tok oregon. all of you for your interest in this. i started the week at an event which akira.

it is important that i close with this on friday. these are bookends of my life in existence. i do not know if we can match the crowd that we had on monday, which was pretty astounding, but it is always wonderful when you have those of them so that you know your main job is to get off the stage as quickly as possible for the main guest. the stage as quickly as possible for the main guest. but i appreciate the excellent program that has been put together. i see i am sandwiched between pascal and dominique strauss. one of the ironies of my life is that i spend a lot of time working with french socialists. i have found some good ones. i thought it might be useful to share some impressions and then hear your questions and comments. it is an extraordinary time in the world economy, and for development as well.

i will open with brief observations on how i see the world economy, and the increasingly important role of the developing come -- the developing countries to grow and sustained growth. i will outline some of the world bank's response and close to some of the challenges we face and ways we can work with the bretton woods committee on those challenges. the good news is that the world economy is no longer staring into the abyss. it gave us a good fright last year. but we are definitely not out of the woods, by any means. one point i have been trying to make atg- g-7 or g-20 meetings is that we have to be alert to the dangers we face in the world economy, but also to some opportunities. i believe we are in a recovery. i do not believe that a double dip is likely. i think the pace of the recovery

is going to be quite uncertain. the reality is we have multiple paces. the recovery is stronger in east asia. this will pose particular challenges for the nature of policy cooperation. you can see this in some of the g-7 amd g-20 discussions. unemployment is likely to remain high in the developed economies. this means we have to be alert to second order effects on the financial side, we are talking about high unemployment. bernanke said we will have time with -- we will have trouble with credit card loans, people paying mortgages. they do not have their jobs. commercial real estate is a market he has emphasized over the past months. this will, of course, create different problems for some of the financial institutions and other business models.

we will see some institutions do very well overall and some struggle with bad losses. i had an opportunity to listen to my friend pascal. as he said, so far we have dodged the bullet of a strong protectionist response. but we have to be alert that anytime you have continuing unemployment one has to be careful about protectionism. political leaders will feel the pressure to do something. that is always a tempting tool. another issue we are watching is the fact that a number of the stimulus programs ran their full force through the later part of last year and the middle part of 2010. there is a question of a hand off to a private sector recovery. i tried to watch this closely and to reach out to others. we saw some signs of inventory recovery. we saw some business investment, gradually, in some sectors.

people do not expect the consumer to play the role that he played in the past. frankly, i still have a sense that the uncertainty seems to leave all good reports aside. there is no market for positive expectations. we are not capturing any momentum on this. . .

you saw a big down pressure on spreads, but you have seen in past weeks some of the high-yield bonds have gone up and you have seen some pullback in some of the corporate markets. i think this is an area that one will watch all year from the perspective of developing countries, obviously we're concerned about their continued access to finance at reasonable costs without crowding out their private sectors. i had a chance with dominique to attend the g-7 finance ministers and central bankers meeting up in canada near the arctic circle. it was a wonderful opportunity to see a very special place. just to share with you a little bit of a sense i got. i had a feeling that for a number of the ministers, there was a sense that they had been

able to cooperate effectively when their backs were against the wall, but now they were all feeling the political pressures at home and it was going to be a sense of fatigue about coming together on some of these challenging issues. i think a desire to do so, but i think it's going to be a challenge. from the central bankers a little bit on the side, one had a little sense of a caution that in the early crisis phase, people could respond strongly with monetary policies and sometimes fiscal policies, but we're now in a phase where it's not so clear that the heavy use of those won't create a counterreaction. so the usefulness of some of those tools we had earlier in the period may not quite be effective. when all these add up is that i think we're in a period where there is still considerable uncertainty. now, in east asia we face a different issue. when you see the recovery of growth in china and some of the other countries and the liquidity, you have the danger

of the asset price bubbles. i wrote a piece about this in the "financial times" last autumn because after the finance ministers meeting in scotland, i was worried this wasn't getting the full attention. in some countries like australia, they're responding by increasing interest rates. the challenge is that traditionally some of the central banks in east asia follow the fed. they wait to follow the fed in these case, they might find them growing. they're in a bit of a bind, they're going to see some currency appreciation and what does that do to their export-led growth. this is the changing nature of the imbalances discussion. for years it was one of the question of u.s. and sometimes europe with china. you're now going to get a sense from some of the other developing countries of some of the challenge of this and it leads to the broader question that when you attend ministerial meetings which is always present is how does one

move to a broader rebalancing beyond the exchange rates with savings and consumption. another part that may be inevitable but i think is kind of an issue, and that is undoubtedly when you have a huge economic downturn like this, it focuses a whole new look on public policy issues. and so that creates its own sense of uncertainty. if you would look at potential investors in health care, in financial services, in energy and the environment or in autos, it's not clear exactly how these are going to be working out. so i think that's one of the other tensions that leaders are going to have to face, because if the consumer isn't the source of growth, and you're looking for business investment, well, how will business investment respond? now, what i think is really worth noting and it's pretty hard to miss this in the newspapers, is that it's the developing world that's leading the recovery. so you have seen the picture in china. you saw some very strong numbers coming out of india as well. and what was different going

into this crisis compared to the 1990's, the one that jim dealt with, was a lot of the developing countries had paid down their debt. a number of them had better fiscal space. and coming back to the trade issue that you just heard fromñ pascal, some of the numbers that i saw on this over the weekend tell the story. the imports for the developing countries now exceed their prior peak which was april 2008 but 7%. for the high-independently countries, the imports are 14% below that peak. what you're seeing is the developing countries are the source of demand in this system. now, this is one reason why we and others have tried to support them with the appropriate level of financing. we have also tried to learn some of the lessons of the past. and, again, complimenting jim and others, i think one of the things coming out of the 1990's was looking at what worked and what didn't. one of the key lessons is that macro economics stabilization

wasn't enough. if you didn't focus on targeted safety net programs, you could lose a generation or part of a generation, and that's really what happened in some of the countries. because with poor nutrition, kids didn't get a fair start. a lot of them got pulled out of school, devastating effects. so one of the things that we have tried to do in the response on the policy side with our developing country clients is share the experience about programs, whether they be conditional cash transfer programs. have you heard a lot from mexico and brazil how to expand those, how to build those, or in some countries that didn't have the capacity work with u.n. partners like the world food program on school feeding programs and other nutrition programs, food for work programs. and, again, one always has to keep one's fingers crossed. so far we have been able to try to support that. another area we have looked at -- and this again draws on the 1990's experience, for many of you looking at the chinese situation in the 1990's, you

recall they put a lot of money into infrastructure. it created jobs, but it also created a future productivity in dredge whether it be the roads, highways and ports. we have been trying to work from both the public and private side to see if we can support countries with the infrastructure push because it's not only a question of what one's demand response is, but a question whether the money is going into investment that will be a future productivity. we're trying to emphasize that as we go forward. i'll come back to this again through the leadership that they have done a fantastic job. we have tried to put up some new facilities to try to deal with some of the particular challenges to have the private sector respond. so the question of the handoff to the public to the private sector is not only a developed country issue, it's clearly a developing country issue. i think from a bretton woods conceptual perspective, some of the issues that pascal was touching on, i think an important observation is that over the medium and long term, we're going to be moving to an

international system with multiple poles of growth. the response is no longer going to be of what happens in the north america or europe. you can't open up the newspaper without seeing the discussions of what's the developing world and compare that with the late 18990's, where the question is will china hold the currency pay. if you look at the stories, you didn't respect the response to come from those countries. well, i believe over the next decade, this is not just going to be a china or india story. it's a southeast asian story, a latin american story. there is potential in africa and other points as well. that's where we can come in on the development side. now just to give you the, kind of the bottom line number. since the crisis hit its full force about the middle of 2008, we have done about $89 billion of financing across all our arms. that's the ibrd lending, the and our risk insurance and others. if you look at the numbers in the 1990's, there was a big

increase in support, but this more than dwarfs it and the demand is frankly not slacking in any amount. now if you look at what i also emphasized and i really compliment the team here at the world bank group, while we were trying to support our clients in this fashion, we also tried to keep an eye on particular problems and to innovate. here we had a little bit of a head start as many of you recall for many of the poor countries before the financial crisis hit, it was a food and fuel price crisis. we worked with our board to put in a sort of fast response facility to try to help with some of the problems, particularly in food prices, whether it be some programs like school feeding, whether it be fertilizers, other types of support. that is more morphed into a broader agricultural turel effort that you saw coming out of the g-7 and g8 meeting and the united states has played a particularly important role on this. on the private sector side,

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take a long time for them to come back. we use this is has been very also ize the valuable in working with other partners, for example, the european bank for reconstruction development and the e.i.b. because as many of you know, you had the particular problem in the banking system in eastern europe. microfinance, many people know the value of it and are unaware they are not deposit institutions. they depended on cross border flows. we work with governments to put tooth a pooling system to help microfinance. infrastructure, we would put something together with public-private structure because we wanted to make sure we didn't loose the process of how do you connect them together, not only in financing, but also in the management of these projects. one of the interesting changes about what's happening in the world economy is there is some fantastic innovations happening in developing countries such as

india in the infrau practice structure sector that it would be useful for some of the developed countries to look at. i met a couple of the governors from the u.s., had a national governor's meeting and people are talking about the problems of obviously large budget deficits. frankly, a lot of states are sitting on big assets called infrastructure and there is some possibility of using financing methods that we see in india to help some of the financial needs in some of the developed countries. and this is partly what i think we're going to see. 20 years ago we're at the start of the bretton woods system, it was a north-south exchange for developing countries. we're seeing south-south exchange and i believe the possibilities for some south-north terms of exchange of knowledge and information. another key area that we came up with, distressed debt. we have tried to help in some cases, we're working with russia and central and eastern europe and some others as to help some of the countries be able to restructure their debt,

get back on their feet and move forward in a process. some interesting innovation, and what was particularly interesting about this is that with these different facilities we created, really over the course of the past 12 to 18 months, we brought in about $10 billion of funds from others. so it's a good mobilization device. we're also planning some seeds that i think are going to be very important for the future to be a little cautious here with the s.e.c. requirements and probably early next months, we're going to be launching an equity fund with some sovereign fund investors and long-term pension investors for some in latin america. this is an idea that some of you may have known. i talked about trying to go where the capital was, to have some of the sovereign funds and see how we can connect that to development, not as charity, but as an investment. an increasingly after this crisis, we had a number of

long-term investors say we recognize there are serious risks in the developed world, maybe we can get good returns in the developing world, but we don't really know where to go. we don't have the platforms or information. we have a good record over the years. so the concept here that i find really important over the long term, many of you know the history for the bank is to raise debt and make loans or make equity investments in the case of i.f.c. this is a model that we created an asset management corporation as a subsidiary of i.f.c. to help manage some of the capital flows using our platform. now, fortunately, as the crisis hit, we were in the position where we had the capital to expand and, again, one of the great sort of unsung success stories here and it really is due to the financial team, i think most of you are pretty

aware this is a sophisticated financial institution. this is not plain vanilla stuff we do all over the world. we're all over the different innovations and trying to use risk management for developing countries. and i think we're one of the few institutions that didn't get hit badly in this process. that really is a compliment to the financial team. at the last annual meeting we had in istanbul in october, i alerted our governors and the ministers that while we were in a position to lean forward and support the developing countries for a time, we were going to have to look at the possibility of developing more financial resources if we were going to continue to do so. so as jim mentioned, we're in the process of seeking the first general capital increase since the bank since 1988, bill will remember this from the ways and means committee. i ironically remember it because i was with secretary baker at the time so i got the

other book end from the treasury side. i get it from this side. the other part that is important -- and this again i think tells you a changing nature of the bretton woods institutions. we zined this request as part -- designed this request as a part of a larger financing package. what is most striking if you think. developing world area where there is a question of liberalization in the growing markets or if you think about the meeting in copenhagen where there is a question of sharing low carbon growth, we're putting together a package where 50% to 2/3 of this will come from the developing world. so this is really emphasizing the muletity of this institution. now a.part is we raise prices once and we are looking at another price change related to maturities, but another aspect is we're combining this with a change in the voice. we're moving up some of the shares for some of the developing countries though we'll have to pay for those

shares. one other aspect where i'm appreciative of the willingness of the developing countries to work with us is the history of the bank was if you were a developing country, you purchased your shares with 10% sort of reserve currencies, 90% with local currencies and we often didn't have access to those local currencies to be able to count as capital. we have worked with the chinese, i was in russia last week, they were forthcoming. work with the sawedies and the mexicans are forthcoming. we will pick up at least $1 billion of capital through access to those terms. these are things that jim, it was sort of untouchable 10 years ago. as part of this, we have committed to also be keeping a flat real budget, but as important as this is for theñi financial resource package, the point thatñr i stressed, i was paris last week with president sar, i have been talking with members of -- sarcozzy, i have been talking with members and

it's important to have a common set of interests. maybe people will contribute some slightly different ways. we are trying to think about as we look at the next replenishment. i.f.c. is constrained now in terms of its growth but we are looking at a special capital increase for i.f.c. and one of the things that is quite interesting is that for some countries that might actually go down a little bit on their ibid shares, they're interested in contributing more through a special capital increase for i.f.c. we have a market test about willingness to do this. frankly, the pament that we can raise on this depends on how much the u.s. is willing to let its share come down. another good aspect of this is that many of you know the u.s. share at the ibrd is a shade under 16%. it's 25% at i.f.c. people haven't bought the shares. this lessens the burdens for the u.s. if it's willing to go down into the some degree and we're having discussions with

the u.s., the same time that it raises capital. another idea that year exploring that i think has its own merit is we're looking at a rather long-term of a counsel nature that we believe a substantial percentage would allow us to have capital. that's a useful device in any vent. that multiapplies our financing. it would not change the voting pattern. again, the purchasers of this would be the developing and transition countries and it's a way where we can get resources to do good things, get buy in and also emphasize some innovative methods. one of the things that at the start of the last time when we came in that we were able to do was i.f.c. had some very good returns. so really for the first time we were transferred about $1.75 billion of i.f.c.'s earnings.

frankly, the danger of this is you get much more volatile returns. one of the issues we are working with if we can change the core basic business of i.f.c. and this is what lars and his team are doing to focus on these countries and about 50% of our activities in those countries, subsaharan africa, some of the states, that might emphasize in a way the broader holding company nature of this. as part of the capital request, the development committee also wanted us to develop some papers and approach the compliment the general capital increase. one is what will be the directions after the crisis. another is this voice issue where we got a commitment to try to work out the numbers to increase the ibrd shares for countries from 44% to at least 47%. we also added another share already for subsaharan africa and a set of internal reforms. and i think together we'll put

together a pretty impressive package on this that will continue to focus on africa and the poorest, an area where i have had a particular interest and i see it -- residents of this everywhere. the special challenges of post conflict countries or ones that have suffered natural disasters, the afghanistans, the liberias, the haitis, where you have a special mix of security, governance, development, rebuilding legitimacy. these are special problems beyond the special development discipline. and this year we'll try to bring together the state of knowledge on that. collective action issues, for example, global climate change where we have done -- i have been very impressed with the work kathy and her team, we have created these climate investment funds with contributions of $6.5 billion with some of the developed countries. so far with our commitments, we have been able to leverage these about 10 to one. so at a time that the developed

countries are worrying about budget expenditures, i was, again, up on the hill yesterday and saying, look, we can multiply these 10 to one with other bank resources, 30% is the private sector. it's a power case. we have continued to focus heavily on the governance issues and the anti-corruption which are obviously fundamental to this, but going back to the point i mentioned about this recovery, recognizing this is not just a world developed in the poorest. it's a question of how do we get these multiple poles of growth and how do they also contribute to the other players. the critical development of the private sector, also. internal reforms is a full list, just to give you a flavor of some that you know how multilateral institutions work, a lot of these took a lot of lifting. we're now substituting an access to information policy that is basically like the freedom of information act that the u.s. has. so unlike the traditional approach where you would just

have what's called the positive list, you would list the information you release, we are moving to a negative list. you release everything unless you exclude it. we're putting up a special appeals body, judges, to make this determination. what is also interesting is part of the success of this was the strong support we got from india because india has put in a new freedom of information act. so you can see, again, some of the commonalities across traditional lines. mr. volcker is doing a lot of subjects these days. he did one on the corruption issue and he put together a commission that identified a series of changes we need to implement. we have those well implemented. he has been very supportive. many of you know the traditional lending from the bank was the investment loan. given the structure of the institution, huge amounts of time spent on investment lending to bring the presentation to the board, but perhaps not the proper balance in terms of monitoring what happens to the loan afterwards and frankly making a risk

management calculation based on the nature of the loans. we're changing the nature of the investment lending. one of the things that jim started here which i'm in some ways always amazed how we operated without it is a decentralization policy. we have decentralized a lot to the countries, but we have to recognize if we're bringing knowledge and learning, we can't have experts in each of those countries. so how do we use the matrix of the organization to combine knowledge and learning across countries. we do that relatively well within our six regionses. we don't do it as well as we need to across regionses. we're looking at some of the decentralization and matrix and knowledge and learning issues. in general, this also only works if it relates to the people and our head of human resources has started"áz move the system in some very significant ways. many of you know the bank and know multilateral institutions would recognize how sensitive this is, we have started to

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efforts to create jobs. the son a jobs bill that was passed this week is a step forward and an encouraging sign of bipartisanship. it includes a scaled-down version of the employer tax credit. i am happy that the senate has included this. as dr. blinder said in his op- ed, "reducing costs to hire new workers will create jobs." during today's hearing, we will explore other options and hear other ideas for helping workers get back on their feet, spark consumer spending, and brighten our economic future. i am pleased that dr. brenner are expectedñiñi toñi grow in t coming year. f which sectors and regions of the

economy are expected to grow in the coming year. mr. joerres will be giving us manpower's on the ground experience about increasing demand for temporary workers, job creation -- for temporary workers. job creation the temporary sector is a leading indicator of the market. since september, 2009, a temporary help services has added over 247,000 jobs, 52,000 in january alone. finally, dr. hastert -- dr. hassett will be giving his views about the future of the growth in the labour market. i am also pleased to see that today's panel will touch on another topic, discussed tuesday with the cbo, and that is the role of uncertainty about government policies on dampening economic employment growth. i did for to revive a discussion with the panel today, one that i hope -- i look forward to a lively discussion with the panel today, one that i hope will

create certainty so that households and businesses will feel confident that we will lead our country out of this recession. i recognize my colleague. i thank you all. i do not really have an opening statement. i look forward to hearing from all of you about prospects for accelerating the economic recovery and creating jobs, and your best suggestions as to what policies we can adopt that have not been adopted. thank you for being here. >> ok, let me just start -- unless you have some preference in the order that you would like to testify. dr. brenner -- berberner, have u been adequately introduced? >> i am happy to proceed. >> let me just indicate, he is

the managing director, co-head of global economics, and chief u.s. economist with morgan stanley. we appreciate you being here. you direct the firm's forecasting and analysis of the global economy and financial markets and co-heads the firm's strategy forum. you have served, of course, here on the research staff of the federal reserve in washington where yuko directed the fed's model based forecasting -- where you co-director of the fed's model based forecasting. there are a lot more things i can say about you, but i think this gives us an indication of your qualifications. we're pleased you are with us today. what are you go ahead and let me hear from you and then i will introduce mr. joerres. >> thank you for inviting me to this hearing. following the deepest economic crisis since the great depression, u.s. and global economies are starting to recover. in our view, however, the

recovery will be moderate and job gains modest. in 2010-11 we expect gdp to grow 3.5% and we expect annual job growth to average about 110,000 monthly over that two- year time frame, excluding high yields for the senses. even those job gains, however, are not a foregone conclusion. we have yet to see job growth in our economy, as you know. and while indicators have improved, it is still a forecast. more important, as you also know, it will take a stronger job and economic growth over the next few years to regain the 8.4 million payroll jobs we have lost in this recession, or to gain the 10.6 million jobs required to restore the employment rate, or the employment population ratio to the one prevailing before we got into the downturn. and important as well, our important -- employment problem has become -- the median

duration has reached 20 weeks, and a record 41% of the unemployment have been jobless for six months or longer. in my testimony i will tackle four specific obstacles to hiring, each with a cyclical and a structural element to them. for each i will talk about policies that will help foster economic growth and job creation. but first, i want to identify where job gains are likely to be over the next two years, and why. we think advances in export infrastructure, capital goods, energy and health -- health care related industries likely will account for most of the job gains in the next 18 to 24 months. that echoes our views of sources of growth in our economy. the combination of strong global growth, fiscal stimulus, and improving conditions thanks to the efforts of the federal reserve will continue to promote growth and promote improvement

in many of those industries. and of course, rising demand for health care services continues. when you think about where the regional strengths will become a that is a bit harder. for example, industries that likely will benefit from exports and other strong sectors happen to be located in regions that are hard hit by regional housing problems. the pacific northwest, part of the rockies and upper midwest, parts of the southeast and parts of the southwest seem likely to us to be the strongest regions. turning to us -- export markets and export gains and volumes are around 10% to be sustained for 2010. many of our trading partners will average 6% to 7% this year and canada will probably grow more strongly than the u.s. although slower growth in 2011 is likely to occur as u.s. and

overseas policymakers exit from their fiscal and monetary stimulus. in manufacturing, some 20% of unemployment in 2006 was directly or indirectly related to exports. i expect that share to grow over the next two years. capital equipment and industrial supplies exports likely will continue to do well, while consumers will represent a rising share of overseas demand. now let me turn to some of the obstacles to hiring. i think worries about the sustainability of the recovery are legitimate, as they often are early in a recovery. that is maybe holding hiring back. the fallout from the bursting of the housing and credit bubbles has intensified such concerns. i think it remains a essential to pursue policies oriented towards reducing housing imbalances, reducing debt and improving the functioning of financial markets and financial institutions. in addition, i think there are

four specific obstacles to hiring today -- rising benefit costs, mismatches between skills needed and those available, labor and mobility resulting from-equity housing, and uncertain policies here in washington -- resulting@@@@@@@ , üf private-sector employees cut

take-home pay while leaving benefits intact. median pay suffers. the long-term solution to this issue would include comprehensive health care reform and innovation to boost productivity and labor skills. a short remedy might include the payroll tax credit that we just mentioned in the hearing. the house confirms that they increase their peril. it would be one of the most effective short-term -- increased their payroll. it would be one of the most effective short-term remedies. the second would be skills in the workplace and what there are. there are big changes in the structure of our economy. dislocations in several industries from the recession have magnified the mismatches, workers that have been trained for one occupation lose their job and have difficulty taking another. even in health care, there's a

growing nursing shortage that requires new training facilities. the long term solutions include policies that keep students in schools, provide access to education, reorientation of the higher education system, specialized and vocational training in community colleges, and of course, training programs at firms like mr. joerres'. the short-term remedies are a little bit harder. when my pair short-term training and basic skills that are needed for work with the income support me through unemployment insurance to help people bridge the gap through jobless spells. two other groups seeking employment, newly minted college students, and recently unemployed teachers could be an ideal nucleus, in my view, for an ideal training corps of seekers with new skills. the third is the housing bust.

--- -equity for -- -equity for housing honorowners is leading a wave of defaults in which borrowers who cannot month -- can no longer afford to pay decide to walk away. this is undermining the economic and social fabric of communities and reducing job opportunities. so far, the policies that we have employed have not dented the problem. the long term solution, of course, is financial and mortgage regulatory reform, which are essential to restoring housing finance. -- housing and finance. in the short run, efforts to stabilize communities plagued by foreclosure are essential and worthwhile, but not enough. modifying existing mortgages has not worked. bree default rates -- we default rates are between 50% and 60%.

the fourth obstacle is policy uncertainty. i think that is a negative for the economy. the debate around major initiatives to address the problems are obviously an important part of the democratic process. but the uncertainty that has been made for a policy change is weighing on business and consumer decisions to hire, expand, buy homes and to spend. the rise in uncertainty increases the option value of waiting as volatility in markets and the economy rises. moreover, this reasoning suggests the uncertainty reduces the potency of policy stimulus.

in effect from it raises the threshold that you have to clear to make a business choice worthwhile, and conversely, it certainly declines as the threshold falls with it. in financial markets, the market participants are used to thinking that political gridlock is good, that it prevents politicians from interfering with the marketplace. and by the way, i think that interference is sometimes essential and important. the flaws are exposed with respect to financial regulation, whose absence allowed abuses. indeed, gridlock is bad for markets -- likely to be bad for markets. the long term solutions here and efforts to tackle those complex problems one by one share and advice and benefits. the short-term remedies are no easier. they involve, obviously, getting together, but there will be a

tonic for growth in my view. the reduction of the uncertainty around the political environment here in washington would give some clarity, some direction to head in and it would improve support to the economy and pave the way for renewed job growth. thank you very much. i will be happy to take your questions. >> thank you very much. we appreciate you being here and we appreciate your testimony. jeffrey joerres is the chairman and chief safety officer with manpower inc.. he joined manpower in 1993, served as vice president of marketing and later a senior vice president of european operations and global account management, promoted to president and ceo in 1999. in 2001, was named chairman of the board. again, i have more information that i could put out here

explaining your imminent qualifications, but thank you for being here and we are anxious to hear your perspective on these questions. >> thank you, senator. job creation is the topic that we absolutely, deeply believe in as we every day connect people to jobs as we do for a living. but globally, we have more than 400,000 associates on assignment at any given day. in 2009, we interviewed over 12 million people through our network of more than 800 offices in the u.s. we have a pulse on the -- we have a finger on the pulse of the labour market. what are we seeing? companies are starting to hire, no doubt. however, like the recovery in the last few recessions, it will be a jobless recovery. this is because companies are much more sophisticated in their ability to assess their workforce needs. companies can -- can determine exactly when they need workers for the demands of products and

services. from now on, companies will logger engage in what was considered anticipatory hiring. table instead wait for increase in demand before making -- they will instead wait for increase in demand before making hiring decisions. as a result, we would expect a short-term increases in the level of job hiring will be created by new businesses or actual demand. our latest survey, a survey of over 28,000 u.s. companies as a forward looking survey come off 12% of the company said it would increase staff in the first quarter. 73% said they extent -- expected no change in hiring. why is that important? in the 42 years of this survey, that number has never been that high. that number of companies stuck in the middle of civilization waiting for a signed to be able to take on -- the normal number in this category would be around 50%. -- 58%. this is the first time we have

seen a number of this large. additional surveys show employees in the mining, manufacturing, government are expecting hiring in the fourth quarter of 2009. a slight increase in nonverbal, transportation, utility, professional and business services. wholesale will have a soft first quarter and a softer second quarter as well. using the seasonally adjusted rate -- the adjusted data, all expect moderate growth from hiring levels, with the highest coming from the south and midwest. and you can see why, because of the growth in manufacturing jobs right now. a major trend emerging from this down cycle is the number of unemployed workers who will be forced to find new jobs outside their industry of expertise. in our company, we have labeled these people. they are industry migrants, very similar to a migrant coming into

the country. they face challenges including how to adapt old skills to a new demand in the marketplace and how to represent those skills in a brand new light. an example of this would be what we would call basically a foreman in an auto company on the shop floor, possibly having problems fitting into a manufacturing environment, but a very different kind of manufacturing environment. another one of these major challenges that these workers based in this recovery is the lack of mobility exacerbated by a housing crisis. this inability is slowing down employment. the inability to help homeowners get out from underneath their negative equity problems means that many jobless are unable to take jobs in different locations when, in fact, there are available jobs. we believe that any initiative that the government implements to address the level of unemployment and foster job creation should focus on three specific areas.

the individual job seeker, companies, and potential new businesses. what can be done to assist in individual employment? training programs, again, as dr. verner mentioned, these have very good track record. they also have the challenges associated with them. i might suggest they should simply focus on these industry migrants. not just focus on existing skills, but move them into different industries. what can we do for corporations? corporations are more specific than ever about their hiring needs. this is the conundrum. there are people saying they have the skills and the companies are saying the skills are not good enough for me. they have to have softer skills, flexibility, adaptability, intellectual curiosity, an interest in lifelong learning, things that we did not have to have before. the velocity in the change of these required skills, all

industry migrants will need to develop them. tax credits and incentives for companies to increase the size of their work force will put needed money in the hands of businesses. however, companies have gotten smarter. in that from this recovery going forward, hiring decisions will be made based on demand for products and services and goods. offering incentives will not create new jobs, in my opinion. rather, they will subsidize the cost of coast -- because of growth of companies where they would have hired anyway. this money is well intended, but at the same time will create a tax break for companies, which is good. but if you look at the long term core, it is not getting at true job creation. business is create new jobs. one of the biggest challenges of any federal government initiative is getting to the end citizen and how that is in can participate in these programs.

programs to provide these people with access to start up capital, grants, access to cheaper this day, perhaps even using some fdic-owned real estate will create jobs. in conclusion, i am suggesting three specific actions that should be used to address the three areas of which i just spoke. one, a targeted investment aimed at new business creation, a comprehensive program breaking down the silos within government to support entrepreneurs to set up and establish new businesses. a new pipeline of businesses must be there in order to replace the continued product and efficiency. a program targeted at unemployment and the homeowner. we need to create a more flexible and flow with labour market. we need to be able to have people continuing to pay their mortgages so they are not trapped in their city when there is a job in another city. a target to address soft skills, these migrant

populations. this is an opportunity to develop a training and curriculum program to work force and assessment boards. all of these can introduce the likelihood of this migrant moving to other industries. manpower has been in the business of jobs and training business for over 60 years. we have seen the economic ups and downs. it is clear that this recession is by far the most severe in its downturn. it is a privilege to get some of the thoughts and feelings that we get on the ground and share them with the committee. partnership between government and industry is critical to move forward quickly. it is also critical that we get it right, and right means systemically so that we are not solving this 18 months from now again by and the employees of manpower are ready to -- 18 months from now again. i and the employees of men are ready to assist in whatever way

we can. >> thank you for that testimony. our third and final witness is kevin hassett, director of economic policy studies, a senior fellow at the american enterprise institute. his research areas include the u.s. economy tax policy and the @ @ @ @ @ @ " >> that is great.

>> it is an honor to be here, especially before this committee, which you can see in looking at my fellow panelists has a long tradition of inviting people here to give the unbiased truth and help people think about where we are and what we need to do. as you know, senator, my testimony was fairly long and after listening to my two predecessors, a lot of the things that they said are things that i grew so -- agree with explicitly in my testimony. i will go through the parts of my testimony that offer a slightly different or alternative perspectives and not emphasize the areas of agreement. i will begin with a brief overview of our current economic situation, discuss what i see as the most pressing challenges for employment and growth, and then describe policy changes that i think would address our current challenges, especially those in the u.s. labor market. the headline of my testimony is that it is absolutely clear that the recession is over, although

that is not commonly discussed. but it is certainly accepted by most economists. i think in the end, the trough of the recession will probably be sometime in july of last year. but even though the recession is over, as was the case in the previous two recessions, we have begun with something that looks a little bit like a jobless recovery. the labor market is improving far too slowly. although, it may have suddenly turned the corner lately. the fact is that we are coming out of what economists now call the great recession, but i think we need to amend that as we think about our policy changes because it was a great recession for whites, but has been a great depression for blacks. if you look at the differences across races and unemployment, for example, it is startling and disturbing and an urgent call for action. i think also, that apart -- the great depression for blacks is

not over. we are starting to see some signs of improvement in labor markets, but if you decompose the statistics and look at the different experience of whites and minorities, you find the minorities are trailing in a way that challenges policy makers. i think in looking at the economy, we are clearly out of the recession. and we have had a tremendous growth quarter, but that growth, a lot of it came from inventories and traditionally, inventories bikes are followed by weak quarters. they tend to be negatively correlated, which means there is a downside risk at the beginning of this year and ample room for caution. i think given that, and given the state of the labour market, we would be wrong not to think about additional measures to take. before i go on to the specific proposals that i would urgently encourage you to consider, i

would like to talk a little bit about what we did last year because i think it is crucial to not repeat what we did last year for reasons i go into in depth in my testimony. the cbo report this week provided estimates of the impact of the stimulus and they offered broad ranges in the report when estimating the economic effects which were intended to encompass most economists' views, and thereby, reflect the uncertainty in such estimates. most estimates were fairly favorable, giving ranges of above 1 million or 2 million jobs. my view is that the cbo report is incorrect and i make a these observations not to make political statements about what we did last year, but rather, to emphasize that is crucial that we look elsewhere now. why do i disagree with the cbo report? the cbo analysis relies in large

scale on keynesian forecasting models that were mostly discarded by the economics profession and a long time ago. the cbo analysis concludes that we got lots of jobs created and that the broad range of economists' views would support that. but i disagree. that is not my read of the literature. a sign of how far off their analysis is comes in their comparison to the broad range in comparison to the analysis na "wall street journal" article this week. it has tried to observe the economic data rather than assume, as is done in the keynesian model. the author is a virtual lock to win a nobel prize and his work has been followed by many others who have made similar findings. the key statement is that he

estimates the government spending will declare for the stimulus in 2009 was about 0.4%, pretty small, and the multiplier for your two would be about 0.6%, a bit bigger, but both of these estimates fall near the bottom of the range of cbo multipliers because the cbo chose to ignore the literature that relies on experience rather than keynesian speculation. i believe that the correct position for policymakers as we look ahead for what to do is to adopt skepticism concerning these effects and openness to different approaches. . .

i highlight the number of things in my testimony which i am going to have to give a helicopter view of, as i am running out of time. the first thing is that we should recognize that we have a serious opportunity if we get our house in order. uncertainty about feature policy and about the course of u.s. prices and the value of the dollar is certainly having a depressant effect on the u.s. economy. there have been many countries in the past that have been in circumstances similar to our own, and the literature suggests that those countries that get their house in order by having something like the bipartisan commission that was proposed in the senate recently to reduce the deficit in the long run -- they have seen even at near-term economic booms, in part because

the uncertainty about future policy is removed. the first thing we think about is not to a sharply cut back government spending in this year, but rather to recognize that we have an opportunity to move the uncertainty about future policies by getting our house in order in the long run. such fiscal consolidation would be beneficial policy going forward. it would give people a reason for confidence as they make plans about the future. the second policy that i emphasize in my testimony is something known as job sharing, which is a smart and clever idea that has been floating around for years, perfected by some european nations. i am running short. i will summarize it in this way. right now, we have unemployment insurance. if a firm lays a person off, they will have a reduction in

their wages they have to pay and the person who is laid off will çóget someone unemployment insurance. job sharing its fractional unemployment insurance. you could reduce a workers' hours and they would get a share of their unemployment insurance. in germany, they have had gdp decline similar to our own, and yet the unemployment rate has barely gone up. many analysts contributed to their job sharing program. i think it would be very cost- effective to adopt one now. it is important to note that it is not too late even in the first stages of a recovery. the fact is that each month 4 million jobs or so are created and destroyed. there is job creation out there, but there is still a lot of job destruction. if we can use job sharing to slow destruction even 10%, that migt add 400,000 to the net job numbers in the top line

unemployment report. i go on to discuss the idea of creating jobs directly, which is not something i would naturally choose to do if asked. but given the state of the labor market, we need to really be creative. the good news is that the new programs that we have seen that have tried to create jobs directly have done so in astonishingly cost-effective ways compared to things like the economic stimulus. for example, one jobs program, h r 48564 crated jobs at a cost of $10,000 to $20,000 a job, which is about one-tenth the cost of creating jobs to stimulus. -- of creating jobs through stimulus. it want to give people optimism, we can consolidate physically, but we also have to give businesses a break. the rest of the world has been

reducing corporate taxes for years. the average in our trading partners is about 10% below our current corporate tax rate. if you're a multinational firm deciding where to locate your activity, are you going to located where you have to pay 10 percent more of your profits in taxes, or are you going to choose another place? the literature is clear. if your corporate tax is far out of whack with the rest of the world, the revenue costs are extreme. you can reduce the rate without losing much revenue, if at all. i even have references listed in my testimony that suggest the cost of reducing the corporate tax rate might actually be nonexistent -- it might raise revenue because we are on the wrong side of the black for curve -- of the laffer curve. we do not have much revenue to give. the corporate tax area it is one

that is harming our competitiveness and could be fixed without deep cost. thank you for your attention, senator. that includes my prepared remarks. >> thank you for your excellent testimony. let me put an article on the record that relates to your testimony. it is entitled "stimulus arithmetic." it is by a professor at uc- berkeley. it discusses the analysis of the fiscal stimulus act and its effect on jobs. let me start with a few questions to you, dr. richard berner. i think your testimony is very useful, particularly in that you organize it in terms of the

short-term and the long term. that is obviously the reality we are faced with here in trying to make policy for the country in the weeks ahead and the months ahead. one big debate that i think i hear all of you taking a position on is we have got some in the senate who are taking the position that we should not be spending any more for unemployment insurance, any of these job creation initiatives, payroll tax holidays, these types of things, unless we offset that spending by cuts elsewhere or, presumably, by increased taxes. somehow or other we need to pay for any continuation of the job

creation provisions that we have in law today, or the job maintenance provisions that we have in law today. i guess i would be interested, if i am understanding your position, dr. berner -- your position would be that is not the right policy in the short term or in the long term. there is a distinction we need to keep in mind about what we do now versus what we do with regard to the long-term deficit and fiscal situation in the country. is that accurate or not? >> that is accurate. i think there are two things that are important. in the shortñi term, what we are all saying is we need to be smarter about the way we implement programs and the way we use taxpayer money to implement them. we are all interested in getting the maximum bang for the buck out of those programs. income support, for example, is

important in a period of great stress for american families and workers. but as i suggested my testimony it might better be paired with training or other things that would make it more productive. 'a&@ @ @ @ @ @ @ @ h@ @ @ @ @ @g join them in this. we need a credible plan to get our fiscal house in order, and we haven't seen this. i think markets would dervife -- der arrive gret benefits in i think people would understand that while it will take some time, because we have difficult problems to solve and big problems to solve and big challengesñl  toñiñi mq)ess, a credible plan to resolve our fiscal problems over time i

think would be enormously beneficial to markets and theñi economy. >> so theçóñi deficit reduction commission that the president is establishing is the right thing butçó continued support for job creation initiat)(ñçóñrñrçós no right thingñi to be doingñii] a uñ it is the right thing to do as long as we do it in a way that is both creative and where we get the most bang for the buck. >> this suggestion that dr. hassett is making about work sharing, job sharing -- is that something you looked into, dr. berner? does that make sense as a policy issue we ought to explore or adopt? >> senator, i have not looked into that, but it doesn't count -- but it does sound like something we could explore. we should leave no stone

unturned. the appeal of what he is talking about is that if you have people who have their our significantly cut back, but there is a level of income support their for those people, that builds an automatic stabilizer into the system while at the same time we reduce our spending. we get into consumer saving in a precautionary way if there is a lot of uncertainty out there. that kind of support could be useful. i think we ought to also look at the other kinds of creative ways to both support demand and to get our economy going, to support job creation. >> mr. joerres, did you have any thoughts about the questions i have just posed here about what short-term policies make sense for us to consider here in congress?

>> anytime you can get somebody back to work instead of sitting at home, it makes a big difference, whether it be some form of job sharing or the industry that we are in. it makes an awful lot of difference. the longer you are unemployed, the more you get to a long-term unemployment situation. even if you group -- if you do comparisons between us and europe on the long-term unemployment rate, a lot of that has to do with getting people back to work fast enough. we could separate it this way. there are forms of safety net that must be employed now, because we are in a period where you have to have a safety net. but safety net programs do not necessarily create jobs. but if we look at this as a safety net and then creating jobs, we will have an s curve environment. there have to be some parallels in order to do that.

this all cost money. we are going to have to make choices. are we interested in troop system and job creation, which is new businesses filling in the slack of mature business is continuing to enhance efficiency? i have 5000 employees. i moved it to 4500. there has to be another business coming up employing 500 people, just to be the same. our pipeline of new businesses is not there. safety net services and short- term job creation or preservation, and then longer- term programs to pipeline new jobs. >> dr. hassett, maybe you can just comment on the general question that i opposed to dr. berner.

as i understand your testimony, you said we have a near-term opportunity to get our long-term house in order, and that is the deficit reduction commission. you believe that is a good step to address that problem. >> i am not sure about the deficit reduction commission, although i have a great deal of respect for the people who have been in charge of setting it up. the fact is, we have tough choices to make. as you know, senator, there have been many more failed commissions in the past than successful ones. i wish we were a little more ambitious in this regard. i would also highlight a charge -- a chart that looks at the u.s. debt situation and points out that we are pushing the envelope in terms of our debt. again, i am not here to point fingers at who is to blame, but it is something that started about a decade ago.

we began running up big deficits. right now, our external debt relative to gdp is worse than the external debt we saw for latin american companies that have defaulted over the last few decades. if you are to say the u.s. is like another latin american country, i would respond, "you wish." it would be a big improvement from where we are. that is the circumstance. we have to be wary of expanding things without figuring out how we are going to pay for them. we do not have to time them so they all happen this year. if you could find -- i know this is something that politicians often refer to that never really exists or happens -- lots of money we could save from reducing waste three years from now, or some program we are going to cancel, that the present value for that cancels out our jobs programs, then i think the panelists would all agree that would be a policy that would have a significantly

better effect than one that just added to the uncertainty about how we're going to fix this mess. but the good news -- in some sense, it is depressing to think about our fiscal situation, but i think there is a twist on it that one could think of as good news, in the sense that if you are a person like me who likes to watch medical mystery style television shows, if somebody shows up with a knife in them, you take the knife up, pull it out, and they are fine. if there is something wrong with somebody and you cannot tell what it is , that is bad news. we know there are knives in us. it is not a mystery. the question is how to navigate the political world, not what the problem is. >> your endorsement of direct job creation is interesting. we get into real is the logical discussion around here whenever we tried to appropriate money

-- into real deal logicideologi discussion around here whenever we tried to appropriate money for direct job creation. we will make tax provisions to send somebody else to create jobs instead of directly creating jobs. i understand you saying that direct job creation seems to be a more successful way to get jobs created at a reasonable cost. am i understanding you right? >> thank you for pointing that out, senator. i would add that the thought that started me in this direction -- if we had started the stimulus package by hiring people and paying them the median wage of $38,000, we would have created 21 million jobs.

with the higher cbo job, it is climbing to something like 23 million. i am not saying that is something we want to do, but it puts into question what the multiplier is. creating jobs directly is more effective than a public works program that creates jobs. the idea that creating jobs directly means big government is incorrect. i think that one could easily envision a program that i would probably want my colleague to the right of me to design, where we arrange for firms to hire someone who is unemployed, to give a fraction of the salary for the first few months of that person in terms of wage sharing or some kind of contribution. if you did that, firms would have access to cheaper labor, so their profits would go up. we would get someone back into the labor force before they are lost forever.

as my colleague mentioned, if people stay out of the work force for a year or two, they often have a hard time returning. we have to send a lifeline to these folks. given these concerns, especially if it focused on private job creation, it seems that people of both parties should agree that it is a much more cost- effective way to create jobs and many of the other things on the table. >> dr. berner, i would be interested on your comment about this proposal about reducing corporate tax rates, indicating we are at a competitive disadvantage because of the top marginal corporate tax rate here being so much higher than it is in many oecd countries. my impression is that while the tax rate is higher the effective taxes paid by corporations are not out of line for corporations operating

here verses corporations operating in europe. am i wrong about that? do you have thoughts about this? >> i have not looked into that comparison, but i think your intuition is probably correct. many of our largest corporations are global. when i think about the tax liability and how they structure it -- in my testimony identified something else on a cross- country comparison basis that i think is important. that is the role of health care in the workplace. i think that is one area where we are out of line with other countries, even though those benefits are a tax deduction. nonetheless, the represent a fixed cost that, when hours are reduced, still persist. they put our cost structure --

our composition -- our compensation cost structure out of line with those of other countries. how we deal with health care and health care benefit provision would make us more competitive. i think that is a really important issue. >> let me throw out a radical view of things. if -- sort of three of our problems -- one is strucshort-tm job creation. a second is eliminating uncertainty for the long term. third is getting our fiscal house in order for the long term. if those are three big challenges, it would seem to me that major reform of our health- care system accomplishes all three, or hold out promise for progress on all three because it holds out promise for job creation in the near-term.

there are direct jobs being created in the proposals we have been talking about. one of the uncertainties i think you referred to in your testimony, dr. berner, that businesses look at is the uncertainty about what is going to happen with health care reform. and then cbo and most economists are in agreement that, over the long term, if we cannot reduce the growth in the cost of health care, we cannot get this debt problem fixed. we cannot get our fiscal house in order. so it would seem that doing something significant on health care ought to be a priority, as it has been for the president. do you agree with that? >> i do strongly agree with that. the three things that are important in health care are cost, access, and quality. many people view them as in conflict with each other.

i actually think that if we do it right then we can actually achieve a lot of those objectives, and the objectives you just mentioned -- namely reduce the cost of health care for businesses and for consumers, improve the quality, increase the access. and because that is such a big part of our fiscal problems going forward, and it is only growing under current law, that fixing that is imperative to get our fiscal house in order. >> joerres, do you have a perspective on whether this is an important policy initiative for us to try to deal with or whether we can put this off and deal with it down the road? what is your thought? >> because of the complexity, it is difficult to put off down the road. having said that, we have over 200,000 clients, many of them

small and medium businesses that say they are not hiring a person until they find out what that cost of that health care is. >> of the health care costs associated with that hiring? >> right. so right now, those@@@@"4 what they are doingñr isñwiñiñi oldñrñi holding out and stoppin so while we need to address it, this complicated issue of -- is creating a stumbling block. that stumbling block, actually, after something is passed, still requires some time of digestion. passing something and then sifting it down to what is my additional burden cost over pay is going to take a while. while it needs to be addressed for long-term health, health

care solves a lot of that. the more we allow for portability back and forth, the more vibrant our economy will be. [captions copyright national cable satellite corp. 2009]ñi va, and they are saying, "i am not moving unless i have to." i think that has become the biggest issue right now. >> if i could add -- he has pointed out something important. lots of americans are staying in their jobs essentially to keep their health care benefits. that frustrates the mobility we have in our work force, the dynamism of our economy. i think that when you make policy, you have to consider that that is going to be an important benefit to health care reform -- that it is going to make our work force and labor markets much more efficient and dynamic, and free labor mobility. >> there are some very good examples of that.

if you were to study what happens in singapore, with portability of health care and the portability of your pension scheme, it allows a high velocity that is required in a smaller environment. even in this larger environment, palin needs to move quickly, but without the portability of pension schemes and health care, you are shortening the ability to create a robust economic and job creation environment. >> dr. hassett, did you have a perspective? >> thank you. i understand that the political clock and the economic clock are sometimes in harmony and sometimes are not. i understand why health care was addressed this year, but i agree that it was probably the wrong time and that health care is probably best folded into the consolidation -- we need to build a program of fiscal consolidation, and it will not work without addressing health care. many of the facts are long-term

objectives. those facts are unassailable. i would like to make one last aside about corporate tax issues. you are correct that if we look at corporate taxes in the u.s. that the actual number -- the average tax the firm will pay is not the highest on earth. it is the corporate tax rate that is. it is because of this laffer curve in the data. these companies move their profits into low tax environments. the move their profits around to reduce their global tax rate. that includes moving things out of the u.s.. if we lower our rate, we will not lose revenue. we lost it already. it is going to somebody else. there is a way to make us a better place to do business with a lower corporate tax. i think we would be wrong to ignore it. >> 85% of our business outside

of the u.s. is going to 90%. $20 billion of our company, $2 billion is in the united states. our largest competitors are a swiss-based company and a dutch based company. in our current environment we have a $120 million deficit disadvantage because of taxation between those two. that means i have to do a hundred $20 million more of productivity in order to maintain competition with european companies. none of those jobs have been off short. i am growing markets in china, vietnam, and others. when i look at minimizing the effective tax rate, it can be done much more effectively in the manufacturing in parliament through the use of transfer pricing. that is not done in the services industry. it is a very serious issue.

>> right. i am informed that chair maloney is on her way back, will be here in about 15 minutes, and would like us to recess for a short period. then she would like to ask some questions. if you have the time on your schedule, we would put the committee in recess at this point. she will reconvene the committee. thank you all very much for being here. i think this is all very useful testimony. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010]

r. i regret and apologize that we

had hearings right in the middle of it. i will be looking at the tapes of this and hearing your testimony. mr. brady is on his way back and will be here in a moment. i would like to ask the witness is something i always ask at the monthly hearings of the bureau of labor statistics. do you see any bright spots for job growth in our economy? anybody who would like to give any positive news about job growth in our economy? >> i think i can do that. as you mentioned earlier in some of your remarks, there is a very traditional flow of what happens in the economy. when there is some uncertainty of demand, we are the ones who come back first. the amount of people we are adding on a weekly basis, and the additional people that are out on assignment, says this is clearly a recovery. the majority of jobs are in manufacturing, spread across the entire u.s.

we have not seen a growth rate like this since 1993. yes, it is happening. we, like you, have questions about whether it is sustainable. i would say right now our field of 800 offices in the u.s. are feeling like it might be over. we are on our way. >> could you tell us some of the things we could do for people who have been unemployed or underemployed for a long time? >> if it is something we have worked on. we have programs for the underemployed and the unemployed. we spend a lot of time on training and development to put them in jobs. what we have found is that worker readiness is becoming more and more of a difficult issue for the longer and long- term unemployed. >> that is important. 40% of the unemployed have been

unemployed for over a year, and their skills are deteriorating. this is a problem. do you have ideas for programs to put in place to reduce the long-term unemployed? "programs, unfortunately, the we have seen -- that we have seen -- they work, but they take a long time. get them back into training. training that is tied to a job, not training for training's sake. we work closely at a community level with a workplace investment board to say where are the people and try to do training -- and try to do surgical updates to get people into a job quickly. >> would anybody else like to talk about the green shoots they see in the economy now? >> i think we are starting to see some advance indicators. we do, actually, a survey of all our industry analysts where i

work. hiring plans, and i think this echoes what mr. jorres was saying -- hiring plans are back up to where they were before the recession. those are plants that have not yet matured into action. i think the discrepancy between the plans and the action has something to do with the uncertainty that we all referred to in our testimony. coming to the issue that you raise about the long-term unemployed -- in both of our prepared remarks, mr. joerres and i referred to training. the history of training programs is, to some extent, a checkered one. the importance of training cannot be denied -- the importance of education. there is a short-term and long- term component. in the short term, i propose that repair the unemployed who are getting income support which is very much needed with a pool

of unemployed, for example college students or teachers who have been laid off, and get them together in a training program that can give people basic job skills. in that way, you are giving people important things to do while they are looking for a job. i think we all agree that when you have long spells of joblessness that erodes the chances you are going to get a new job. it erodes your skills and it arose your ability to find a new job. all of those things are important. >> do you see any bright spots? >> i think that first of all an interesting chart -- we always follow up hearings with those. this chart shows the geographic distribution of the recovery. there are some states that are starting to look pretty solid again and others that are still

in deep trouble. when correlation that i have seen in some of the work i have done is that the states that had the real-estate market that you read the most about are the places that are still going in the wrong direction, and maybe are not even seeing a recovery yet. >> where are we seeing recovery? which regions? >> i wish i had the chart with me, because it has been about a month. texas seemed to be doing pretty well. the other thing i would say that is a bright spots and the op opportunity that makes me psyched about job sharing -- there is always construction going on. that number in the labor report is often one-tenth or one 20th of the actual growth flow of that month. in november, there were 4 million jobs created a 4 million

destroyed, so destruction is still winning. in our economy, there is always creation and destruction going on. we need to create the circumstances were the creation can overcome the destruction. >> my time is expired. mr. brady. >> thank you, madam chairman for calling this hearing. i just got back from the to spitting in uneconomic council conference. a lot of people are interested these days. i think the corporate tax rate in the u.s. does put us at a competitive disadvantage. internationally, proposals to raise a hundred $20 billion more on top of our companies that are trying -- to raise $120 billion more on top of our companies that are trying to create

american jobs -- it seems to me the economic models on the stimulus are outdated. they seem to be $1 in of government spending generates this much, but back home, you look at small businesses. their behavior is modified because they know increased spending leads to new debt and new taxes. the business community looks at cap and trade, health care mandates, spending taxes, international tax provisions -- they are frightened by it. one of them said it is tough enough to predict the markets. trying to predict the market and you guys -- they are holding their money. that is affecting those older economic models. my question to you is -- thinking about the study examining the forecast of senator romer and others -- were

using keynesian forecasting models instead of dealing with those rational expectations of businesses, consumers, and others. do you think, looking at cbo, who does a terrific job@ bas#d'& i'm a big fan of the c.b.o. and a big fan of its current director. this has been exactly what we expected of dmctors. the thing is, the infrastructure that's been built up to analyze ujz often inxd washington, proo proceeds byñr induction, ifçó y if something is true today, it was true yesterday. ifçó we adopt añr model in theñ

1970's thatñi te-ls us m$u$e economy mr.i use theñiçó model,s unlikely the agencyok will uuqxi same darn model. oneñrñi metric --çó i was tryin thinkñr of the mostñi viffied w could describe this, butñi the place where[oñjrñi these bigñi models pushed perhaps the farthest was the university of pennsylvania. of pennsylvania. larry klein got a nobel prize. a mentor of mine designed the federal reserve on a large keynesian macro model. those were designed in the '70s. i started graduate school in the '80s. at the university of pennsylvania, the models had already been rejected by the literature. and yet these are the models that are creating the sound bites. that does not mean that we think it hurt growth last year, or that we know precisely that the stimulus was a failure and made things wose.

it does mean we should have a great deal of skepticism that we know what the right thing to do is. going forward, we have seen the success of some programs i highlight in my testimony. we should trust evidence more than models and the skeptical about what the model say, especially when the model predictions are so at odds with what we see in the literature. >> my gut feel is that the economy has changed, but those models are not as reflective. stimulus is almost always arrive after the recession has peaked and is slow. i think today that we downplay the economic boost from lowering the after-tax cost of capital on a permanent basis, where businesses can count on that rate of return and the ability to invest. your thoughts? >> i think you are right, mr. brady.

the way i like to think about it is not that the stimulus, again, made the economy worse last year. there is no question that growth was higher last year because of the stimulus. the question is how much. as we see, when we consider the jobs measures that i mentioned in the testimony could have created jobs for 0.1 the cost of the stimulus, and that we spent a lot of money but did not repair broken policies like the corporate tax that could make people optimistic in the long run, i view it as a squandered opportunity. >> thank you. doctor unbowed bernerbernger,ere with him? >> as someone who modeled the forecasting at the federal reserve, i would like to point out that we were constantly

changing our methodology and constantly adapting it to reflect new considerations -- structural change in the economy, globalization, and a number of other things. the models that we use -- and we do not rely exclusively on models, because i am old enough to use judgment and experience as my key model. but the models that we use explicitly incorporate the role of pacs dictations -- the role of expectations, whether in financial models or the type of uncertainty that reflect business decision so importantly. i think that that is really important in thinking about how to use those models. quite frankly, i think that is something people have looked at. >> can you tell me, in your opinion -- and i am asking all of you this question -- the number one thing that can be done to stimulate job creation

in the short run? can you give the number one thing you think we could do? of course it is a combination of things, but if you had one thing, what would it be? >> jeffrey joerres talked about the role of small business, and new business is what we really mean by small business. when we think about what their main problems are, small businesses are telling us in surveys that their problems are poor sales, access to credit, and the cost of employee health care. so we need to continue to use policies that improve the functioning of our financial system, that get people access to credit on reasonable terms. we need to address, in the short run and overtime, the cost of health care, and reduce the uncertainty around that. and we need to have policies that will continue our ability

to access global markets, because that is the key source of growth that i indicate in my testimony -- exports and the access to global markets. jeffrey joerre>> i would like t. right now, we are in a critical spot. i do not want to underestimate what we need to do as a safety net to stop some things happening now. that is not job creation. that is stopping the slide. i think we need to do that. i have spoken before -- >> how do we stop the slide? >> we stop the slide by giving additional visibility to what will be coming and not coming. we have limited opportunities to do that. it is difficult to say that we have long-term and short-term objectives. it comes down to confidence. hiring is a confidence in

demand. those two combined. we are starting to see the demand. does the demand start to level off? we do not know that. but i can feel very confident in saying the demand may not level off as much after there is a certain amount of inventory replenishment if we give them confidence that we are not going to give them any more -- any type of thing that is going to get in the way of them expanding their business. small business must create jobs to back up the efficiency that will be driven out of the job deterioration in large businesses. >> dr. hassett? >> i hate to waffle and sate two thanks. i think reducing the corporate rate is urgent if we want to create the context that is necessary for long-term growth to really ignite. i think if we were to adopt a job sharing proposal, we could see a response from it right away.

the reduction of the corporate rate would have benefits that would be spread out over many years. a job sharing proposal would stop job destruction almost immediately if there were generous, and you would see an increase labor markets in the months after that as well. >> is that uncertainty among your client's real -- clients real? do businesses look at -- our tax credits. our small businesses are not responding to that. is that uncertainty an issue with your clients in their hiring practice -- in their ability to rehire, hire new, or buy that new warehouse and make expansion? >> it is the number-one discussion we have with our small clients, the amount of uncertainty. their business is growing. when business is growing at a place where uncertainty is overcome by demand, they will do

that. as demand is somewhat tepid, the uncertainty is driving for them. they are looking at tax rate -- the additional burden on top of an additional person. i cannot emphasize enough that in our organization of 30,000 people, 5% 10 more people -- the math works out. if i have 10 people and am adding an additional person, i do not know if the additional staff are going to have an increased burden of cost to pay. that slows it down. >> looking at job opportunities, a lot of the world's customers live outside the united states because other areas are recovering faster than us. it is important not just to buy american, but to sell american throughout every corner of the world. sometimes we can do it with a company from here.

other times, they have to have a presence overseas. today, there is almost an attitude of benedick arnold. if you are large and are out there competing -- a company that expands into another state, we say "way to go." if a company expands into another country, it is viewed as a bad act. every study shows those jobs create stronger companies here -- research jobs, development. a company that has 40 people on site in algeria has 400 here, monitoring. should we be encouraging instead of discouraging companies who are finding new customers in every quarter? is it outsourcing of jobs or is

it looking at opportunities to sell more of our products and services? >> all of these have some complications. it would be easiest for me to talk about my specific situation. we are headquartered in milwaukee. we are 62 years old. each of our three ceos has been born in milwaukee. a 90% of our business is outside the u.s.. in six to seven years from now, it will be 96% to 97% of our business. the chinese business is growing fast. none of this is outsourcing. we're putting thousands of people into jobs in china, the middle east, abu dhabi. in the process of growing our business from a $10 billion business to a $22 business, which built a building in downtown milwaukee that employs 1200 people. the mayor of the city was in favor. we have reenergize a part of

downtown. we could not have done that without our expansion overseas. our two largest competitors are foreign companies. their tax rates are anywhere between 8% and 15% lower than ours, which puts us at a disadvantage annually of hundred $2,120 million annually -- a disadvantage a newly of $120 million against our competitors. >> that is a great story. we need more of you. >> that is an amazing story. congratulations on your success. dr. richard berner., greece and its financial problems -- we

are all concerned. i'm concerned about the potential impact to the united states if greece and up defaulting on its debt. i know that you have previously reported that the impact to the u.s. of slow growth in the european union is relatively small. i believe you said that one percentage point reduction in growth in europe would shape only 0.2 percentage points in u.s. growth, but that you were worried about financial contagion. can you speak about the crisis in the european union and greece and financial contagion? >> yes, i can, congresswoman. briefly, the big problem is that you have the potential for what is happening in greece to spill over to other countries on the periphery of europe, portugal and spain for example. it is important for greece to be

able to refinance its debt over a long period of time because they have a huge fiscal problem. they are having difficulty rolling over that debt on terms they can afford. they're just postponed an auction of tenure debt this week, as you have heard, so they can cool off and get better terms on that debt. one way or another, they are likely to get assistance from their other partners in the european union. that assistance will come with strings attached, of course, because the other members of the european union do not want to pay for the mistakes that greece made . one way or another, that assistance is going to have to come. they are paying together. that is a real problem that the europeans have. it is because of the fiscal consolidation