we wanted to remain the same regardless of where you are in your out of pocket expense process. there are improvements being made. i would agree with the consumer prescription drugs. they are expensive and costs do seem to be going up. i think we will need to work overall in helping to control health-care costs. this is a start, but there are still issues out there that remain in terms of trying to bring down the overall cost of health care. certainly prescription drugs are a big part of it. host: our last call comes from anaconda, montana, on our line for democrats. caller: hello. how're you doing today? i have been dying to make a few comments in a public forum about this. i would hope that the american people would take a hard look here. nothing has been done. all of this wrenching of hair,

they have changed nothing. the have talked about coverage now. it is not about your health care. the whole argument is gone. it is about how do we appease the health care? it is the insurance injury, not anything about care. the have not done anything developed any of us. thank you. host: sandy? guest: the point i made just before the caller made his comments relates. much of this is about insurance reform. it is not really about reforming the delivery system. i think there are movements. there are some requirements in the new long about demonstrating the quality improvement aspects that the health plan has to file with the

secretary, what kind of quality improvement does this promote? going forward, there are going to have to be changes in the way we pay doctors and hospitals moving away from a fee-for- service program which rewards doing more and some of doing the right thing so it is volume purchasing verses value purchasing. i think we will need to work in that direction. the new buzz word is accountable care organizations. those accountable care organizations bring everyone together. hospitals, doctors, and the panic mechanisms. they are working together to make sure the current delivery is provided. host: we will leave it there. sandy praeger, thank you for being on "washington journal." we will continue our series tomorrow talking about health care and the new implementation

of the new health-care law. we will be discussing individual mandates as a part of our health-care series tomorrow on "washington journal." i want to thank everyone for watching your program today. we will be back tomorrow morning at 7 am eastern. we will now go to the senate committee talking about the >> payroll unemployment -- payroll employment would be less by some 8.5 million jobs and the nation would now be experiencing deflation. when all is said and done, the financial and fiscal policies would have cost taxpayers a substantial sum, they say, but not nearly as much as most had feared and not nearly as much as the policy makers had not acted at all. if the comprehensive policy

response say this from another depression, they were well worth the cost. we can now look back at the economic performance as i indicated in the first quarter of 2008 which was a -6.8% rate in the most recent quarter, the second quarter of this year, a positive 2.4%. you can see that in the fourth quarter of 2009, it was a positive 5%. we are seeing the recovery decelerates. that has to be a concern to all of us. going to the next slide, private sector jobs picture as i indicated, in january of 2009, we lost over 800,000 jobs. we the most recent months wi, gained 83,000 which is remarkable but well below where we need to be. let's go to the next slide if we

can. unemployment remains stubbornly high at 9.5%. that is down from its peak but nonetheless, too high. if we go to the next slide, the housing slump continues. you can see the peak of their -- the peak there in january of 2009. we are down dramatically off that peak to 549,000 in june of 2010. the next slide is the "u.s. aid today" story. tight budgets and lack of medicaid help put government in a bind. all of us know that the states of a balanced budget requirements when there is an economic slowdown, revenue decreases and they are compelled

to cut spending. in some cases, they cut it dramatically. the next slide is cut in europe stokes global fears. britain and germany planned drastic austerity measures that may hamper recovery in the united states. i want to indicate also that in my contacts with business leaders across the country, they tell me that the financial crisis in europe has had a notable effect on the economy here. that is, they have told me almost without exception that the recovery was going quite well until the european debt crisis hit and that has slowed economic growth here and is -- has certainly affected those countries, as well. if we look at the deficit, we see that under the president's proposal, the deficit will come down quite sharply over the next

five years. it will not be sharply enough in the judgment of many of us. most concerning to me are the years beyond the next five years where we see the deficit again rising. that cannot be. a course for the country. that is why the fiscal commission has been put in place, to come up with a long- term plan to deal with deficits and debt, but what has been outlawed and the president's budget for the long term cannot be the course that we take. that would simply add to much to the debt and we are going to have to face up to that as shown in the next slide. this is a longer-term look by the congressional budget office, looking at 2010 and beyond,

going out to 2054 and if we stay on the current course, we will have a debt that approach is 400% of the gross domestic product of the country. let me state that again -- if we stay on the current course, the congressional budget office tells us that bike 2054, we will have a debt that will be 400% of the gross domestic product of the country. nobody believes that is sustainable. nobody believes that we would not face a financial crisis will be for 2054. -- well before 200054. let me go to the final slide which is the chairman of the federal reserve board is saying that we need a credible plan to achieve long-term fiscal stability. ben bernanke, the federal reserve chairman, on april 7, said to the dallas regional

chamber," a sharp near-term reduction in our fiscal deficit is probably neither practical or advisable. however, nothing prevents us from beginning now to develop a credible plan for meeting our long run fiscal challenges. a credible plan that demonstrated a commitment to achieving long run fiscal sustainability could lead to lower interest rates and more rapid growth in the near term." that is the challenge before us. that is absolutely imperative that we develop a plan and implement a plan to face up to our long-term debt. with that, i want to go to our witnesses. let's start with dr. berner, we will go left to right. we will hear from senator gregg first. >> you are trying to shut me off again. [laughter] >> i would never try to shut off. i am so eager to hear from these witnesses, i was going to go to

them and maybe turn to you after the hearing was concluded. [laughter] >> that would have been perfect timing. i appreciate the chairman holding this hearing and i appreciate the exceptional panel that it has been put together. i look for to hearing from them all. i also want to commend the chairman for putting forth from -- some stark numbers that are accurate, as he always does. once again, pointing out that the path that we are on is simply not sustainable as a nation. i asked my staff -- i did not know the answer to this -- i asked what the greek gdp is to their desperate they said it was about 100%. 400% for gross debt is a staggering number.

let me take a more global view of the issue. our witnesses will take a macro view or rather a micro of view. let me take a macro view. if we look at what is happening here, we are seeing a new normal, as is the term used by many people in the way we work as a nation and we function as a nation and i'm not sure it is a good new normal because basically we are taking american exceptional is and which i believe has always been uniquely founded on the basis of fiscal responsibility, individual entrepreneur ship, and the capacity of the country to grow as a result of people taking risks and creating jobs which requires access to capital and access to credit which is reasonably available at a fair price. we have contracted all of this. we are contracting it because

the government is growing so fast for the government has gone from 20% of gdp 2.5 years ago to now 24% of gdp and is projected to go to 27% of gdp. historically, it has always been in the range of 19-20% of gdp since world war two. even if our revenues are covered and it appears they will be under the present budget. it looks like they will exceed our normal level. we cannot fill this gap. we cannot fill this gap because the government has grown too much. the question is, how do we bring the government backed down but how we do it in a way that does not stifle this recovery to the extent we are having. that becomes a complicated to step event for us -- two-step event for people of economic policy because is the act precipitously to try to control

the deficit, do we end up stifling the recovery? if we don't act soon enough or put in place a reasonably acceptable plan which is perceived by the markets internationally and domestically as legitimate to bring down long-term debt, do we aggravate the short term recovery? i happen to believe a short-term recovery depends on the markets, specifically the marketplace believing that we will get our fiscal house in order. in getting it in order, how do we do it in a way that does not also dampen this slow, slow recovery? these are complicated issues, policy issues that we face. i would be interested to hear from our witnesses and what they think it what can we do in the short term for the deficit or what should we do? and what must we do in the long term for the deficit in order to

give ourselves of viability as a nation that we will be serious about the fiscal insolvency of our country and therefore the recovery. i look forward to hearing from our witnesses on whatever they want to talk about but hopefully on these topics. thank you. >> i thank the senator for his very good opening statement. i agree with the way he has framed it which is very, very good. i also want to welcome the newest member to this committee, senator goodwin of west virginia who is here. we very much regret the passing of senator byrd who was a giant in the senate and a valuable member of this committee. >> senator byrd created this committee. >> he wrote the bill that created this committee and many of the rules under which we operate three we are delighted the center good win has agreed to join this committee.

-- senator goowin has agreed to join this committee. we have a have a responsibility. based on what i have seen of your past and your conduct as a new senator, you will be up to the responsibilities of this committee that and that we faced her welcome, we're glad to have you here. will next turn to our witnesses. richard berner is the chief u.s. economist at morgan stanley. dr. simon johnson, a fellow at the peterson institute. dr. joel nieroff, the founder of the nieroff advisers. docked berner, welcome and please proceed. >> thank you for inviting me

here discussed the state of the u.s. economy. with your permission, i will talk a little bit about what policy makers can do to improve it. first the status report on the economy -- as you noted, mr. chairman, we have emerged very slowly from the worst financial crisis since the great depression but the legacy of the crisis is scattered across the landscape you noted some of the things that are important i would add that one in for homeowners with a mortgage owes more than their house is worth. lenders are still hesitant to lend to many borrowers. the process of cleaning up lenders and household balance sheets is incomplete. additional steady progress is required to achieve a sustainable recovery. likewise, headwinds from the crisis will. gdp is still 1% below its peak from two years ago. federal, state, and local budgets are strained. a faster pace of job gains is

required to generate needed in, and also consumer confidence this sub-par recovery has left a vacancy rates and the unemployment rate site and other measures high. there is a risk that inflation could sink too low and turn into a deflationary. i see signs of a bombing in inflation, we cannot take that outlook for granted. what about the outlook for our economy? nonetheless, despite those problems, moderate but sustainable growth of about 3.5% through 2011 is likely. i would note that that is pretty tepid for the first couple of years of a recovery. four factors underpinned that view. first, the shock from the european sovereign debt crisis that you noted earlier has begun to fade. and mental conditions over the past several weeks have improved and that is essential for growth.

second, global growth in the big emerging market companies where domestic demand is now strong is still party. we expect global growth to be 4.7% this year, 4.2% next year although the chinese economy has slowed in response to restraints on lending and tight monetary policy, growth is still strong and we estimate it's slowing from 10% this year to 9 percent -- 9.5% next year. third, the ongoing revival in income and jobs will provide modest gains to sustain 2.5% consumer spending growth. that is a big step down from the past but nonetheless sustainable. we expect this friday to show that hours and payroll improved in july. infrastructure spending is the last part of the fiscal stimulus and acted in 2009 is now starting to gain steam. five aspects of the recent data we saw from our national income

supports that reasoning. domestic demand accelerated in the second quarter to over 4% for that base is not sustainable but i think around 3% probably is. that is likely. second, we have seen the personal savings rate ramp up significantly suggesting that americans midsummer's have rebuilt their savings and balance sheet -- that american consumers have rebuilt their savings and balance sheet. underlying income growth in the revised data we got last week is now stronger. i think consumers will spend more of that income in the second half of the year. a wider trade gap was a drag on growth in the first half but i see signs it is likely to narrow as global growth process and the u.s. produces and satisfied more domestic demand. profitability has been sharper than expected and the profit margins lie ahead of businesses have the wherewithal to replace

worn out equipment and are spending money on those things to do it. finally, inflation measured by the fed's preferred date of the core personal consumer price index has run at 1.4% over the past year which is still located it is a couple of tenths higher than originally thought. the revisions reinforce our conviction that inflation is now bottoming and the inflation scare will just be a scare. there are obvious risks to any scenario. i have mentioned it two that are important to me. it remains in housing. in addition to the payback following the expiration of the first-time home buyers tax credit, housing demand and other problems are still present. second, political uncertainty -- and increased uncertainty around taxes and the implementation of health care and regulatory reform is a key reason that consumer confidence

slipped in the last couple of months. that is not the only reason but i think it is a factor. i would like to spend the rest of my time discussing policies that congress might consider to improve the outlook for housing and unemployment. as i noted when i testified before this committee in january, 2009, mitigating foreclosures is necessary to stem the slide in house prices, slow credit losses, and reduce the pressure on household wealth. the neglect of the past 18 months has created additional risks prefers from accelerated strategic defaults which are now 18% of total defaults. these are cars who cant pay but are sold for under water that they choose not to permit high loan to value ratios, unemployment and low credit scores block refinancing opportunities for it the best options for relief continue to be simple, act quickly and

spread the pain broadly. the home of portable modification program has fallen short -- the home affordable modification program has fallen short. the short refinance program could help. principal forgiveness could give homeowners a chance to make up the payments. if these programs should be strengthened. they are not working because the language in that forgiveness modification rules is weak and the fha shorts sell program continues to be advertised as lenders pushing back on a boat parade of the proposal -- another proposal comes from my colleague. mr.greenlaw hail from new hampshire. the government has guaranteed the principal value of the 37

million mortgages backed by the agencies. there would be no credit risk for the mortgage originator who agreed to refinance these mortgages if the government guarantee was extended to guarantee loans. we can provide details to you but households could save $36,000 annually at half the mortgage is among these 37 million refinance. what about policies to improve employment tax private non-faram payrolls have been flat over the next year -- over the last year. in our view, there are four structural components at work. what is the cost of labor resulting from the escalation benefits. -- one is the cost of labor resulting from the escalation benefits. we are out of line with other

countries. as employers seek to cut the cost of compensation in tough times, these benefit costs and drive a growing wedge between total compensation and take-home pay and continued to escalate the cost recession made that wedge bigger leaving benefits intact. long-term solutions indicate -- include implementation of healthcare reform to save costs and innovation to boost productivity and labor skills. the affordable care act will possibly realize cost savings from medicare but more work is needed to reduce the soaring cost of health care for employers and employees alike. short-term remedies perhaps maybe a refundable tax credit. we have one of those but more aggressive implementation might be helpful. the second obstacle is a mismatch in skills for the problem is that for years, employers have complained that they do not find the skills they need in today's work force. the long-term solution includes

policies to keep students in school and provide access to education, reorientation of our higher educational system toward vocational training and immigration reform. in terms of short-term remedies beyond unemployment insurance, one remedy would carry training and basic skills with income support. two other groups speaking -- seeking unemployment are newly minted college students and unemployed teachers could be an ideal nucleus for a drop ginning -- a job training program. the third obstacle is related to housing. negative equity of bonn -- among nation of homeowners leads to lower mobility rates. 1/3 less according to one study. long-term solutions could include the ones i have outlined before it short-term remedies beyond the ones i talked about would include an effort to establish a protocol for short sales and/or principal reductions.

the last obstacle is the policy of uncertainty factor pe. the uncertainty of around the implementation of the legislation solutions we have adopted i think to some extent is weighing on business and consumers to hire and refinance. the market participants are used to thinking that political gridlock is good because we keep politicians from interfering with the marketplace. today, gridlock is more likely to be bad for markets as our long-term economic problems require solutions with political action. long-term solutions require bipartisan leadership. mr. chairman, your work as commissioner of the deficit- reduction commission is obviously critical crafting a long-term credible -- credible plan will ease concerns and

uncertainty about future tax hikes and the potential loss of our safety net. in addition, reducing policy uncertainty now could be a tonic for growth, offering investors a chance to reassess the fundamentals again. we assume that congress will agree to a one-year extension of all expiring tax cuts and other provisions. doing so should reduce uncertainty as well as sustained fiscal stimulus. the sooners such action is implemented, the sooner the reduction uncertainty can be achieved. we have many challenges ahead. our short-term challenges are to enhance a more vigorous recovery and our long-term challenge is to promote a sustainable's -- does. -- promote a sustainable fiscal policy. thank you for the opportunity to offer it buys and i would be happy to answer any questions you have. >> that you very much. we will go to dr. johnson, the

senior fellow at the peterson institute for international economics, someone who has testified before this committee before. we welcome you back. doctors johnson -- >> thank you very much i think i am more pessimistic about our major process. and our about policy ability to put in effective countermeasures. i would suggest that we bring our discussion of the u.s. economy in the following stark terms -- if you look at the latest numbers b from theea and compare the first quarter of 2006, real gdp with the latest quarter, the second quarter of 2010, real gdp has hardly changed. we are on track if we are pessimistic about the second have appears to experience a lost half decade of growth in the united states. this should remind us all of the lessons from a. japjapan.

in terms of the damage that has been done to balance sheets for example of homeowners, the latest data suggests around 20% of all homeowners still have a negative equity and this percentage has not decline much over the last four quarters. you see this in the latest consumption data that came out today. consumption is on likely to rebound quickly -- and likelyun un likely to rebound quickly. most corporate leaders do not want to rely on borrowing or extend themselves and higher as much as they would have done in the past. this undermines and slows the growth rate until we have the sovereign debt crisis and

pressure toward austerity which is manifest in western europe, the withdrawal of fiscal stimulus is prevalent around the world. i was recently in china and i was talking to some of the leading economists and they are the least bullish economists on china that i meet anywhere in the world. they were very much about the need for cutting back on their expansion programs and they were worried about the waste of government funds and infrastructure the bottom line is i think global growth on a fourth quarter over fourth quarter basis, i think the global economy will struggle to break a 4% this year. next year should be a little better. i think slow growth will be with us for awhile but globally and

in the united states. the second point i would like to make is that while i agree about our long-term fiscal issues and a very careful analysis done by the congressional budget office on these issues, i am concerned that american -- fiscal issue is completely missing from this discussion and that is the contingent liabilities created by our financial sector and the risk that is caused by the continued existence of the under-capitalized banks that have an incentive to take big risks too big to fail. this is not unique to the united states, but it is a big fiscal issue in the u.s.. you can see this again for c in thebo numbers per -- you can see this again cbo numbers. you can look at the projected

debt level as a percentage of gdp for 2018. it is 40 percentage points of gdp higher now than it was in 2008. you can decompose that increase in debt and see where the deficit come. from it is mostly from the lost tax revenue due to the recession. there is a small part that comes from the discretionary fiscal stimulus, but with or without that, you still would have had a massive hit to the budget and the debt. this is assuming a low rate of interest. the more difficult scenarios that to outline that the beginning start to play out, we can't expect an increase in long-term interest rate which will increase the debt even further. we can obviously have a discussion as to the extent to

dodd-frank addresses these risks. this is a step in the right direction but it did not go far enough. we can agree that these breasts have a z not goneero and -- have not gone to zero. -- we can agree that these are risks have not gone to zero. there is a budget scoring for that. i think you are leaders in insisting that cbo scored as appropriately. the contingent liability, the damage to the government budget that would arise from a future financial crisis is palpable. we can argue about how frequently those crises occur.

many people say this occurs in a three-seven-year time horizon. the ideasd about taken individually but take them all together, there is a danger for the budget short term. i completely agree with all of you that over the longer term, we must act and the good news compared to other countries and i was formerly chief economist at imf so i look at these numbers in a comparative framework including the great numbers which i have right here, my point would be that we have plenty of capacity for tax reform and the united states. our tax system is antiquated and it could be modernized very easily. i see the beginnings of a

bipartisan consensus on tax reform issues that will generate somewhat more revenue than senator gregg was anticipating. medicare remains a huge problem and i think that is the most difficult issue and that is about ethics more than arithmetic than it is about economics. the question of how much you're willing to pay for people late in life is a difficult and emotional question. the conversation has not moved forward very much over the past two years. we do not face in a fiscal crisis and that is the good news. we should also deal with the issue of the contingent liabilities posed by a still dangerous financial section of this country. thank you very much. >> let's go to ni dr.eroff. please proceed with your testimony. >> thank you.

thank you for the opportunity to discuss my views on the status of the u.s. economy and to provide some ideas on the direction that fiscal policy should take the good news is that we have had one full year of economic growth in the economy expanded at a 3.2% which is pretty impressive considering the problems we faced over this period of time. consumers are rebounding a little. business has made a strong comeback. exports are solid. inventories are being rebuilt and workers are being retired. all these factors indicate that the recession is over. however, i am in the camp that is extremely concerned about growth over the next year. i believe the economy will face a significant number of head

winds and the damage done from the housing basel and the near collapse of the international financial system cannot be cured in a relatively short period of time. while the banking industry is better, it is hardly in good condition. banking lawyers this year are running twice the pace of last year. -- bank closures this year are running twice the pace of last year. credit is still very limited bankers like to say they are not turning them good laws. they are correct, but the devil is in the definition of a good glove. -- a good loan. many firms had to deal with a bed, they -- with a bad economy, good loans are hard to find. credit standards may not ease significantly for another 12-18 months. the economy runs on credit so it

is hard to see how growth can happen. the housing sector will continue to restrain activity, possibly through 2011. there are too many challenges to overcome. first, it is back to the future when it comes to mortgage credit standards for the days of no documents and little or nothing down thankfully are over. that means that your people will qualify for mortgages. more important is the loss of equity that homeowners have suffered. in terms of housing demand, the point is that without rebuilding that equity, a smaller number of households will have the ability to make down payments on additional homes and without being able to that, they will not be able to move. the definition of the matter is one fact during the dismal forecast in residential construction. the results of the foreclosure crisis. foreclosures are greatest in the parts of the country where construction is typically -- as

did a good been strongest, california, arizona, nevada, florida. as long as builders face the competition of low-priced foreclosure units, new construction activity will be limited. the new home construction recovery is especially worse because in previous upturns, housing either lead the recovery or was once again growing robustly, often at double-digit rates. i don't expect that to happen now. or can growth come from? normally, we look to the consumer will make up 2/3 of the economy. except for the 2001 recession and recovery, consumers returned to the malls early after the downturn ended. this time, the upturn in consumption is being delayed. there are good reasons for households to be cautious and consumer confidence to be depressed. two decades ago, consumers believe that if they did well their positions were saved.

businesses learn that in a globalized economy, productivity and cost containment is critical to long-term survival and workers are largely overhead for the employment compact between businesses and workers was broken. several years ago, i argue we should read the fine job security as the ability to walk across the street and get another job. people will feel comfortable about their economic situation when they can sell their labor easily and not feel they are stuck in their current position or with their current employer. this new definition is critical. labor is the largest expense of business, there must be tight controls over payroll parity do that by limiting hiring and wage gains rate in the early part of the recovery, that strategy allows profits to rise. the combination of modest payroll gains and rising earnings has created a disconnect between main street and wall street. firms will remain hesitant to hire until they believe the

economy will expand strongly for an extended period of time. if companies limit hiring, workers to find jobs security as the ability to get a new job and will be worried that consumer confidence will remain low and it depressed workers do not usually spend lavishly. this cycle will be broken but not until the expansion lengthens and corporate balance sheets and prepare a payroll to continue rising as they have this entire year. the increases are not likely to be large enough to reduce the unemployment rate. it should not be a surprise that we are having a jobless recovery. the reality is that the last couple of recoveries and most future ones will be defined by slow job growth. the mass of industrial sector that credit lots of jobs early in the recovery by rapidly

ramping up output and hiring is history. the latest gdp report shows is that we felt the need with products from u.s. companies and good produced around the world. we should stop using a "phras ad "jobless phrase recovery." this should be enough to keep the economy going but that is about all. if consumers are not spending lavishly, can business investment remain robust? spending on software and equipment gained over the last three quarters but that may change. from the summer of 2008 to the spring of 2009, firms reduced capital spending. businesses have started making up for the failure to invest in capital required to read. competitive that is fulfilling delayed investment grade was the process

is completed, firms will invest only when they believe their returns warrant the cost per to is hard to rationalize major new purchases of software equipment if the economy is not expected to grow strongly. uncertainty about tax policy is not helping either. all this argues for decent but not spectacular gains in capital spending the inventory rebuilding that added greatly to gdp growth is likely over. in 2009, firms reduced inventories at a breathtaking pace. this year, they have refilled their empty warehouses. want to reasonable levels are reached, -- once reasonable levels are reached, that will be over. as the recovery continues, imports will grow faster. i expect that the trade deficit will widen further and that will further restrain growth.

we are facing a lack of credit, stuck in the housing market, an uncertain consumer, a weary business community that is already restocked warehouses, depleted work forces, and replacing business software, and had not even talk about local governments that are cutting back dramatically my forecast for the next year for growth is in the two-2.5% range. we should not compare the pace with the past two decades when strong growth was close to 3.25%. over the past 20 years, the economy hyped by atecthe tech bubble. without another bottle, -- without another bubble, growth

will be slower. look at what is possible and that is a slow but steady recovery in this context of a badly weakened economy that the structure of fiscal policy must be determined monetary policy it is always a value on the sense of where we are in the business cycle, fiscal policy seems to be viewed in a vacuum. they are often proposed regardless of the condition of business, households, or the federal budget deficit. i believe that policies intended to grow the economy should always be evaluated on a basis of where they make sense in the context of the current economic circumstances and where we are the business cycle. tax cuts should not be implemented or should be implemented only to the extent that they produce new growth and set the stage for further economic activity. spending increases should be implemented only if they can quickly and efficiently increase domestic demand. we're moving from an economy that lacked demand to one where

demand is growing slowly. we need to take that to the next level where businesses expand sharply we have to meet the changing economic conditions. thank you for your time. >> thank you. let me go right to it, if i could. there is a debate going on here about what is the correct fiscal policy to pursue now. i think the three of you have outlined insignificant detail the economic conditions we confront now. the question for us is what do we do about it? to boil it down simply, on the one hand there is a camp that says you should provide more stimulus to the economy. paul krugman says you have to provide more stimulus. he recommends that we provide more aid directly to the states other provisions and

do more in terms of its route -- emperor structure. on the other side are those who say that we have record deficits and debt and we have to take immediate steps to reduce deficits and debt now. they say no further stimulus. dr.berner, what would be your recommendation as to what course to pursue? >> as i indicated earlier, i think we have a number of specific problems. we should address our policies more specifically to address those problems. one of the biggest problems that all of us have talked about today involves housing financing and a state of balance sheets, the negative equity position in which many mortgage borrowers find themselves. cleaning those problems up, mitigating those problems really

involves fiscal policy. we are using fiscal policy currently to do that. losses incurred on mortgage- backed securities from fannie mae and freddie mac, you and i are paying that as built losses occur. the problem with that strategy, simply letting the forecloses a car and letting the defaults occur including the strategic default i mentioned earlier, is that slow-motion process really inhibits growth and creates uncertainty and prolongs the adjustment in housing and by extension, in consumer balance sheets and therefore has a big impact on consumer spending and friends further downside risks to home prices. >> if i can say from your testimony, you would be for more aggressive intervention to prevent foreclosures and to try

to close this gap between some 20% of the people upside down on their mortgages? >> some foreclosures are not preventable. we want to try to mitigate those which are preventable. we want to give an opportunity with some ideas to allow homeowners to refinance where the only barrier is the refinancing process where we already have the responsibility and liability on the federal balance sheet for those mortgages that might default since they are backed with the full faith and credit of the federal government. in addition, to accelerate the process of bringing borrowers and lenders together through proposals like the principal reduction or forgiveness program so that lenders have been performing asset which is not

now performing and the borrower can stay in their home with a reduced payment with some expectation that they will share, maybe not gather completely, but share in any stability or upside from future home price appreciation. that is why we have strategic default. people do not have that expectation and they will not share in the future price appreciation if in fact it materializes. the policies we are pursuing presently guaranteed that that appreciation is way off in the future. the policies i recommend would mitigate that and speed up the process and reduce the imbalances in housing. if we were to start a job training force to bring together people who have skills with those who lack skills, that will cost money. instead of giving people pure

transfer is unemployment insurance which is needed in many cases, it puts money in the hands of people and gives them activities which are productive and increase training and offered a lot more dignity to those activities. those are some of my suggestions. >> dr. johnson, what would your advice be? what should we do now? >> the risk that we face in terms of the government debt is whether there is a better alternative. we have benefited greatly from the fact that the rest of the world is struggling. it is dangerous to assume this will continue indefinitely or necessarily next year. the europeans are getting their act gather -- getting their act together.

if we see that opportunity out there, you will see a shift in international portfolios. half of our debt is held by foreigners and they could shift away from the u.s. and we would have an increased interest rate. the best way to get ahead of this is to undertake now measures to reduce the deficit 15 years down the road which would be tax reform or some form of medicare reform. that should lower interest rates. you are reducing the risk of our debt and that would create a fiscal space where you could choose either to pay down debt were not run up by higher deficit. you could also put that into short-term stimulus. i am sympathetic to the ideas we have heard today that would try to stimulate the economy, i would caution against doing it without a medium-term fiscal

consolidation framework. that is never a what the imf would do. that is a sound principle. >> the debt commission that senator gregg and i serve on, the success of that commission, in your mind, takes on even more importance given the current economic conditions? >> absolutely, i think the deficit commission and any other initiatives along those lines is the key to being able to provide short-term stimulus and creating scope for whatever measures you'd think would be suitable for the economy over a shorter time frame. if you don't address the shorter time frame, these other measures are substantial risks. >> n dockedaroff. >> -- n doctorsaroff.

>> -- dr. naroff -- >> the return to tax cuts would have been be minimum -- a. minimal we are no longer at the point where businesses are not spending or household are not spending. the extent of the fiscal stimulus i think has to be withdrawn. that would draw all need to continue which is already under way. we need to be transitioning from a situation where we are strictly looking at the demand side to a phase where we are looking to sustain some of the demand out there but not as heavily as we have.

the key lesson that we learned from the great depression from the 1930's is that you cannot have a failed recovery. that is what extended the downturn. because up to buy many of the arguments is that we need a significant amount of stimulus at this point. i don't think we need significant amounts of spending at this point, but i think we have to move toward a combination of sustaining elements of the spending but only those that translate into demand immediately. we then need to move toward the tax side of the policy, the supply side of the fiscal policy, which looks to generate some initial demand but starts the process of laying the foundation for stronger growth. i do not believe we will be seeing a whole lot of activity through the interest sensitivity of businesses if we lower interest rates. i look at the levels of interest

rates right now and i find it hard to believe that we will go even lower than we are at this particular point. businesses will be looking at what the conditions are to make those investments and the return on them, not just the cost. as we move through really the first half of next year, we will get to the economic portion of the cycle where tax cuts can become most effective on the business side. i view it as a continuing, in

that respect. >> senator brooke greg -- >> you are saying that the uncertainty issue and the short- term stimulus issue will be addressed significantly if we put in place policies which address the long-term debt issue so that people have confidence in the out years as to where the country is going on the issue of a desperate is that true? >> yes, that is exactly what i am saying. >> can i ask a question again? you all talked about this issue of consumption as being a big driver and we have always been a consumer society. i see this recession as substantially different than any other for many reasons.

it is primarily because the baby boom generation, the defining economic engine of the 1960's to present was so productive and drove the wealth of the country was run on the cost of retiring when this recession hit. a large percentage of the baby boom generation retirement savings was in contributory savings as obverses defined benefit plans. that shift occurred throughout the 1980's and 1990's. what happened here was that you had this huge generation, 70 million people retiring and they suddenly found all the money they had saved for the purposes of retirement was significantly decreased in value. by this recession. they are now seeing some recovery depending on how they were invested, but i think there

is a fundamental mindset shift in our nation in this generation it goes from consumption to savings to try to deal with retirement which they are about to start. you will not see the consumers that dominated our culture when this generation was so cute and so productive and had an income. thus, you will see much less driving of the economy from the consumer side as this generation tries to adjust to the reality of retiring with less than they thought they had prayed is that true? what is the implications of that? >> i totally agree with you. i think we are in the new age of thrift responding to the loss of wealth. their houses and pension plans were affected i think there is an enormous uncertainty about

the promises that have been made to consumers by governments at the state and federal level and local level. all those things i think are coming to we should not expect to see a consumer who is spending as before. the new normal, as you will, for consumer spending will be 2%, 2.5% growth rates that i described. we should look, therefore, to other parts of our economy, to provide growth. i think, for the first time since the mid 1980's, we are likely to see global growth as a source for stimulus for u.s. growth, and we should rely on that. so we should keep our markets opened. we want to encourage the kind of global rebalancing that is

needed to reduce the size of our external deficit, reduce our dependence on global investors to hold our debt, and at the same time, encourage the growth of other economies who will provide market for our companies to export to, and will provide income for people to save and rebuild their balance sheets. that is not an unsustainable environment. in fact, it is more sustainable. the one we have left, where savings rates were declining both national and personal, and where we can rebuild the foundation for a stronger and more sustainable recovery, but i think nonetheless, there are things we need to do in the short run and there are things we need to do in the long run. i just want to express my agreement with the idea that we need a credible plan to address

our long-term tesco challenges. that will reduce the uncertainty. the way we do that is also important, whether that is through higher taxes or spending growth. we have to get our arms around the promise and we have made for the future that we are going to have difficulty in keeping them as a result of the growth of those programs. >> thank you. i have heard this argument before, basically, our society will look to trade. trade with resignation, the bric countries, for example. i understand the logic, but i am not sure that i accept it as driving our economy. i think perhaps energy could play a larger issue. let me ask you about this idea

of scoring financial liability correctly in the system, dr. johnson. it is almost a catch-22. we are telling banks in the financial system they have to increase their capital. then we are hearing from the market there is no credit in the markets because the banks are significantly increasing their capital. if we went through an even more aggressive process of, we need to continue to score capital -- i assume the way that you knew this issue is by raising capital. you will contract credit even more. don't we have a catch-22 situation from a fiscal policy standpoint? >> i do not think we do. there is a wonderful new paper about raising capital requirements from a professor

from harvard and another professor in chicago. >> you can send it to my e-mail. >> i do not think the effects are portrayed by the banking community, as feared by even the u.s. treasury. what will come from the agreements, unfortunately, is little in the way of raising the needed capital standards. the quality of capital is going to be relatively low, so the financial system will have to absorber losses. given the political on come, i do not expect much additional capital to be in this. i think we should score the liability that this creates, relative to the risks that it poses. that is standard procedure. this is 40% of gdp, so it is a big one.

not scoring not one would be a mistake. >> just quickly, you do not ascribe to the view if you put more pressure on the need to increase capital -- which i accept it is necessary to keep the system sound for you will end up with contraction in credit. >> it depends on how to raise capital requirements. the way that we did things after the stress tests -- you can have your reservations about those tests, in general -- but raising capital is the right way to do this. you do not want to tell people you must change your ratio of capital to assets tomorrow because certainly you will get a contraction. there are ways to make the banking sector. banking becomes less sexy, less of a high-risk, high return activity.

that is okay, some like it, some do not. but it changes the nature of what a bank is. it does not necessarily cause a big credit contraction. >> senator goodman. >> thank you for the warm welcome. certainly, an immense honor to follow in your footsteps, senator. although no one can replace senator byrd, what i hope to do is to emulate his work ethic and commitment to this body into the state of west virginia. i have a tangential question for you. you alluded to faith in our local governments in your testimony. i wanted to talk about the impact of the unfunded liability is that so many of our state are facing. in my limited experience in west

virginia, we were looking at billions of unfunded liabilities in various pensions, other post- employment benefits. the end result being aggressive encourages efforts being made to amortize those liabilities over a period of years, but as you might expect, there were other political ideas that were needed in their own right, so my question for you is, what is the impact of these unfunded liabilities on future economic growth, what sort of pressure does it place on the federal government's efforts to tackle the issue? >> that is really the thing that every state and local community is trying to get their arms around, at this point.

there is no simple and quick resolution to the problem. that is the first thing to keep in mind. the unfunded liabilities and pensions, which states are simply not paying their share to in order to have the temporary balancing of the budgets, and that will likely continue, it is going to mean -- whether they were politically necessary programs or not -- they will have to be reviewed. crises, if they are handled correctly, will create fairly significant short-term pain, and i believe that will continue to be the case in state and local governments, but that is a pain that should have been felt over the last five, 10 years. but the unwillingness to

recognize them continued. my view is, in terms of federal fiscal policy, states and the to come to -- need to come to grips with their spending patterns, and to a large extent, make the cuts necessary. at this point, they need to get their fiscal houses in order. to the extent there are temporary fiscal issues that they may be eased through, and there may be able for federal policy, but more so it is time for the state and local governments to start recognizing the costs that they have the imposed on themselves are not sustainable anymore. while i do not argue with some of the fiscal stimulus fund

having gone to the state, because there was certain truck that you could not plan for, now that they have had a couple of years to deal with that, and one you cannot address 10 years of fiscal irresponsibility overnight, there is a need to address that. >> i just want to emphasize the importance of education in this process. what we see at the state and local level are big cuts in education. what we have seen over the past 20 years, the difficulties that people have if they do not have a college education, how hard it is to participate in the modern economy, have wage growth. senator gregg, your idea of other motivators for growth, we support them, but increasing wages in the economy, not being

able to participate in getting a job in the global economy, for example, the situation just gets worse with long-term unemployment. this is going to really come through as a huge weakness for our growth potential, but what can you do about it when you do not have space at the federal level because of longer-term fiscal issues? unless you do with that, you cannot create the space to do with these pressing issues. >> thank you. senator bunning. >> thank you, mr. chairman. thank you for showing up, a panel, lots of brains sitting at one table. i would like to give you one quote from a formal federal reserve chairman, who in my opinion, cost three major

recessions in the united states with his monetary policy. on "meet the press" he said the u.s. is experiencing "a pause in a modest recovery that feels like a quasi-recession." do you agree with that characterization, what policies would you recommend to change that situation, what is the worst thing the federal government could do in this situation? realizing that we have 15.5 million part-time or full-time of unemployed people, 8 million of which were unemployed in 2009. will we have any jobs to put

them back to work? will we be able to raise our economic level so we can create those jobs? opinion.ike anyone's >> let me start the discussion. i do not think it is necessarily a pause. given the damage done from the blowup of the housing market, near collapse of the financial sector, the idea that we could get anything more than a modest, slow-growth recovery was hopeful. the 5% growth that we got at the end of 2009 was largely just making up for excessive inventory cuts and investment cuts that were done at the peak of what we could call the panic

of the first half of 2009. except for that, this 2.5% growth forecast, which i have and others are not far off of, is likely to be sustained. i do not see the deceleration, a pause in growth, as much as that is the reality of what we are facing, given the damage done to the economy. >> on this statement from dr. greenspan, i agree, it is slow growth, a disappointing recovery, one of the slowest since world war ii. >> doctor johnson, you are a member of the cbo panel of economic advisers. i am sure you have predicted that economic growth will fall

by 1.4%, if the 201 and 203 tax relief is allowed to expire. why does cdo expect that it will slow down our economy? cbo expect that it will slow down our economy? i am looking to get it going faster. i want everyone to realize cbo is the independent scorekeeper here. you expect a 1.4% decrease. >> i am only on the panel, and not responsible for -- >> >> i did not say that, but maybe you can explain. >> if you are worried about

stimulus, you could look at other ways to stimulate the economy -- >> i have looked at them. >> i would expect and support continuing tax cuts. >> kentucky has a $2 billion shortfall, out of an $18 billion budget out of a two-year period, and they are coming to the government for $240 million. are you kidding me? so there budget can be balanced? what if all 50 states did the same thing? >> senator, we are obviously in a difficult place from a fiscal point of view. my point is, if you had an agreement on the longer-term budget, you could create fiscal

space in order to choose. the financial markets, as much as they like you now, allow you to borrow the two-year at record lows, that will not continue. >> you obviously know zero to 1% is the rate that the federal government is borrowing money on. what will happen if we get some economic recovery? won't our borrowing go up some? >> yes, and relative to other countries, we have a relatively short time frame. i am not playing this down at all. you need a longer term fiscal consolidation framework. without that, we are asking for

trouble. >> i also believe when you look at the tax cuts from 2000, 2003, the context in which they were issued, it was a totally different context, environment. some of those tax cuts made time under the current set of circumstances they simply may not create any new economic activity. that is my point about another winning those cut individually and see if they make sense, allowing them, in the context of where we are today -- >> i have one more question that i want to fit in before my time is up. we have heard time and again consumer spending is weak because they do not spend their additional income. you have said the same thing. is this not a result of cheap money over the last decade or we

have achieved a negative savings rate and the average american is already struggling? how can we expect consumer spending to increase when debt levels are so high? >> that is partly why some of the remedies we are talking about news with helping consumers reduce those debt levels in a responsible way. >> are you talking about forgiving their debt? >> in some cases, if you are in deep difficulty, there will be a forgiveness or default. >> those are the 18%? >> and in addition the ones that are foreclosed on. the choice we face is whether to

let that process continue at the pace it has gone and have the housing market continued to suffer, for a weekend truce policies -- or we can choose policies where the cost is shared between the lender and taxpayer, in a responsible way. obviously, if we were to choose to rewind the tape, and choose to do things differently, but given where we are -- >> i wish we could rewind the tape. >> we all do. we do not have a good set of choices to pick from. >> i agree with you, the federal reserve policy led us here, and we are set to repeat this because we have the same structure. >> i understand.

my complaint to chairman bernanke is the has attend nature in which the federal reserve has -- hesitant nature in which the federal reserve has approached this. his balance sheet is now $2.80 trillion. i have a hard time getting my head around that. what he does is he buys treasuries to sustain the treasury market. that is how he fills up his balance sheet. it is dangerous policy, thank you. >> thank you. i have been very liberal today with everybody -- senator bunning, i did not treat you any different. we appreciate very much your discipline, senator goodman. so i am going to treat everyone the same way, too.

you will be able to go over a couple of minutes. senator begich. >> i leaned over and told him you could extra point because you left time on the clock. first of all, welcome. i represent the state of alaska, have been in the small business world since 16. my wife owns and operates four small businesses. we build these businesses from scratch, so we understand what real life is about. it is great to hear this theory and discussion, but we have experienced it in good times and bad times. let me give you some context, so you understand where my question is driving to. we seem to have a short-term memory on the date -- 1980 recession. if you were a small business person, you wanted money from

the market, you would have to pay 19. on prime. you talk about seizing of capital. businesses were not anxious to get it because the rates were short term. -- inska, and the 1980's, saw about half a dozen banks close at hand thousands of people leave in a short amount of time. we have seen what can happen. anchorage's assessed value for the city has essentially been cut in half. this recession, we did not lose any money. no banks failed, the highest unemployment in two decades.

now three months have gone by and we have come down 0.6%, going in the right direction. we have had housing prices moving up 14%, which is positive. still, new starts are low. we learned something from the 1980 crash. diversification, focus on job growth, and quick stimulation to get money into the economy, but look long term. here is my question. do any of you agree with the statement that the first thing we need to have is certain to inour debt, tax policy, spending? does anyone disagree with that? ok, let's is approval. the second question -- silence his approval.

the second question, do any of you agree that the combination of your idea, short-term and long-term, is what is necessary, does anyone disagree with that? ok, now for your response. i also heard, correct me if i am wrong, different levels of what those tax cuts should be or should not be. i did not hear anyone say all of them. i heard variations. instead of having a special interest debate over who will get which tax cuts, one not just reform the system? tax reform is dramatic. it seems like that sends a

message to the business world, we are protecting the middle class, and that would bring confidence back to the consumer. the biggest number i'm interested in is unemployment, but otherwise, consumer confidence. give me your first thought on the bill. there is another bill which caps credit unions on how much they can use for small business loans. this would raise it to 25% without putting any federal dollars into it. does anyone want to comment on that tax policy? >> it would widely enhance the tax code. it would take away a lot of the special preferences that are built into the tax code.

all those things, an economist with tell you, are good things. >> i think it is 24%, if i remember right. that gives a competitive edge -- one of the questions that you asked was, our ability to compete worldwide. >> that would more or less level the playing field with other countries. it would broaden the tax base, which is important when you think about how we want to do with our fiscal problems, going forward. by taking away some of those preferences, it will hurt some people, but would broaden the tax base, give us a more stable system. moreover, if you think about how we got to where we are, in housing, for example, it was not just easy credit that was a contributor, but tax policy had

a role to play in it as well. we have endorsed that in the past as a society. maybe it is time to rethink that so that we can we balance our economy and have more resources or things like education, product enhancement. clearly, we do not need more housing. >> this is true, inventories are high. >> as we think about the role that tax policy can play in that, i commend you in advancing that argument in the congress, your leadership for doing so. >> i must admit, i have not studied this bill but i will be doing so this afternoon. as i said before, now is a moment of protection -- now is not a moment of protectionism.

i would hope that we have versions on the table -- have on the table versions of the value added tax. we need to look at all things including the mortgage tax. carbon pricing has to be on the agenda. looking of 20 years, if that is your budget thinking, you can decide what to do with that revenue to reduce other parts of your taxation, but this is an important part of energy. we should be including all of these proposals into a 20-year thaksin plan --taxing plan horizon. >> i agree with a lot that he

said. we are a small business down. this is not a tax system that anyone would want to create from day one. the problem we face, and the issue of what you do about taxes, the simple fact is we start with the current system. if you start with the current system, you have to move from that system in evaluating any changes that you make. in any system, there are always winners and losers. that is what creates the havoc in any tax policy making progress -- process. i do not think it is a good thing to simply say, we can keep

all of 2001, 2003 so that we do not get into a discussion. there will be lots of taxes that will have little or no impact on the economy. in the context of the budget deficit, it would simply be a loss of revenue. so by restructuring in, you get a way from these crazy debates that are going on. >> thank you. i appreciate the comments. i am growing into this camp, we are spending all of our time thinking about which tax cut are right, who is in, who is out, and that is not going to change the confidence of the consumer. it seems to me, it is time to rejigger it and allow the

community to think that we have done something long-term hearing that will affect them, as well to the business community, so that we can monitor their spending habits. >> i just want to thank the senator from alaska for his insightful and substantive questions. >> thank you, chairman. >> senator nelson? >> you all testified that you do not think the tax cut in the stimulus bill did not have much of an effect. tell us what you think the spending did? >> i am not sure i completely agree with the blinder-zandi total there.

i look at it in the context of, the strategy they took, if we did not have it, what with the economy look like? clearly, the other alternative is if you took the same amount of money and spend in in different ways. you would also have a different outcome. since we had that set of policies, it is hard to disagree there was not a significant impact. nothing close to what we hoped, the kinds of money that would be spent, and a lot of that money is still being spent -- and that need to be kept in mind. some of the concepts in terms of infrastructure spending makes sense. most of us would agree, if government is going to spend

money, you want to provide long- term returns to the economy. nothing does that better than infrastructure, but there are other things that would simply transition the economy from 2018 to where we are now, but i think you have to say that it had a moderate affect and kept us out of a segment of the longer and deeper recession. -- significantly longer and deeper recession. >> you get a different bank for the block from different type of spending. unfortunately, all lot of the spending was done in haste, in an effort to help the economy, help state and local governments who were hit with the shock of the downturn. pummelling not as productive as it could have been. i agree with the infrastructure spending peace. we need a program of

infrastructure repair that goes beyond short-term stimulus. providing aid to stale local governments -- state and local governments was a good thing and possibly avoided some job cuts, but there are other things need to think about in determining fiscal stimulus. >> senator, i testified to the committee in the run-up to the stimulus, and i said at the time i am not a proponent of discretionary stimulus. the discussion was, something was needed to bolster confidence in the economy. as i look at what was discussed, the money was spread around in different ways. the amount of money was actually pretty small, but i think it was a pretty good mix. it was a very unusual problem.

delay, we never see it again. i worry that we will, that we will have to fix the financial sector and will have to throw money at the problem to keep it from getting worse. it gets worse in the long term. >> mr. chairman, do you remember when we tried to get more infrastructure? >> yes, sir. we tried to get $200 billion. >> these two esteemed and gentlemen, chairman, ranking member on the deficit reduction commission, which i hope and pray will be successful. since they have a threshold that

they need to get 14 votes 0f 18 on the commission, there is skepticism that they will be able to get that on whatever package they come up with. so if that skepticism bears out to be true, which i hope does not, i am prepared to gvote yes on their package, but i have not even seen it yet. and u.s. -- as you have testified, we need to do something about the deficit. but if it fails, what happens? what do we do? >> senator, i am not sure we have room for failure. as we have talked about,

ultimately, global investors who hold 55% of debt held by public are going to register their vote in financial markets, and they will see a our inability to do with long-term fiscal problems, will look at our lack of credibility on our willingness to deal with those problems, and that will raise the cost of borrowing, not only for the federal government long-term, but also for governments and businesses here. moreover, that services will take resources increasingly on of our economy that we could use for other productive means. that is the long-term cost of not addressing our fiscal problems. >> and creates uncertainty and a lack of confidence in the u.s. possibility to manage its financial affairs. >> toquote the imf, the greek

general debt was 133% of gdp. the u.s. is closer to 90%. this is the answer to what if it does not work. you have some time, but not very much. obviously, on net debt terms, it is not that bad, but you know what can happen with trajectory. we do not want to be forced, like the greeks or spanish, to do things in a precipitous manner. that is bad for small business and everybody. dougan while we still have time. >> if you want to know what this will look like, look at most of the states. they have hit that point. they are scrambling in exactly the way that you have commented,

trying to deal with these expenses that they have been overwhelmed with. to some extent, i know that some of you have talked about this, it may mean more changes to long-term benefits, social security, and so on, things that we have put into the cut in programs. we should not have to wait to -- until a crisis to do with them. when we reach that point, there will have to be significant cuts that will need to be implemented. >> speaking of states, we are going to be voting on something today or tomorrow, states have not been providing revenue in order to fund their share of medicaid, as well as education.

of course, they come to us in times like this, and want us to bailout those accounts. of course, the more we do that at the federal level, the more we add to the national debt. it is a vicious cycle. >> this is worse, in that it is creating the incentive not to do with the problem. that is something you do not want to do. >> thank you. senator sanders? >> thank you. this has been a great discussion. i want to inject an aspect of the discussion that i have not heard yet. we keep talking about the economy in general, but when we talk about this, the reality of life is somewhat different for

example, during the bush years, median family income for the average american went down $100. 7 million people lost their health insurance. 8 million people dropped of the middle class and went into poverty. so while the middle class is shrinking in party is increasing, and in this general abstract world, not everyone has an equal chance. and during the bush top earningon , the families earned quite a bit more than the rest. does anyone in their right mind think we can have an equitable tax reform in washington, when

we are bombarded with lobbyists and all of these loopholes? it is not going to happen. big corporations have enormous influence over the sorts of things. they will get more of their friends here to represent. that is the real world. sorry to bring some reality here. we all that knowledge the economy is in terrible shape. we all the knowledge the national debt. but i hope we could hear some discussion that as we move forward, one should working- class people who have already experienced pain be asked to experience more pain? should we really raise the social security age for those people? should we be cutting back on

food stamps when you have millions of families struggling to provide for their kids? let me suggest to you as someone who believes the deficit is a serious problem, we have also got to create jobs the economy needs. the american society of civil engineers tells us we have the $2.20 trillion need for investment in infrastructure in the next five years alone. i am a former mayor. infrastructure does not get done unless you invest in it. why are we not doing more of this? on the other hand, i understand you cannot just spend. but let me give you some situations that i think we can address. about $100 billion a year -- the chairman of this committee has made this point many times --

part avoided in taxes by large corporations and the wealthy by going to tax havens in the cayman islands. a little bit crowded, hard to do their work with 18 valves and corporations in one building. >> it was five stories. >> oh, then it is no problem. something like $100 billion in lost taxes, why we not talking about this seriously? in 2005, one in four companies paid no taxes at all. this year, exxon mobil had a bad year, only $19 billion in profits. they did not pay many taxes and they've received a tax refund

of $156 million. shouldn't we be focusing on creating jobs in infrastructure, stopping the absurdity of importing $350 billion of imported oil, move to energy independence, and at the same time, go forward with deficit-reduction, in a fair way that does not unjustly affect middle-class families? dr. johnson? >> yes, of course, we can put more money into infrastructure. it is not that easy, given the way the spending is set up. it is an acceptable proposition. but in terms of tax reform, what is intriguing about the bell you add it tax, it is coming from people from the right and left. depending on how progressive or regressive your system is, what

exactly you are taxing, it is a relatively hard tax to avoid. it focuses on consumption, rather than income, which has a sensible affects. i am somewhat encouraged, if people at the technical level are thinking hard about those proposals -- obviously, the political decision is another story. i do think in all of the issues you raise, the one thing we must not avoid is medicare. if you look out 20, 30 years, that is an issue. do we based it on my time earnings? >> medicare is part of our health-care system, and we end up spending about twice as much per capita compared to any other country, and outcomes are not as good. it is not just a question of

medicare. it is during our healthcare system to providing quality care. >> i am sure you are right, the whole health care system needs to be addressed, but if you put all of the european union health spending projections together, their numbers are just as bad as powers in terms of containing future health care spending. all systems across the industrialized world have similar problems, demographics, and aging population, and increasing use of technology. to what extent you give people access to those technologies? >> this is the reality, people are getting older, health care is getting more expensive. but in the midst of all of this, the point on the making, we have a lot of problems. some of my friends will conclude

that the way you solve these problems is by punishing lower class, middle class people. i think when you have a society that is moving, in many ways, toward an oligarchy -- >> [inaudible] >> some of them are in the room. we talk about oligarchies with the top 1% owning 90% of the would referis what i w to as an older kid. -- oligarchy. we have a huge crisis, we have to do with it. i would to just, everything being equal, unless we can rally the american people, it will be dealt with by making the poorest people poorer, see the middle- class decline further, and see

the wealth gap grow even bigger. >> i think we can do better. it is clear, this has been happening for a long time. the source of the problem has to do with educational opportunities and other factors. it is clear that federal policy, policies on other levels of government can do things to do with that, but some of it involves allocating the court -- resources away from some areas, more broadly, to health care, so you can get better outcomes and lower cost, and you would have more resources left over for education and infrastructure investment, both of which will provide jobs and human capital. that is the kind of economy we want in the future. what is required is your leadership. >> thank you.

dr. naroff? >> i do not disagree with you, in the least. when people would say to me, x percent of the top income are percent of taxes, and isn't that a sign that things are unfair? you have to know how it is distributed, the reasons for the change. that is an important factor. but the reality of where we are now is we no longer have any wiggle room. 10 years ago, if the deficit went up a couple hundred billion dollars, it was not going to create major, long-term crises, as far as the economy is concerned. we do not have that luxury right now. what that tells me is, getting

help of this slow-growth environment, moving to pay low level budget deficit, it is going to require some groups to pay more. it is the politician that decide which groups pay more. in the current set of circumstances, who are the people that are not spending? part of the problem -- what i find most interesting -- i did lots of talk to business people, other groups. i asked them how many believe the recession is going on and most of them raise their hand. most of them are middle, upper middle-class business people who feel that way. they do not see the benefits of

this. consequently, they are not spending. so something that provides them with the impression, reality, that the economy is moving in their direction, to the extent it improved confidence, will improved spending. >> thank you. >> thank you for your excellent questioning. i would like to go to the panel with a separate question. that is how we got into this mess. i have my own view and i am going to try it out on each of you, and i would like your reaction. it strikes me, we had a series of bubbles formed. we had an energy bauble, commodity bauble, we all know

happen with housing. on commodities, wheat went to more than $20 a bushel. that is evidence of bubbles forming in lots of different places in the economy. how did we get so many forming simultaneously? it seems to me we had overly- loose fiscal policy, responsibility of the congress and president, massive budget deficits in the good times. on the monetary policy side you have an overly-loose monetary policy after 9/11. we had an unusually low interest rates for an extended period of time and expansion of the money supply. on top of it all, a policy of deregulation, so nobody was watching, and forcing the --

enforcing the laws that did exist, and in some cases, they were insufficient, like in the case of a.i.g. so when you have these conditions at the same time -- pretty unusual in economic history. you usually have one or the other. provides the seed for bubbles to form. ultimately, they burst and there was enormous economic wreckage. i would like to hear your view of the economic history. >> you are pretty much on target, senator conrad, starting with the regulation piece of tit. we had inappropriate regulation in the financial services market. we now recognize that.

what we failed to understand was that the more we wanted our markets to be open and free and to allow for failures, since the failure in tinges on the financial system, leverage, that requires less leverage. into some capital, liquidity requirements, underwriting standards, the rest. as i was listening to utah, i thought to myself, the dimension of monetary policy was to lose in the regulatory front which allow the credit bubble to form excessive growth in credit. the legacy of the bubble is still with us. unless we write-off that debt against the value of real estate and other things that have gone

down, we will be stuck in a slow-growth economy. the misallocation of resources is part of that legacy. >> when you talk about the misallocation of resources, what my understand that to mean is too much money in housing. >> that is right. on the macro sense, and also, the incentives that were built into the tax code that encourage that. i would point to the 1987 tax which change the treatment of capital gains in housing. >> very generous treatment. >> now there are no capital gains, so we may not have to worry about that. but the matter of fact is it was a stance in policy. that is why it is so appealing

to think about using this moment not only to fix our long-term fiscal future to make its sustainable, but to address some of the things in the tax code, through tax reform, that would take away those incentives. senator gregg alluded to energy policy earlier. i think that is an important policy -- aspect of what we are talking about here. for years, the idea was we should have higher prices for energy, higher prices that reflected what they were in the rest of the world, so we subsidized relative to other economies with energy. as a result, we import a lot of our energy and that has added to our imbalance, dependence on overseas sources of energy. we have the power to correct that report. policy, energy policy, the tax

treatment of energy is something that we can deal with. if some people pay more, we have to deal with that, but that is an important ingredient in thinking about where we go to the productive uses of those resources. >> i also agree with the broad outlines, but i would to just put in in in a longer framework, talking about the repeated cycles that the bank of england now calls doom loops. prices, expansion in 1982. another emerging crisis in 1990. then a crisis based on u.s. housing. all the specific pieces have pushed us to a bubble in housing, and i would agree with that, but this is not a housing-specific problem. monetary policy and fiscal policy is involved in this. this will probably -- policy

should probably be pushing hard in the other way, but monetary policy gets pulled into the cycle. you have this crash and then you try to reflate the economy with low interest rates. unfortunately, regulation over a 30-year period as the cycles continue it, actually deteriorated and in some key countries, particularly in europe. the franc legislation pushes us back some distance, but not far enough. in my assessment, these others will not deliver much in the wake of substantial change. -- the franc regulation helps some. it will not be housing, or banks in some way or other, that probably global. there will be big capital flows.

the fiscal policy should be leaning the other way and preparing for the worst. it is very hard even to agree, and even if we imagine a smooth-sailing future, we cannot even figure out what to do for the 15-year horizon. >> and a sister, but not sufficient condition for the bulls out there -- it is a start. you had to have a lot to create them. it was not limited to just tax policy or legislation. look at the technology bubble. it was largely private-sector. it was massive amounts of private sector capital that got misallocated. what concerns me is the structure and functioning of the financial system whereby almost anything can be

securitized, and almost anyone can invest in anything. while capital flows to the greatest return, it tends to flow into the greatest short- term return in given period of time, rather than the greatest long-term return. the implication we have gotten from the bubble that has formed here is that capital is flowing not in the long term direction. we're looking for the shortest term gain. it is the idea that universities can invest in energy futures as part of their endowments as a way to make money. is this really a long-term investments that makes a lot of sense for a university? but they do it because there is a rate of return they can take advantage of. while you can talk about all the

things you have, i'm not sure that you get around it unless you deal with the way the financial sector itself allows capital flow. and i'm not sure how you do that without interfering with a lot of the good parts of the relatively free flow of capital out there. >> can i answer that? >> you may disagree. >> i do not disagree, because obviously there is a balance. creating more leverage creates activity, and feels great while it is happening, but there is a bounce. there is no handbook with the exact number for balance, but in financial institutions, and a corporate level of capital to mitigate risk and enable people to earn returns -- that is where we can find a balance. in the financial system as a whole we can find a balance.

does it make sense to choose housing again as an example, to lend money as we did? obviously not. if you look to the north, to the canadian financial system. you can see they have a requirement for no one gets a mortgage loan with less than 20% down. well that amount is arbitrary, it is sensible. common sense tells you where the regulations ought to be without being too precise about them. and to limit the amount of leverage. no leverage is not good because it stifles growth. too much leverage has left us with problems we have now. while i did not come from new hampshire, i did grow up in new england. >> i grew up in north dakota and was raised by my grandparents. my grandfather said if you cannot put 20% down on the house, you have no business buying it.

>> there you go. >> that was my amendment in committee and it lost. i wish you had been there, doctor. dr. johnson, on a couple of occasions you have mentioned medicare as being a key measure on our long-term issues. i think you have dealt with the issue of technology and the expense of the last six months of life, for lack of a better term. do you have any specific proposals in the medicare area that could be useful to the financial condition, that work, incorporated in the original bill, the healthcare bill? >> no, unfortunately. i have spent time talking to leading health policy experts. i will share the names with your staff. there are obviously some indications, both within the va

system and within the private sector of health organizations that have managed to get a grip on costs without severely compromising quality of care. these experiments have proved hard to replicate. we do not understand how some have been so successful in cost control, and not able to replicate that in other cities. it is a very tough problem. arenot saying that there easy solutions year. i wish that i had a magic bullet for you, but i do not. >> senator, there is a report from cms that outlined the potential savings of medicare that might come from some changes already proposed. but it seems to me as important as medicare is, i would point to

the bigger problem of medicaid. it is an example of how the federal system is really broken. the states always come for assistance to the federal government during a downturn. so that system does not have permanence, does not have stability over the longer term. if you think about medicaid as a program, that one needs desperate attention. more broadly, if you look -- simon and i are both on the advisory panel to the cbo. if you look in their options book you'll see one big option that stands out. i'm sure you know it. that is the tax treatment of health care benefits. if we address that tax treatment in the broader context of our tax system and looking at health

care, as difficult as i know that is, that will be something that both helps the deaths of problem and change as incentives for healthcare. >> you are talking to the choir on a point. i appreciate your time. >> thank you, doctors. we very much appreciate the time and effort you have extended, and the assistance you have provided this committee and this senate. we stand adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010]

>> that was the senate budget committee at an end. we will look at the white house where robert gibbs has scheduled a conference. we will have that 12:30 p.m. meeting like for you here on c- span. the senate has begun debate on the nomination of elena kagan to be the next supreme court justice. a final vote is expected later this week. you can watch the live coverage on c-span2. do not forget. we have an archive of materials on her nomination from the judiciary committee hearings, to some speeches, and some of her papers. later today we will break down the debate into individual speakers, so you can watch for your senator has to say on the nomination. c-span.org/kagan.

today is primary day in three states -- kansas, missouri, and michigan. we will have complete coverage of those races later tonight on the c-span networks. any optionst ruling in th in, but not released any of. >> i get the key players and events that became desert storm come on line at the c-span video library. every program since 1987, all free. >> c-span programming -- politics, books, history, available anytime on c-span radio in the baltimore/washington area at 90 .1 fm. and nationwide on xm and sirius.

now listen on your phone through a partnership with audio now. c-span radio is available anytime. it is free, but check with your phone service provider for any additional charges. even more available on your phone -- c-span radio. >> we donau to "washington journal" from this morning -- your phone calls, and the news. host: on the "roll call" this headline -- vowing to fight ethics charges. jennifer rights that maxine waters about on monday to fight allegations that she violated house rules as the ethics committee announced that the california democrat will face a republic trial. broken house rules in a rare public trial." jennifer yakman joins us this

morning with more. caller: thank you for having me. host: charges have been leveled. where do we go from here? caller: the ethics committee announced yesterday that congressman waters will face an ethics trial. they did not detail what the charges would be. in the past we know that the committee has been investigating the cause of reform and since 2009, taking a look at her relationship with a bank that receives about $12 million -- received about $12 million in federal bailout funds. her husband was on the board through 2008, owning about $200,000 in stock in the company at the time that she arranged this meeting.

>> an investigative subcommittee found substantial reason to believe that she had broken house rules. what rules are we talking about? >> the committee did not specify -- caller: 5 the committee did not specify, but a somewhat independent body is looking at recommendations to the house ethics committee. in a report released yesterday they suggest that the congresswoman may have used her influence for personal gain, will 23, members are not supposed to use their position for any personal benefit. she denied it. she says she has not used her position for any kind of game or to influence anyone in any way. >> this comes on the heels of the charges leveled last week against representative charlie

rangel. what is the difference between these cases and how they will proceed? >> there are slight differences. congressman rangel, from new york, will face an ethics trial likely in september. that trial will take place first, the wheels are already in motion. a special subcommittee met last week to formally charge him. he has 13 counts of violating house rules with a number of allegations against him. but the central one is that he used his office and official funds to solicit a city college of new york center named in his honor. in both cases there will be a special subcommittee with four democrats and four republicans, they will sit as the judge and jury. in those cases they will be able

to bring evidence like a trial. it will be observed for a couple of days or even a couple of weeks, the subcommittee will decide if they are guilty or innocent. if either lawmaker is found culpable, the entire committee will decide upon it punishment and the house committee will vote on any kind of sanction. host: you can read more about the upcoming proceedings with regards to representative maxine waters in today's issue of "roll call." thank you for being on the program this morning. caller: thank you for having me. host: we will start taking your calls. the first one comes from rockville, md.

caller: good morning. good morning to you and your guests. i have no favoritism towards charlie rangel and maxine waters, but this is the deal, the bank where her husband was on the board about $12 million in tarp funds. that money has not been paid back. all they have to do a show where the money went. i understand that they are very powerful individuals, however this is all more the reason for electioneering politics and grandstanding. congress is in recess anyways. they might as well just stay away and give us a break. this is ridiculous. charles rangel should know better. she should know better. i have no more doggone sympathy for them because they are black

and i am black. god bless the demonstration today for the black farmers. give us that money. thank you. host: washington, d.c., republican line. caller: it is inspiring to hear another black man or woman, a democrat, agree with what the last caller said. maxine waters is going to suddenly say that it is racism. the thing of it is, it has nothing to do with race. it just so happens that two people that happened to be black were caught doing something wrong. okay? last year or the year before it was cunningham, who is in jail now, the representative from california. he was a war hero.

nobody was screaming that people were doing this because he was white. the constant drumbeat of screening racism, what will happen is if there is true lie'' -- true racism, how can you tell the difference? host: i and the front page of "the new york times, "the capital is buzzing with ethics. indiscretions by members of congress. the house ethics committee has come under fire for failing to hold lawmakers accountable in previous investigations." the analysis goes on to say, "as a result, washington has suddenly become fixated on ethics issues, including the continued investigation of john ensign, republican from nevada,

who was accused of improperly intervening between regulators on behalf of an aide to his wife had an affair with the senator. this is an era of higher scrutiny and the need to be more careful about what they do." back to the phones, fort lauderdale, democratic line. welcome to the program. caller: they all do it. congressmen, senators, go to a library. take-out a book. it is called "how to buy a senator." is about elizabeth dole and bob dole and how they became multimillionaires be legally -- illegally. host: will this be a factor in how you vote in november?

caller: i am sure that they'll do it. i do not know who i will vote for. host: republican line. caller: the dishonest exploitation of power for personal gain, i believe that describes maxine waters. this woman has been an embarrassment to the house of representatives for a long time. she supports castro and hugo chavez. she is a closet commie. host: she is not being brought up on charges on dealings with castro. caller: i know that. but she should have been a long time ago. host: stephen, pa., concerning congressional ethics and the election in 2010, what are your

thoughts? caller: one of the earlier callers talked about term limits. i used to think that they would be something that would be necessary, but i have come to realize the need to have term limits already, it is called the ballot. what we need is educated voters to pay attention to the issues and how your representatives stand on them, not listen to the political machine, republican or democrat. it is a big responsibility to be a voter in this country and it should be treated as such. we have to do it right. host: who is your representative in pennsylvania? caller: i cannot remember his name right now. you caught me off-guard. host: that is ok.

caller: upper marlboro, maryland, go ahead -- host: upper marlboro, maryland, go ahead. caller: the gentleman from texas, a couple of callers back, it is typical of republicans and conservatives. you kind of stole my thunder, i was going to bring up the example of the republican senator who is being investigated by the justice department. host: john ensign of nevada? caller: exactly. through the entire shenanigans with charlie rangel banned the congresswoman, i am really disappointed. they could not happen that a worse time. congress is that a very low

opinion in the country. i am with nancy pelosi, cleaning the swamp. you know, i love charlie rangel. i love maxine waters. i really do. but if there's anything there, have the trial if you have got to have the trial. just like the last situation a week ago where everyone jump to conclusions about this lady that they hung out there to dry, give them a chance to defend themselves. if they are guilty, they have got to go. host: when you go to the polls in november, how your representative supports or does not support representative waters, will that be a factor in how you vote? caller: know, and i will tell

you why. i think that might congress lady, don edwards, -- don of edwards, -- donna edwards, she has done a remarkable job on issues that are very rare -- very important to the democratic party as a whole. she has been very poor ways. as a matter of fact, she has been part of the progressive conference -- i mean caucus, sorry, i am nervous. she is part of a hard-working group of the progressive caucus. but that is a great question. as democrats we have to get out and vote. this is the most important vote we will take in a generation, this midterm election. host: dennis, thank you, we will cut you off and move on.

in "the boston globe," this morning, "barney frank urged maxine waters to avoid any dealings with the boston-based bank because ever husband owning stock in it. but the democratic congresswoman did not heed his warnings and now faces a possible trial over a conflict of interest." back to the phones, washington, d.c., john. caller: thank you for having me. about the congressional ethics conversation and the 2010 election, this election for congress will be shaky this year.

congress is in the reads these days, we will have trouble with that. all of these people trying to run, as i understand it, when you are running for these positions in government you must bring to the table what you are going to believe. am i right? make them be reasonable. congress right now, they are not getting much done. host: it will have an effect on how you vote in november? caller: of course it will. you need to know that when you are with the government, you need the most top-notch people. that is why i agree with the caller, nancy pelosi, if you want to have a trial, have a

trial. do what you are supposed to do. host: rick, toledo, ohio, go ahead. caller: on congressional ethics in 2010, i would like to say that there are no ethics anymore in the united states. democrats and republicans have forgotten the meaning of and probably do not even know how to spell the word. i will be voting independent. democrats and republicans have not had ethics for at least two decades. host: why do you feel that ethics has become an independent thing and it is not there in the democrats or republicans? caller: there is only one independent in congress that i know of that has any ethics, it is bernie sanders from vermont. when you look at ohio and the surrounding states, none of

them have it any ethics. all they care about is their political agenda. ethics does not enter into it at all. host: more from the analysis i am "the new york times" this morning. -- analysis by an "the new york times" this morning -- analysis in "the new york times" this morning. "the accusations against all three lawmakers hang in large part on the question of whether the actions they took came in the course of a normal professional duties or constituted personal favors that they have an influence, for these appeared to have been influenced by money or other factors. in their defense, mr. rangel and ms. waters, mr. ensign, they rely on similar arguments. mr. ensign contended, for instance, that he had always been a supporter of the nevada

airline, allegiant air, and an electric utility,n nv energy. investigators are examining whether he may have tried to hush up his affair by inappropriately helping his mistress's husband lobby federal agencies on behalf of those companies." texas, democratic line, go ahead. caller: i am calling about the ethics issue. host: yes. caller: it seems that there is a presumption of innocence. everyone speaks as if these people have been found guilty. this is the political season. i feel that this is all political. maxine waters and charlie rangel has said that they have not done anything. i just feel that this is just a

way to make them step del by going through these hearings. host: if this was not an election year bell like you do not think that much attention would be paid -- election year, you do not think that much attention will be paid? caller: you have two black congress people. i remember when nancy pelosi said she would drain the swamp. i think that this is all political. now she has to drain the swamp. it is all political and happens to be these two african american congress people who have been there for years. " -- host: also a white republican senator from nevada. caller: i think he has the

presumption of innocence as well. i did not say that he does not. host: weatherford, texas, go ahead. caller: it has nothing to do with black-and-white. these people lied to get elected, they lied when they got there. they're the worst ethical people i have seen. the tea party, they talk about big government, hating it, but they sure are in a big hurry to get to washington. john cornyn will not get my vote. host: why not? caller: i do not believe in anything he stands for. host: are you concerned about his ethics? caller: cuff i just told you that none of them have ethics. they lied to get in tough and they lied to keep their jobs. term limits, they make these backroom shady deals with these people and then have time to

come up with the deals that they made. host: in "politico," this morning, "no deal, two trials as the elections approach." mullah island, new york, matt, you are on. caller: there are no ethics left in washington. it is just more of the same. these accusations against charlie rangel and maxine waters are just the election ploys. nothing more than that. host: another caller mentioned something similar. you say that this would not be a factor of this was not an election year? caller: absolutely. as far as i am concerned, charlie rangel is a war hero and has done more for the country than most of the other people in

congress who are only sitting around for a paycheck. that is what i feel about it. host of district heights, md., you are on. caller: i will be the fifth caller who said that there are no ethics in washington at all. none. nancy pelosi, excuse me, is a joke. when they tried to bring impeachment against george bush for going against the constitution, she said that it is off the table. all of a sudden she will drain the swamp? that is a joke. in the fifth person calling in, the entire administration -- the president talking to the disabled veterans, he should have been talking about bringing those charges of. those fellows in those positions dealing with ethics and the constitution, it is sad.

i am to the point where i will love boat that all. they are all liars -- i will love vote at all. they are all liars. i am so glad that i am the fifth caller that recognizes that there are no ethics between republicans and democrats. nancy pelosi is leading the band. host: we got this headline this morning, from " washington times -- from "of the washington times," they are talking about elena kagan and the justice sonia sotomayor, group would support of nine republicans -- who soared through with nine

republicans. or will republicans launched a losing battle as they did with the second nominee of george bush"? that is "the washington post" talking about the numbers game for the elena kagan confirmation vote. if you want to keep tabs on what is happening with that confirmation, you can go to our website, we have a special hub, c-span/kagan. you can watch her previous appearances and coverage of confirmation hearings, you can see if your senator has announced how he or she will vote for the tally. dsthe access has additional lins and more. that is c-span.org/kagan.

next up is new york, new york, independent line. good morning. caller: good morning. how are you? there are a few things. one, we need to look at our history as a nation. ethics is a funny thing when it comes to hamiltonian democracy. the government decided that a select few all family makes the decision. [unintelligible] ethics the main driving force in washington in our history? under clinton he was trading positions for support. until money is separated out of the picture and an equal playing field is given to all people, they have a set amount of money to run and that is an issue that they do not have to placate

until there is such a time that we expect this situation. i have to agree with the other callers as well. until reform takes place, we will have these issues. i would like to say that we always had problems with charlie rangel since the 1980's when times were really rough. in fact, we looked down upon the charlie rangel because he was not doing enough for the community during those difficult times. host: next is philadelphia, pa., on a line for democrats. caller: the morning, i am a first-time caller, this is the first -- good morning, i am a first-time caller, this is the first time i have gotten through. c-span, you are bordering on mimicking box. i cannot tell you everything about the deal with charlie

rangel. but with maxine waters, allowed the trial to go forward before you start asking for opinions and of ramping up rage against the american people. the deal with maxine waters was that in september of 2008, when george bush started handing out money to the banks, bank false and never allocated any money to help of black banks -- henry paulson never allocated any money to help the black banks. maxine waters made sure that the national black bank association was included. her husband had been on the board for 25 years at banc one, they had received no money. she fought to make sure that money was allocated to go to the black banks. you are not reporting any of this. you are allowing the road -- the

public to run rampant. this is surely sure rob all over again. it is always good to see you but it has become conspicuous that the only time i see your face is what they have something they think of a black person. then they put you on. have a good day america. host: i am sure that that has nothing to do with the way that they schedule my appearances on this program. joe, you are on "washington journal." caller: there is nothing new under the sun. i would be the eighth caller to concur that there are no ethics in congress. host: when you go to the polls in november, will affect how you vote? caller: i will get to that in one quick second. congress is a microcosm of society itself. the mafia calls and getting your feet wet -- your beak wet.

is the old adage, power corrupts, absolute power corrupts absolutely. these individuals have been in for an extended period of time. the longer they are in power, the wetter their beak gets. it is a microcosm of society. i see it in business every day. everyone takes care of themselves through malfeasance. i have done over the years from conservative republican to democrat -- i voted for obama, an individual with so much potential who has failed, to an independent, and i have no idea what i will do. in congress is business as usual.

thank you. host: in "the new york post," "james clybourn of south carolina says that charlie rangel should admit wrongdoing to settle the violations from the house committee. "i think that charlie rangel made it very clear in the discussion that i had with him that he was willing to stipulate to all the sworn testimony that was made regarding these 13 allegations," he told msnbc." as reported in "the new york post" this morning. republican line, pennsylvania, good morning. caller: i was in new york city when charlie rangel defeated clayton powell. they did the same thing to clayton powell. it was frivolous, but they got him out by saying that he called

a black woman named bag woman. >> you can see the program in its entirety at c-span.org. we take you live to a press conference at the white house now. >> everyone is in their sunday best, in their seats, and church is full today. that is good to see. miss, you can ask the gentlemen in front of you to sit down a little bit. [laughter] he is a little bit on the atoll site. -- on the tall side. seriously, are you trying to bring us down a little bit here? brother, you are asking the wrong guy.

take us back to seriousness. >> [inaudible] you have said before the president gets updated daily. is that still true? >> yes. >> is there anything special about how he is being updated? >> secretary chu and others are down in houston today. he will likely touch base with them at some point. i do not have a schedule of front of me, but he will likely seek wispeak with secretary chud others in houston who are monitoring the truce. the static kill is certainly one part of the long term effort to finally killed well. that will be followed by activities at the bottom part of

the well, and then ultimately, as we talked about, the permanent solution is still the relief well. that is ongoing. >> you are not declaring victory until then the? >> no, and scientists believe the long-term, permanent solution is still ultimately the relief well. it is always good news that since the ceiling cap went on some weeks ago now, oil has not been flowing into the gulf. put out by the epa yesterday on toxicology tests, which are important surrounding dispersants --and their

findings, and their continued testing to ensure that we are monitoring that environment -- all of which is tremendously important. >> to switch topics, we had the iraq speech yesterday, the first of several on the topic. we have the second round tomorrow on the automobile industry. what are some of the other topics we can expect to hear about, concerning success stories and achievements? >> now that you mention those, let's touch a little on them. obviously, the president -- many of you who covered the campaign, regardless of which campaign you covered -- without a doubt, i think it is safe to say that the president's plan to remove our

combat forces was among the most hotly debated and the both the primary and in the general election. to be honest with you, if you look back at what was said over the course of many months, both during the latter part of the general election, during transitions in the first part of the administration, i think many people believed that changing the mission away from combat by august 31, 2010 was likely not doable. that we know now is on pace to happen. some 90,000 troops will be pulled out along with two million pieces of equipment pulled out of iraq by the end of this month. you mentioned the president visiting on thursday the facility outside of chicago. look, we have spent a lot of

time on autos here both in the briefing room and in the west wing, and i think we're still encouraged by what we see in a newly revitalized auto industry. we're getting sales figures today. those of gm were out earlier, showing an increase not only from last month, but a more than 24% increase year-to-year. it also gives you a sense of making the overall economic progress. the discussions we were having about the industry was in many ways predicated on an economic environment where you are going from the heights of selling 17.5 million cars per year down to selling, during the height of our economic downturn, sales that approached 9.5 million.

a 11.5re closer to 11, million. it means the investment the president and his team made in the auto industry, and hard workers and those facilities has led to a strongly revitalized industry. i think the president will continue to talk about the steps we took to revitalize the economy, the steps taken to make us safer and more secure, all of which he will spend some time over the course of the next several months reminded people. >> remind us about some specific achievements he plans to talk about. >> i do not have the schedule in front of me. i anticipate we will spend a bunch of time over the course of the next several months, or least some of that time reminding people of where we have come from. that will definitely be a big part of our fall.

>> a couple questions on the international front. the israeli and lebanese forces clashed. what kind of message does the president have for them the? >> it is an enormously tense region. over the course of the last several months we have seen real progress in proximity talks in building towards what we hope can soon be direct talks on a comprehensive peace, and we hope that the conditions, conditions certainly throughout the region do not change. >> call for restraint. >> that is something i'm sure you hear today from the state department as well. >> on the domestic front end tim

geithner was speaking about elisabeth worn as a potential candidate for the financial protection agency chief. how much closer is the president to making a decision on that, and will he do before he goes to martha's vineyard the? >> i'm not sure if you will decide before august 19, or this week. >> two questions. first of all, he told another that the international committee is losing the war politico's we have lost the battle for hearts and minds. when someone says something like aboutwherwhat does that say where we are in afghanistan? >> i do not think president obama would agree with that president's conclusion that the war is lost. i have not seen the interview. i do not know what he has come

to that conclusion, but i think it is safe to say that the actions and efforts that the coalition of international and american forces, that they have taken over the last several months have the premise the hearts and minds of the afghan people at the forefront. the afghan people know of the brutality of the taliban, just as the pakistani people on the actions that their extremist counterparts were taking in the pakistan last year, to move on the capital of pakistan, is why the country of pakistan started to take more direct action towards the 67. i think the hearts and minds of those in afghanistan and pakistan are obviously a key part of our strategy, as well as

the hearts -- what is in the hearts and minds of the extremists who seek to do afghans or pakistanis harm. >> i wanted to ask something a little off topic and more fun. the president's birthday is tomorrow. any special plans? >> we travel to chicago tomorrow afternoon. we will probably get more information on it later, but i think his plans tomorrow our dinner with some friends in chicago. i think he is looking forward to spending the night in his house for a change. >> he has been referencing his age a lot lately. does he feel like the weight of the presidency is an accelerating his aging? >> i cannot imagine that the weight of the job does not take a toll physically and mentally on anybody who does.

but at the same time, i think -- i would say he still is in pretty good shape, and his -- his and join the job, even with its many john does. he knew what he was getting himself into in deciding several years ago to undertake this. there is no doubt that it takes an enormous physical and mental strain on making the decisions you make, on sending young men and women off to war, or tackling the greatest economic calamity our country has faced since the great depression, but i know that he greatly enjoys it. it would just require him to get

more frequent here cuts. >> there is a debate taking place in the york as to whether or not it is appropriate to build a mosque on the cultural center near the site of ground zero. what is the administration's position? >> i have announced a couple of times. i think it is rightly a matter for new york city to decide. >> the president takes a position on religious freedom and tolerance, so why not this? >> we have -- you have heard this administration and the last administration talk about the fact we're not at war with the religion, but with an idea that has corrupted a religion. that has not been said -- not from here and my going to get involved in local decision- making. >> the anti-defamation league

has the correct when you sang out of sensitivity to some victims -- >> again, i think it is a position appropriately debated at the local level. >> on another topic, the mccain -cobert report cites money wasted on several projects. is this good or bad news? is there some acknowledgment that the project -- >> there was an acknowledgment on their portable in a couple of projects out of their reports that were not ultimately recovery projects. this has much more to do with politics. maybe the best person for senator john mccain to debate would be the chief economic advisor of his own presidential campaign who not only weighed in on the president's recovery plan, but has in the past week written and analysis of what our economy would look like without

the steps we took. it is a report that instead of 8 million jobs having been lost, the figure would have been 16 million jobs lost. every day the vice president and his staff work diligently to ensure to the projects were received funding abide by certain standards. all that is on the internet. a level of transparency not seen in government programs, particularly those of the magnitude of this. i would suggest that john mccain and his chief economic adviser during the campaign -- i think the debate is probably better between those two. >> [inaudible] >> from what i have read, no. >> for those of us who cover the

john mccain campaign, i don't think any of us thought that he was the chief economic adviser, but some who was consulted. bitt it a little disingenuous to hold him out as an example of republicans? >> because he is a registered democrat the? >> they were reaching out to people who think differently. >> he was a key economic adviser is? >> no, they consulted on economic issues. to treat him as the guy who formulated the john mccain economic plan -- >> apparently, according to you, you took a couple of conference calls. i don't think either john mccain or mark zandi have portrayed their role quite as minimally as you have. >> the person who formulated the core of the mccain economics --

>> the list to say, he was an active participant, regardless of his party affiliation, on the campaign of john mccain. i do not think we will doubt that his support was for john mccain. john mccain has apparently come into a disagreement with a guy who played a prominent role in his presidential campaign. >> [inaudible] has advised? >> we spoke to all whole host of economists. >> and that is how they describe his role to the john mccain campaign. [inaudible] >> we are happy to list mark as someone we have taken advice from. we thought it was a correct on the stimulus that we pursued an economic recovery plan -- i think mark's on paper describes, think mark's on paper describes, as well as alan