[applause] >> thanks. my friends, thanks so much. thlings exactly what we need. [applause] thank you. thank you. thank you, very much. my friends, what a wonderful greeting, and i know you're all just here to see me. but i am going to say a few words with three weeks to go until today. . .

at times, we have even been behind in our own polls. i want to tell you today, as of this moment, i am no longer behind. i am no longer behind. [applause] [captions copyright national cable satellite corp. 2010] [captioning performed by national captioning institute] >> i can tell you, as of this

moment, i'm actually beating ron johnson with the voters that are most likely to vote. [applause] >> let's talk about why this is -- what the reality is with three weeks ago, the race remains close. we have that momentum. our opponent is moving in the wrong direction because we are the ones who are talking about the bread and butter issues that effect the working families in the state of wisconsin and the united states of america. [applause] forr. johnson's support shipping wisconsin jobs to other countries has been a game changer. wisconsin's people understand that while ron johnson was sitting on the sideline, as he

likes to say, i was fighting every day for wisconsin jobs throughout all of those years of public service. [applause] >> wisconsin people understand that while he says "he has gotten off of his rear end and stood up" he is not standing up for you. here's what the voters now know. i was recently named the no. 1 enemy of the washington lobbyists, out of all 100 members of the united states senate. [applause] >> jen johnson is standing up for the corporate special -- ron johnson is standing up for the special corporate interests. after two debates, we are surging, and tell you that this is going to come down to the wire. we cannot let up. we have 21 days left.

johnson and his friends in washington will do everything they can to turn this back the other way and by this election. we simply will not allow it. [applause] >> his strategy is not working, in part, because he is hiding from the media, the voters, behind political talking points, $700 million of the of television ads that provide no solutions. he is hiding behind the attacks on me and huge attacks from out of state corporate interests that have come into wisconsin and run over $2 million of misleading and negative television ads. we have done none of the. i have asked people to stay out of the state. we will have a wisconsin campaign, and it will continue to be that way. [applause]

>> as some of you might have seemed in our debate on monday night, he did not have the backbone to tell the the special interests to get out of wisconsin and the people decide the election if he is too afraid to go away now, does anyone think he can be trusted in washington? [laughter] >> there are other good reasons he is hiding. he would be nothing more than a voice for the lobbyists and special interests that already have too much power in washington. he even called trade agreements that he wants to ship overseas "creative destruction." i called the destruction of wisconsin families, lives, and tradition. [applause] >> his idea for growing our

economy is absent, except for one thing -- giving multimillionaire's like himself more tax cuts. that is this concept. for everyone else, he wants to repeal health care, increased costs for seniors, and cut people off unemployment benefits who are still looking for work. he also wants to continue to outsource our jobs and has offered no plan about the job creation he says he can do. it is opposite of the approach i have taken. i have proposed and succeeded in getting as jobs credits. i have stayed connected by visiting every county, every year. i have fought for the people of this state. [applause] >> i have taken on the d.c. lobbyist, and the corporate special interests. [applause] >> the reason i got this distinction has been their

number one enemy is simply because i am not their friend. together, working with president obama, i supported taking of the insurance companies because it was the right thing to do. it was the right thing to do. that was reason on/off. a have not left it at that. -- it was not enough. i was running ads that said you buy it voted for the bill. it was an historic achievement. i am honored to have voted for president obama's courageous actions to bring health care after 70 years of waiting. [applause] >> i am going to quit while i am ahead. [laughter] >> i'm going to get to the main show.

we have a pretty special, special guest here today. i am so lucky to have the honor of having this guest here. the first lady and i understand that every election is about the future, and our shared responsibility to pass on a better future to our children. like the president and first lady, i have two daughters myself. i am so pleased that young girls are around the country can look to michele obama as an inspiration. [applause] >> i do not know if the first lady remembers this, but when she and her husband came to washington in january of 2005, i was seated at the table with them for dinner. she was very concerned -- how do you do this? how do live between washington

and wisconsin? what you do with the kids? we had a nice talk about it. if she had a better solution. she found this white house on 1600 pennsylvania avenue where they could all live together. it was a good solution to the problem. michelle is a tremendous inspiration and her tireless efforts on behalf of building a brighter and healthier future for our kids here is an inspiration for me. she has launched a campaign called let's move to bring together community leaders to tackle the challenges of childhood obesity. this is an important effort to address the serious health problems affecting our children and has an inspiring goal to solve the epidemic of childhood obesity within a generation. she has had the wisdom to work with one of the best people here in the state on these issues of healthy eating and healthy

environments -- we will alan, who is here today, one of the most -- one of my favorite people in the state. i know the first lady thinks the most of them. she has also devoted herself to helping military families. [applause] >> as first lady, she has helped to make sure that we remember the sacrifices not just of the men and women in uniform, but their husbands, wives, children, and parents. they have to deal with some much when they are away, and also when their loved ones come home. she had shown so much compassion and leadership in advocating for them. [applause] >> she is brilliant. she is a constant reminder of what public service should be. she is standing up for people who need a voice.

i am delighted to welcome the first lady to wisconsin today. i am delighted that she has chosen us as the first visit she has taken since the inauguration on behalf of a candidate. i am honored to introduce a great friend of mine, and a good friend of wisconsin, the first lady, michele obama. [applause] >> thank you. [applause] >> thank you so much. thank you, you all. thank you so much. thank you so much.

well, it is good to see the crowd fired up. [applause] >> it is a good thing. i am thrilled to be here. please, all of you rest your feet. you have a lot of work to do. i do not want to get tired here. i am thrilled to be here today. let me begin here by thinking russ feingold for that kind introduction, and thank you for inviting me here today. i am honored. when my husband was here in the state a couple of weeks ago he talked about how independent and outspoken russ feingold is. you and i have something in common since ross does not always agree with him. [laughter] >> my husband also said something that is worth repeating. he said that russ feingold is always looking out for the people of the state, and i think

that is clear in just about everything that he has done during his time here in office. [applause] >> over the years, he has held more than 1200 town hall sessions to listen to the people of the state, and day after day he has taken a courageous and principled stands on your behalf. [applause] >> he has stood up for health insurance reform, times -- campaign finance reform, and he has fought to create jobs, and cut taxes for working folks here, in the state. [applause] >> he has been out there every day working hard for families in wisconsin, and i am proud that this is my first stop on my campaign trip. [applause] >> let's give him another round of applause.

thank you, russ. let's also go around of applause to a few more people here today. our first lady, jessica oil who has been a tremendous supporter to me. also, congress woman gwen moore, my girl. [applause] >> and, a candidate for congress, senator julie. give her a round of applause. [applause] thank you, julie. thank you, you all, for being here today. to tell you the truth, this thing here -- i do not do this very often. in fact, i have not been on the trail since a little campaign you might remember a couple of

years ago -- this cute, tall, skinny guy. as a self-described mom and chief, my first priority has been making sure that my girls are happy, healthy, and adjusting to a very interesting new life in that big white house we live in. like every parent, i know my girls, my children, are at the center of my world, and my hopes for their future are at the heart of every single thing that i do. that is the truth. that is really why i wanted to be here today. you see, i come to this stuff more as a mom. when i think of the the issues facing our nation, i think about what it means for my girls. i think about what it means for the world we will leave behind for them, and quite frankly, for

all of our children. i have the privilege of traveling around this country, and i need so many beautiful children. if that is the highlight of my role. when i looked into the eyes of those children, i see clearly what is at stake. i see it in the eyes of a child lost her job.just that mom war is how the family is going to pay the bills. i see it in the eyes of the little girl who has a father that is just been deployed. i see it in the eyes of the children stuck in a crumbling school and wonders what dad will mean for my future. that is how i see the world, and how i think most folks see the world. regardless of where we are from, what we look light, or how much

money we have, we all want to leave something better for our kids. i know that was true in my family growing up. that is why my dad, as you know, after being diagnosed with multiple sclerosis, he never, hardly missed a day of work, no matter how sick he was or tired he was. he kept getting up. he wanted something better for me and my brother. it was also true in barack's family. that is why his grandmother will cut before dawn each morning to catch that bus to the job at the bank, and when she was passed over for promotions year after year because she was a woman, she rarely complained because she wanted something better for barack and his sister. that is really what the american

dream is about -- the fundamental belief that even if you do not have much, if you work hard, if you do what you are supposed to do, you can build a decent life for yourself, and an even better life for your children, right? [applause] >> that is the greatness of this country, but for so many people that dreamed feels like it is slipping away. before this recession hit, for too many people, all of that hard work was not adding up like it used to. for years now middle-class families have seen in comes falling while the cost of things like health care and college tuition have got -- have gone through the roof. this is something we heard at every corner of the country during the campaign -- folks asking themselves "are we going

to go broke if we get sick? what if we cannot pay the mortgage, then what? how can i afford to send my kids to college if i am not rich? where can i find a good public school, and if i can't, then what do i do? how do i give my kids the same chance that i had? folks were in that the fundamental american policy was being broken, and worse yet, that no one in washington was listening. that is why my president right -- that is why my husband ran for president in the first place. that is why. [applause] >> because he knows, his life, like mine, is only possible because of the american dream. that is why we stand here today, and keeping that dream alive and

within reach for all americans is what drives him every single day. trust me, that keeps him up at night, and that is why folks like you, across this country joined our campaign. that is right. [applause] >> and we are so grateful to you. that is why you all made all of those for -- phone calls, not on the doors, stood in the freezing snow and the public -- and the blazing sun, remember? i believe that is why you and i hear -- are here today. we are not here because of won election. we are not just here because we support russ feingold, which we do -- we got to get this man back in office and keep him there. [applause] >> we are all here to renew that

promise, restore a bad dream. we are here because we believe no child's future should be limited because of the neighborhood they are born in. yes. [applause] >> we believe that every child should have access to outstanding public schools, like i had. [applause] >> and that every child should have a chance to go to college, even if their parents are not wealthy, just like barack and i. [applause] >> we all believe basic things -- if you get sick, you should be able to go to a doctor, and if you work hard, you should make a decent wage and have a secure retirement. we all believe that if you fill your responsibilities every day, you should be able to provide for your families, just like my folks said, and have opportunities to fulfill your

dreams and leave behind something more for your kids, just like we are trying to do today. we have to remember that is the vision that we all share, and it is the same vision that my husband fought for as a young community organizer all of those years ago tried to bring jobs and hope to the struggling neighborhoods in chicago, it is the vision his fought for in the illinois senate, and the same vision he talked about on the campaign trail and has guided him through the change he has been fighting for every single day in the white house. [applause] >> believe me, barack knows that too many folks are out of work right now, and too many paychecks do not stretched to cover the bills. that is why he cut taxes for middle-class families. [applause]

>> hey smoke -- he cut taxes for small businesses as well, not just once, not just twice, but 16 times, so the businesses can create jobs again. he stopped credit card companies from jacking up rates and slapping folks with hidden fees. if you remember, the very first bill he signed into law was the fair pay act to ensure that women get equal pay for equal work. [applause] >> barack believes that every young person deserves a chance that he and i had to get an education. that is why he is reforming our schools from top to bottom. he has made historic investments in community colleges. he has increased student aid and tuition tax credits. he has eliminated tens of

billions of dollars in wasteful subsidies to big banks providing student loans, and he is sending the money where it belongs, to our students. [applause] >> that is not just an investment in their future, it is an investment in our country's future. barack believes it is our solemn obligation to serve our men and women in uniform as well as they have served us. [applause] >> so, he has made one of the largest investment in our veterans in decades, helping them to get the education they have earned, the jobs they deserve, and he is making sure they get the health care they need -- important treatments for things like traumatic brain injury and post traumatic stress disorder. as many of you know, i have also made supporting military families one of my top

priorities because i want to make sure that these hard- working families get their respect, appreciation, and support they deserve. [applause] >> barack is also making investments in clean energy, so we can create good jobs and leave at a healthier planet for our kids. he is investing in scientific research, including stem cell research that will transform our children's lives long after we are gone. [applause] >> and, he has appointed two, brilliant, accomplished women to serve as supreme court justices. [applause] >> think about this -- for the first time in history, our daughters and our sons watched with pride as three women took their seats on our nation's highest court.

it it was a wonderful day. >> [applause] finally, iraq knows all too well the heartbreak and frustration -- barack knows all too well as part pretend frustration our health-care system has caused for to many families. that is why he refused to take the easy route and walk away from health care reform. he will never forget how his mother -- his grandmother spent the last few months of her life fighting with her insurance company because they said her cancer was a pre-existing condition. he does not want any family to go through that again. [applause] >> t -- thanks to the reform that russ feingold and so many of you helped pass, they will not have to. thanks to this reform, insurance companies can no longer drop

your coverage because you get sick, deny coverage to kids with pre-existing condition, and kids can stay on their parents' plan until they're 26 years old. insurance plans have to provide preventive care, things like breast screens, no extra cost. that is not just about saving money, that is about saving lives. now, these are just some of the examples of the kind of changes that we are making. it is because of all of you and strong leaders like russ feingold that so much has been accomplished in such a short time. it has just been a year and half. with that said, i know a lot of

folks are still hurting, and change has not come fast enough. believe me, it does not come fast enough for barack or for russ, either. not when so many people are still looking for work, and struggling to pay the bills to provide for their kids. it has not been fast enough. many of us expected to see all of the change we talked about happen all at once, right away, the minute barack -- barack walked into the oval office door. the truth is it will take a longer time to dig out of this whole then anyone would like. the truth is, this is the hard part. remember, that is exactly what barack obama told us. do you remember? that is exactly what we all told each other during all of those

months on the campaign trail he told us that change is hard -- campaign trail. he told us that change is hard. he said that change is slow. he said it does not just happen on its own. we all understood that change takes struggle, sacrifice, and compromise. from the first days of the nation, every time folks have tried to make changes, they have faced fear and doubts, setbacks and disappointments, but remember, as americans, we have pushed back the cynicism, and kept moving forward. that is exactly what we have to do today with confidence. [applause] >> that is exactly what we have to do today because there is so much at stake right now. there is too much at stake for our future and our children's future.

we have come much too far to turn back now. we have come too far to stop giving our kids the chances in life that they deserve. we have come too far to stop rebuilding that middle-class security for all of our families. we have come too far to stop putting the american dream that i know, that my husband knows, that russ knows back in reach for all of us. we have come too far. now, it is not going to be easy. real change never is. let me change something with you with the -- let me share something with you that i do when change seems hardest. these are hard times, right? i think about my dad. i remember that no matter how tired he got as he struggled to walk, how frustrated he was

trying to dress himself in the morning, he just kept getting up every day. [applause] >> he just kept getting up. that keeps me going. that is my inspiration. i think about barack's grandmother, and how it no matter how discouraged she felt, she kept getting up, and giving her best. i think about all of the folks all over this country just like her and my dad that i have met over the years. the folks that work the extra shift, take the extra class, the folks the wake up every morning without complaint, regret, and do everything they can for the people they love. those folks inspire me every single day. finally, i think about how we all felt on election night. [applause]

>> i think about how we all felt on inauguration day. [applause] >> we were excited. if we were energized. we were hopeful. we were fired up. we knew we had a chance to change the country we love for the better, and the truth is we have that same chance, and the same responsibility today reach it the chance to continue the progress we've made, -- the chance to continue the progress we've made, to finish what we have started. this election is not all about what we have accomplished the past couple of years, this election, wisconsin, is about all we have left to do in the months and years ahead. [applause] >> but, here is something that i asked you all when i was on the

campaign trail. i asked you to make sure you had my husband's back, right? i said my husband cannot do this alone. i am giving him to you, right? do you remember? he cannot do this alone. he needs strong leaders like russ to help him, and they all made folks like all of you to make this happen. they cannot do this alone. we need to make those phone calls. we need you to not on those doors, and we need you to get everyone to vote for russ. folks can do that right now, today, because early voting has already started here in wisconsin. ll you have to do is log on t

find out where to cast your ballot. we also need you all to find the folks that are planning to sit this one out. find them. we need you to tell them that they cannot vote just once and hope for change to happen. they have to vote all of the time, every time. they have to vote for their councilmembers, their mayors, other governors, and four senators like russ feingold. we need you to get those folks up. we need to to get them fired up because in the end, our campaign was never about just pulling one man and putting him into the white house. the campaign was never about that. it was about building a movement for change millions of voices strong that lasts beyond one year, one campaign.

let me tell you something, wisconsin. if you keep standing for russ feingold, and are still as fired up as you were two years ago, i know we can keep this movement going and the american dream alive. years from today our children and grandchildren will be able to look back and say that we kept faith with the values we were raised with, gave them a better life they deserve, and that our obligation to leave for them, and for their kids and grandkids, and american -- and america worthy of their dreams. yes, we can, wisconsin. yes, we must, and yes we will, so let's get it done. thank you, you all, very much. god bless you all, and god bless america. [applause]

[applause]

>> coming up in about 20

minutes, today is what house briefing when spokesman robert gibbs. while we wait for that to get under way, a discussion by the steps made by the federal reserve to help the economy that was part of today's "washington journal." pondent for the "wall street journal" to talk about economic issues, specifically, some of the lessons learned from japan's economic troubles in the 1990's. what happened to them in the 1990's? guest: in some ways, it is similar to what is happening in the united states. japan had a bubble. a stock-market bube and real- tate bubble in the late '80s and early '90s. it did a lot of damage to the banking system. they entered a recession.

there slump lasted for more than a decade. their action recession today. it was hard to break out of the economic malaise that reacted from the bubble almost 20 years later. the lessons that been bernanke learned om that, before he came to the fed, he was a professor at princeton university. he spent a lot of time studying the japanese problem and lecturing panese officials in sternway is about what they needed to do differently to address their economic malaise. what we will see in the months ahead, is ben bernanke applying the lessons that he learned in japan to the federal reserve itself. host: why the japanesbubble burst? guest: the bubble burst because the bank of japan, the central

bank, the equivalent of the federal reserve, decided it needed to burst. home prices, land prices got ridiculous. there was an analogy where the value of the land was worth more than the real estate in manhattan. i do not remember the exact analogy. the nikkei had gone up to 40,000. today it is less than 15. the bank of japan decided there was a bubble and they needed to burst it. they tightened monetary policy and sucked the went out of the financial system what resulted from that was trouble for the banking system. host: why so long of a recovery or non recovery time frame for japan?

guest: there are a couple of explanations. one is it is typical of what haens after a bubble bursts. there are different economists say professors have looked at the financial baubles and have found that after the bubble bursts, in stocks and real- estate, it takes a long time for the financial system to heal for the banks to clean up the bad loans they got their balance sheets. with the foreclosure crisis in the u.s., these banks are still struggling to figure out what to do with this reality. that process takes a long time. in japan, the other part of the story, which bernanke looked at closely as an academic, it is th japanese policy makers made a mistake. they did not deal with the

problem aggressively enough earlier in the crisis to clean up the banks, lower interest rates, do some of the things the fed has done. they tried to pull back the stimulus very early. they may have made a bad situation worse and made it rder for the japanese economy to emerge from the slump. policy mistakes and the aftermath of the bubbles, which can have a negative impact, unlike other kinds of recessions we have seen in the past. host: he is the chief economics correspondent for the "wall street journal". here are the lines that you can call listed at the btom of our screen. what is deflation and how can

that play a role? guest: good question. deflation is when consumer prices and wages, the wage part is important, they fall. we are used to inflation. you go to the gas pump, and it was $2 last week and now it is $2.50. when the price level rises. that has been the experience of almost all americans. almost all americans. anyone that remembers the inflation of the 1970's, japan has had the opposite of that. instead of ices rising, they have fallen. priceove when you're i've had goes down. there are different kinds of deflation. some products like computers

have a prices fall. there is another kind of deflation you get when the economy is very weak. there is so little demand for stuff, that they have to cut prices in der to stimulate more demand from consumers. the problem with this kind of inflation is it typicallyomes hand in hand with wages falling. i like when the cost of my computer falls, but when i come home in my paycheck is lower than what it was last year or i do not get the bonus. the deflation that is bad is the one that comes with falling wages. that is what the fed is worried about. they know how to deal with inflation. when prices are going up, raise interest rates which causes a recession. by raising interest rates, it takes some of the excess demand

out of the economy. the problem with the inflation is -- deflation is you can only lower interest rates tzero. you cant reduce them beyond the zero. if you get into a situation where prices and wages are falling, and you 0 down and cannot do anything else to stimulate the economy, you have a problem and a trap, where you are trying to figure out what you do next. that is what the fed is struggling with now. they have cut interest rates to zero. now they are wondering what else they can do to stimulate the economy. host: what else can they do? guest: ben bernanke and other economists have spent time looking at that question. there are a couple of things they focus on. the first one is the fed has the

capacity to create money. they can say, i am making an extra billion dollars. they can credit it to the accounts of banks. and the lever that they are thinking aboutulling is you go out and buy long-term bonds such as treasury bonds or mortgage- backed securities. you're putting money into the financial system, because banks have more money to play with. you create a demand for long- term securities that pushes up prices and pulls down their interest rate. we have short-term interest rates going to zero and long- term interest rates on bonds that some company might issue falling also. that is what the fed is looking

at doing ao. buying long-term bonds and using tt lever to pull down long-term interest rates to become easier to borrow in the long-term and short-term. host: chairman bernanke is speaking on friday. what is the word on the street about what he is going say? guest: he is speaking in boston at the federal reserve bank of boston. they are holding a conference. how do you manage monetary policy in an environment where inflation is low and interest rates are low? what is interesting is the boston fed had this same conference in 1999. this is a reprise of a conference they did years ago. it was meant to address the situation tt japan was in.

very interesting exchanges. a policy member spoke at the conference. never get to the place where interest rates are as low as they are and inflation is as low as they are. he said i can assure you, it will be more painful than you can possibly imagine. a survey of the people in the audience said do you think america can ever get into this situation? not a single person raise their hand. here we a 11 years later in the situation. we are in a situation where is similar to japan's back then. one of the people in the audience was our f chairman, ben bernanke. host: this discussion that w

have had is based on his front- page article yesterday. it is a long piece with different parts in it. if you're interested, you probably have to be a subscriber to the website toind it. if you find it, and i encourage you to read it. california, independent line. caller: thanks for letting me be on the air. it has been said that a smart man learns from his mistakes and wise man learns from others. not to take history into effect, because the japanese are resourceful people. it would be foolish of us not to listen to them. if i were in the audience, i would have been the first to raise my hand.

why is the fed feeling the need to lower -- to pull down the value of our dollar instead of raising interest rates? guest: that was something that guest: that was something that ben bernanke talked about. how does the currency play a role in stimulating the economy? his advice to the japanese in what we see happening in united states is reducing the value of the dollar. why do you do that? the economy needs a new engines of growth. one of the problems that we had was we depended on american consumers to consume this goods and services that the nation was making. in the process of consuming so much, we did not save very much. the idea is we could increase

exports. it is wa lot of the emerging markets have done after they have had financial crises. it is not simple for the united states to do, because it is such a big economy, our currency is the world's prime currency. when the currency value falls, but the things like commodity values go up. it is the advice that bernke gave to the japanese and others -- they are reluctant to take it here. the fed would probably not mind seeing the value of the dollar decline a little bit, in a gradualay, but they would hate to see it fall very fast. the fact of the matter is, there needs to be an adjustment between the united states and the rest of the world, a relative value adjustment between us and the chinese.

their currency is overvalued. it is a question of how do you get this adjusted. host: we have been talking about host: we have been talking about the chinese currency being overvalued for several years now .gu guest: and it has been. we allow hours to float and be determined based on market dynamics. the chinese have controls, date preventheir currencies from trading openly with the rest of the world. they tried to keep a fixed level because their economy -- they don't want to abruptly raised the value of the currency because they are for a double negative -- they are afraid that will negatively affect their export industries. there is a line of thinking that weakening your currency would not have a big impact on exports. the chinese are arguing now that

strengthening the value of their currency would not necessarily change the trade position in the world. host: why do commodity prices g up dependent on the dollar, the strength of the dollar? guest: let's take one commodity as an example, the price of oil. oil trades globally in dollars. s and say you are the saudi you are selling all of this oil all over the world, and the price of the dollar goes down. well, the money that you are taking in for your oil is worth less because the value of the dollar is going down, and it creates a demand for an adjustment, and that adjustment happens to be the price of oil. host: next call for jon hilsenrath comes from potomac, maryland, republican. caller: i read with strong

interest your article in yesterday's "wall street journal." great piece of joualism. i hope "the wall street journal" allows y to keep writing about this, abo tse issues. over the course of the last two or three years, the downturn in the economy, i guess the way i see it is this is in a lot of ways and housing recession -- a housing recession to read your article goes into a comparison of the tools japan used to get out of the economic turmoil of the 1990's, and compare what is going on in today's climate. one of the tools the federal government had over e years was fannie m and freddie mac. at is the, this show another shows -- obviously, this show and other shows talk about the

downfall that occurred with these two housing gse's. the japan had a secondary market -- did japan have a secondaryarket in the 1990's? did they create that? we used to have housing recessions in the oil patch, going back to the 1980's, and part of fannie and freddie's structure was to ensure that the entire regional disparities in the housing market place did not occur. host: ok, we ll g an answer to that question. what do you do for a living? caller: i work in the housing finance sector. host: thank you. mr. hilsenrath. guest: japan was and remains a very bank-centered economy. most of the financing of real

estate went through the japanese banks. you have to realize, it is geographically, and a sparse population, a smaller country -- and as far as population, a smaller country. it did not have the widespread secondary market at the united states has. when the japan's real estate when the japan's real estate bubble burst, it hit the banks, and the banks became the primary source of the financial instability andconomic malaise in the country. the u.s. has a different system. mortgages in our country have tended over the last couple of decades -- actually, at fannie mae is a relic of the great depression, and freddie mac came sometime after that. we have relied on this second ever market. mortgages that written by banks and then they sold by banks bundled into these mortgage- backed securities, which are securities that have the mortgages themselves behind them

as collateral. it is a little more complicated than that. an then the securities did sold all over the world. fannie mae and freddie mac were the primary institutions that were iolved in doing this bumbling -- bundling. they came with a government subsidies. our problems have been concentrated in the mortgage- backed securities market, especially fannie maend freddie mac. despite allhe talk about bailouts of the banks during the financial crisis, we are getting a lot of money -- i say "week" " -- the federal government is getting a lot of the money back that they put into bank of america and citigroup fannie mae and freddie mac are giganti black holes that are bleeding money, and have not figured out how to fix those institutions and they are at the core of the continuing problem we have in the housing market. host: what is the result of the

host: what is the result of the moratorium on foreclosures that you see? guest: well, it's a complicated issue. what happened during the crisis, leading up to the crisis, during the bubble, the boom in housing market, was not only fannie mae and freddie mac, but also the banks just went into a frenzy of writing mortgages. think of it as a machine, a factory that they ran overtime and over speed to crank out all of these mortgages. well, the machine broke down, and now what ty discovered after the bubble burst is that with all of these foreclosures, they did not have processes in place, they did not have the people in place to manage this huge groundswell of dealing with mortgages and bridges that need to go into foreclosure -- of a delinquent mortgages and mortgages that needed to go into foreclosure.

the same way they did a sloppy underwriting before the bubble, or during the bubble, the processes of trying to clean up the mortgages they had and putting them -- we are discovering that they made all kinds of mistakes. they are trying to fixhe problem and they just said, " stop the process, we have to figure out what went wrong." there is a parallel with japan, which is a little troubling. the japanese banks took a really long time to clean up the mess of problem loans that they have. what i see in this foreclosure problem we have today is an example of what a hard time we are having cleaning up the mess of the mortgage loans. host: jon hilsenrath, economics correspondent for "the wall street journal" is our guest.

elaine, hi. caller: an example of 2001 to now to my house was taken and i get social security, a $500, and they sold my house and 2004. they put me out in 2001 and said i was bipolar and hallucinating. i have no medical. i have no medical. host: elaine -- what is your question for our test? -- guest? caller: they are -- they plan to this -- host: you are saying this w preplanned? caller: this is slavery. host: ok, thank you. back when japan was going to the problems, was anyone yelling, the sky is going to fall in the u.s.?

guest: let me talk a little bit about what the guest said about this happening in the early 2000's and late 1990's. the mortgage machine to get cranked up in the late 1990's -- really got cranked up in the late 1990's and well into the 2000's. we had just started to s in the late 1990's subprime mortgages, that sector, grow. the subprime mortgages were underwritten by fannie mae and eddie mac, just by the banks and sold by the banks themselves into these mortgage- backed securities. my sense is that there was a lot suspect underwriting that was going on back then. we rode a fair amount about mortgage fraud in the early 2000's. but it did not become the national, systemic problem that we have seen until midway through the 2000's. it was an issue back then, that your guest is talking about,

that the caller was talking about, but it did not become a national problem until later. as far as the warnings ago, maybe this will sound a little self-serving, but "the wall street journal" wrote a lot about these issues. we had a lot of stories about fannie mae and freddie mac in the early part of the last decade, about their excessive grth and potential problems that it was causing them. it tells us something about the nature of bubbles, because when u write some of this stuff people call you chicken little, and then when the thing bursts, people say, "why didn't anybody want us?" the fact is that there was a lot out there, but the incentives were not a le for people to deal with it. the bush administration and the fed in the early part of the last decade wanted to get the economy going because we just had the tech bubble burst.

the fed lowered interest rates in the early part of the last decade. the bush administratn, following the clinton administration, wasushing home ownership as part of the economic engine. wall street was makg a bundle by bundling mortgages and selling them off. none of the incentives were in place to get the people who really needed to make our decisions to address the problems that were building. -- make hard decisions to address the problems that were building. host: you are on with jon hilsenrath. caller: i have a bit of a different point of view that you do, but you obviously are very lented in explaining complicated monetary terms and the ways people can understand. but earlier, youescribed deflation as lowering prices and sometimes lowering wages, and you even mentioned that when technology advances and allows prices to decrease, that is a form of deflation.

i think that a common interpretation of deflation is a decreasen the money supply. the other things are consequences of deflation. when you talk about the consequences of deflation, you also are forced to expand the scope of the discussion about it, right? now you have to think about the consequences of all the money supply -- of the money supply. as ron paul writes in his book, "end the fed," does the monetary policy we have now caused a boom-bust cycle, does it enable war and empire? this is to be unanimity in the debate about -- there seems to be unanimity in the debate about fiat currency. is there some middle ground -- host: all right, we got the

point. thanks. guest: let me take a few points from that comment as far as my perspective and goes, i would not say that i have a perspective in opposition are contrary to the ron paul, of perspective -- the ron paul kind of persptive. i see my role as a journalist as to understand what is going on, to cover the federal reserve and what they are thinking, and explained to people -- explain it to people. i have looked at ron paul's arguments, and the fed's arguments, and try to explain the direction of the country based on that. one of the points i think the caller was making was that you can look at deflation as a monetary phenomenon. this is the milton friedman point of view. i talked about deflation and

inflation as defined by rising prices and rising wages or falling prices and falling wages. ultimately, i think every economist would agree that in the long run, the price level, where the prices or rising or falling, is dictated by the amount of money that the federal reserve creates and puts in the financial system. financial system. it is a monetary phenomenon. what milton friedman argued after the 1930's, the great depression, is that the deflation that we experienced was a result of mistakes that the federal reserve made in not creating more money, that it allowed the money suppl to shrink, and that created a period of falling prices. he would argue, he did argue, that the inflation of the 1970's that we experienced was the result of the fed printing too much money. l the interest rate is is the price of mon. if the interest rate is falling,

to suggest that the supply of money is falling. one of the problems that the fed has had in the modern era is measuring money, because it expresses itself in so many ways. as our financial system has gotten more complex, it becomes harder to measure this stuff. one of the things that we're discovering right now, for instance, is that while the fed has printed an enormous amount of money in the last few years, it has gone out and got all these bonds and pushed interest rates down, so the monetary base, the raw amount of money put into the system, h gone way up. other measures of money, the money that shows up in bank accounts or money-rket funds, have been barely growing. it is absolutely the case that money matters, but the problem is translating that lesson of how much money you print it into some kind of usable technique for managing the economy.

host: jon hilsenrath was educated at duk, got his m.b.a. at columbia, and studied at the university of wisconsin and hong kong university of science and technology. last call for him, st. augustine, florida. caller: hey, jon. comparing japan's economy to the american ecomy is like comparing a cat or dog. i don't see how you can make that comparison. number two, the junk bonds -- they read ese things out, call the aaa, and sold them. the problem is that the wealthy, wall street, has sold junk bonds. that is why we got the collapse. it is not due to housing, really. wrap them all up and sell them off, aaa -- host: we got the point.

mr. hilsenrath. guest: we have been talking about the comparisons between the u.s. and jan. your caller makes it a very important point. there are very important differences between the u.s. and japan that ought to give us some sense of hope that we're not going down the same path. for one, japan has had serious demographic problems over the course of the last two decades. an asian population, and in immigration policy, that does not allow the population to grow and make up for all the older people and the shrinkage othe working population. we have had a very vibrant and growing workforce over this period. our population is not as old as japan's is, although it is aging, and has the potential to run into the same situation.

weekend reenergize i work force -- we reenergize our work force with immigration policies. our work force tends to be more productive and there i more movement within the workforce. it is easier for people to change jobs and even industries that has been the case in japan. most importantly, we have been talking about deflation i japan. we don't have a deflation in the united states yet -- we have not had it since the 1930's. it is absolutely the case that these are two different kinds of economies, but we cannot ignore the common factors, the commonalities, the commonalities that we have seen across centuries of what hpens in any economy after you experience a financial bubble. our economy today is much different than the economy was in the 1930's, but there was a bubble, the bubble burst, and it had a real economic consequences. that is the commonality we have to pay attention to today.

. -- one final thing on junk bonds. the problem we experienced in this particular period -- junk bonds are usually used to describe corporate bonds, corporate debt thats kind of a very low grade. this was not a junk bond problem. this was related to mortgagagage this was related to mortgagagage backed securities of a >> the daily white house

briefing. we're standing by waiting for spokesman robert gibbs. this is live coverage on c-span. >> two topics. does the president have a message yet for officers and members on how to row act until the legalities, should gay service members keep their sexuality secret?

>> i would tell you the department of defense is working on guidance for the entire chain of command. it should be ready and i would refer you to the department of defense on it. >> what can you explain is the white house's role if any in that discussion? >> in the guidance? my assumptions is -- i would doublecheck -- my assumptions is people here may have seen it. i don't know the answer to that, though. let me check on it. >> ok. and more broadly, can you describe since this really came down i guess a couple days ago what the president's engagement and/or involvement has been in. >> there have been discussions obviously between this building and the department of defense and the department of justice. the president's been involved in meetings with the council's office to get an understanding of the lay of the land and has been very involved in this. and you know that president has

as i stated yesterday after having talked to him, the president believes that this is a policy that undermines their national security, discriminates against those who sacrifice their lives for their country, and is unjust, that policy need to be changed and shoulden changed. his hope is that the senate will take up the legislation pending before them to do just that as the house of representatives has already done. >> you just talked about how the d.o.d. is doing guidance and the call to congress to talk about law. but is the president comfortable with sort of how this stands? there's at this moment a lot of defer going on. does he feel like he -- deferring to congress to pass the law, referring to d.o.d. >> well, i don't know if i -- i mean, there are certainly places

that obviously the department of defense working on guidance for the entire chain of command. that would be the department that would obviously have purview over that. in terms of -- i don't think we're deferring to congress. the president has been active in encouraging and imploring congress to dot right thing and end a harmful, discriminatory, unjust law. that's been -- that's been his position for as long as i've worked for him since 2004. i think we're close. the house has voted on that. and as i said yesterday, the courts have demonstrated that the time for don't ask don't tell is coming to an end. there is a road map that shows

the courts are ruling on behalf of plaintiffs and against this law. so i think as i said yesterday in discussing with the president i think this policy -- i think the end of this policy -- that time for the end of this policy has come, and that it will end quite soon. >> can you give us the latest assessment from the white house about the peace talks that afghanistan is trying to hold with the taliban, specifically should the american people view these as serious talks that could actually lead to some sort of -- >> well, as far back as his speech at west point, he has mentioned an afghan-led process for reconciliation. we understand that a political -- there's certainly a political dimension to ending the war in

afghanistan as there was in iraq. and as we've seen and we're likely to see in conflicts that are not going to involve the entire defeat or surrender of and the signing of documents on the deck of a battle ship. this process as we've said and that president said will be afghan-led, appropriately so. those that seek to come back into the fold of life in afghanistan must renounce violence, abide by the afghan constitution, and break from al-qaida al-qaida. i would mention these are talks that are happening at a time in which you have heard general petraeus discuss the in afghanistan. the tempo has never been higher. we have the most resources that we've ever had in the country. and the tempo of those

operations also has never been higher. >> on a nato subject, are u.s. and nato forces as is being reported, willing to help the taliban leaders, negotiators get safe passage? i think my staff has discussed some of their logistical roles in this. and i would point you over to isaf on that. >> the house, another crisis -- foreclosure crisis that's been building. what is the level of concern in the administration and what steps are being considered to prevent this from spreading further? >> matt, as i talked about the other day, we believe that every servicer should live up to the full extent of the law. and their failure to do so should be met with accountability. we are in full support of what is being done at the state

attorney general level in the announcement of their investigation. we have federal regulators that at f.h.a. who started earlier this summer. a comprehensive review of f.h.a.-approved mortgage servicers to monitor the steps in the foreclosure process. that process is ongoing. and last week they expanded that to a full review process. in addition to the financial fraud enforcement task force of the department of justice is examining the issue and the attorney general has discussed publicly that task force finds -- if the task force find any wrongdoing that that also should be met with appropriate action. this is failing to deal with the obligations under the law to live up to your responsibilities in mortgage servicing is a

serious problem and has to be rectified by those servicers. and we're certainly in support of the steps. >> are you completely ruling out any administration support for not showing a nationwide moratorium on foreclosure? >> what we discussed, what happens at that point is that anybody that's entered into a contractor a pending contractor a pending sale of the home in a distressed area that has seen a lot of foreclosures, that those -- those transactions and therefore that recovery in the housing market stops. it's frozen. that obviously can have we believe and others believe a very negative and detrimental impact to our economic recovery efforts and the housing market in states that have been hardest hit. we believe the best place to

examine this is as i mentioned directly with the obligations of those mortgage servicers. >> are you ruling out supporting a moratorium? >> i think we have stated clearly the reasons why we have not called for it and don't all together think it's the best idea. >> on a couple of occasions you have talked about how the president has spent a lot of time thinking about the election campaign in 2012. now in light of what the vice-president has said, has the president made up his mind about running again? >> if he has he hasn't told me. >> and what about today's town poll. what does the white house hope to gain from that? >> i think it's another opportunity in an open setting to hear from -- directly from americans, in this case younger americans, about their cares and their concerns. i'm sure you will hear, as we do at almost all the town hall

meetings that we do, a wide range of subjects dealing with the economy to our foreign policy to a whole host of domestic issues. and i think it's another opportunity for the president to describe the steps that we're taking to address our economic recovery and deal with a whole host of those issues that we have to deal with. >> going back to the [inaudible] chamber of commerce, can you respond to the argument that chamber is making that opening up their book might cause potential [inaudible] from their donors? again, i think this is a nonsensical argument for make in order to hide and shroud the identity and agenda of those that are giving -- writing million dollar checks to influence the outcome of elections and ultimately influence the next legislative body. are those donors -- is their

identity being hidden because you, the voters in a certain state, would rather not be confronted with the fact that they're for rolling back wall street reform? maybe they want a whole host of things from the next government that knowing their identity would know their political agenda? it's the easiest problem in the world to solve. simply open your books. >> on one other issue, president obama in chicago earlier today as you know. in the principal's report one of the people were dennis campbell who said, this is a quote "she was telling me how important it was to vote to keep her husband's agenda going." some people raised the possibility of [inaudible] elections hearings. not campaigning within 100 feet. >> i wasn't in chicago today. i'd point you to the first

lady's staff. i don't think it would be much to imagine that first lady might support her husband's agenda. but that's just me going way out on a limb. >> [inaudible] >> no. i have not heard him say anything today. obviously, she's a remarkable campaigner. she spent 2007 she went in to a lot of the early states, did a lot of campaign events and was enormously valuable throughout the general election. it's not surprising to us that she got the type of rave reviews that she got yesterday. >> on the chamber, [inaudible] -- watergate -- biggest political scandal since

watergate. does the president feel that way, too? >> i don't know what chairman cane said. obviously, what happened around a -- this is pure conjecture about what he's discussing, but after that campaign we passed what the campaign finance laws that we now have on our books that require the giving to a federal candidate that giving to be reportedded. who that person is, who they, the basis of our campaign finance and our disclosure laws. i think what everyone should be able to agree on is that sunlight and disclosure are your are the best possibilities. >> on afghanistan, does the president see this as a potential turning point? >> well, as i said earlier, chip, i think that -- and i would certainly refer you to secretary gates and secretary clinton are at a joint meeting

of nato defense in foreign ministers. both spoke about this process today. i think it was secretary clinton who said, if you're the the afghan government you don't mike peace with your friends. there's a political element to an ultimate solution in afghanistan. and it is appropriate for us to provide support for an afghan-led effort to do just that. >> continuation of what's been going on or is this a new moment? >> i think this is new press for a continuation, to be totally honest with you. again, this is something that the president mentioned in his speech at west point. this is discussed in the rose garden. in the presence of hamid karzai.

this is -- reconciliation and reintegration have been topics that have been discussed for many, many months. >> but the idea of there being talked in kabul and with people coming in and with the u.s. military ant isap reportedly paving the way for people to come to kabul, couldn't that be the start of something new? couldn't that be the turning point? >> well, i think our hope is that certainly those that once sought refuge in the taliban will, as i said, renounce that membership, renounce violence, break off from al-qaida and adhere to the laws in the constitution of afghanistan. that would represent in any form a positive development in the history of that country. >> is it significant enough for the president to get on the phone with general petraeus or

secretary general gates? >> the topic of reconciliation is something that comes up in every meeting that is done in the situation room on this. and if i'm not mistaken -- no, he has not spoken to general petraeus. >> in respect to peter baker's article in the coming sunday magazine, can you talk to me about obama 2.0? the president seems to think he's going to have a different and probably better relationship with republicans, whether they do well or poorly in the november 2nd election. explain why. >> well, look, i don't know the outcome of what's going to happen in several weeks. but i think the president is hopeful that regardless of that outcome that republicans will come in from outside and come off the sidelines and help begin

to solve problems. that's what governing the country is all about. that's what -- that's what's required. we have problems that have to be dealt with. our long-term fiscal situation. it has to be dealt with. education reform is going to have to be dealt with. implementing legislation reform is going to have to be dealt with. and the president believes that it's possible that republicans will actually begin to take part in that. >> -- in which he called your infrastructure rebuilding proposal more stimulus spending to be paid for by higher gasoline taxes. what indication do you have that republicans will join the process? >> well, look. i think that the message that

voters have sent for years now is to stop bickering and start working. we're hopeful that eventually that message reaches even john boehner. >> you mentioned in afghanistan the tempo has never been higher. so you believe we should draw the conclusion that with the surge pulling in place, you think that is what is speeding the reconciliation talks? >> well, look. i certainly think that there are those involved in the conflict that have never seen the pace of operations as high as they are. look, obviously there are going to be some that you never assuage. i think there are others, though, that as you've heard the president talk about, we'll look for an opportunity to come back

into life in afghanistan. that's part of that process. >> specifically there's a direct correlation [inaudible] in afghanistan, certainly you've got reconciliation talks. >> i think that it is unlikely that it normally happens the other way around. but i think it's important to understand that even as we -- even as there's an afghan-led effort to do this, we still have our operational goal that are being fulfilled by general petraeus and our troops on the ground. >> [inaudible] the president think of the court case itself? and i know his position don't ask don't tell but does he agree with the rule that this is the way to go? >> i think i'll say this, i think the president agrees that it's time for this law to end.

i have not heard him discuss specifically the rulings or go through the ruling of the case in the that law student. but certainly his belief, his belief about the injustice that's done, the discrimination that's done, are all part of what frames his view that it's time for this law to end. >> is it fair to say that he wishes this were not done through the court process, that this had been done through congress and the department of defense? >> i mean, that's the pros president has -- process that we're -- the president has through the legislative process begun the repeal of the law, and through the work of the

department of defense, the chairman of the joint chiefs, the secretary of defense and the other joint chiefs, working through how to ultimately transition from one to the next. and i think it's clear, based on the cases that you've seen around -- not just this case but other cases -- that don't ask don't tell is not going to last much longer. >> does justice have to challenge the ruling? >> i'd just say, wendell, news on that will be -- you'll hear from or come from the department of justice. >> this week? shall we expect something this week? >> again i say ask the department of justice. >> but is justice ordinarily bound to challenge a judge's ruling that strikes down existing law? >> again, without getting into

what might happen i would just stay in touch with justice. >> very quickly, everybody else is setting expectations for the [inaudible] what's a win as far as -- >> nice try. >> is holding congress -- >> i said that i expect that we will hold congress. >> [inaudible]? >> i don't have my wallet with me. >> [inaudible] >> i mean, i've said clearly that i think on election night we'll retain both the house and senate. john. >> you answered wendell's question it sound like you did read the "new york times" magazine. >> i did. >> ok. can you elaborate a little bit on what the president meant when he said there's no such thing as [inaudible] project. does that mean that stimulus on the infrastructure side has not been helpful to the economy?

>> no. look, there are more than 75,000 job-creating projects have been started as a result of the infrastructure investment in the recovery act. did every project start as quickly as you would have hoped? no. but 75,000 have. investment in each state in improving the infrastructure, the roads, the bridges, the airports, fundamental investment in building a foundation for a stronger tomorrow which was necessary and needed and has created jobs, has led to economic growth. the president has no second thoughts about that. >> do you think that the timing of this [inaudible]

>> no offense. i don't know how many people read the "new york times" magazine. >> ok. and one more question on something else. >> [inaudible] >> mtv have asked some of the people submitting questions if they also have like questions regarding pop culture. i'm wondering, do you think that president wants -- >> i think i'm the last pop culture person that anybody is going to want a question from. >> does he want these things to be he want some harder-hitting questions like as he got at george washington university? >> at george washington university? oh, at the town hall? look. jonathan, i've been doing town hall meetings with the president since 2004. i don't know how many hundreds we did in 2007 and 2008, and

we've continued to do them in 2009 and 2010. i don't recall ever coming back thinking, boy, that was a series of easy questions because the issues that we're dealing with in this country right now from economic recovery to the challenges that we have overseas and in afghanistan, there aren't any easy issues. i don't -- [inaudible] >> no comment. i know. but look, do i think that do sometimes people ask questions about something that doesn't involve a piece of pending legislation before a subcommittee in front of ways and means? sure. that's just human nature. >> you don't see white house approach mtv and -- of the

president a town hall meeting or was it the other way around? >> i thought it was an invitation from them. but mark, let me check. they have handled logistics for that. >> and on don't ask don't tell, if you say the president agrees it's time for don't ask and he thinks it's unjust, discriminatory, why isn't he celebrating the court ruling? say great, it's over, don't enforce it? >> obviously there is as i suggested, mark, there has to be an orderly transition. that's what the president has worked on with the secretary and with the joint chiefs. i think it's safe to say the president believes that court has dealt another blow, as the house of representatives vote did, to ending this law. as you said, a law that president believes is discriminatory and unjust.

i think again the court demonstrated that the life expectancy of this law is coming to an end. >> [inaudible] >> and i think it will be at an end very soon. >> thank you. on afghanistan, secretary clinton was talking about deadlines in these talks? we're talking about [inaudible] in these talks. can you give us a better sense of what the u.s. guidelines are? and does that include for example allowing the taliban to continue as a political movement? >> you know, let me get some -- let me see what she was discussing in that interview. i don't remember seeing that particular line. this obviously is an afghan-led process. they are, as we provide help,

this is something that is up to the afghans to lead and the afghans to construct. >> when we have red lines, when you say red lines that usually means strict lines that we have sanctioned. >> again, we have enumerated that that must include, as i've said, renouncing vile and ensuring -- breaking from al-qaida and ensuring that your willingness to follow the afghan law and constitution. >> [inaudible] >> i'm not an active participant in the talks. >> another easier question. you guys are going to go tomorrow -- the democratic candidate 18 points ahead in the latest opinion poll and the republican loser candidate. can you give a better sense of why with less than three weeks

before an election it makes sense to devote both the president and the vice-president's time to the senate race? >> well, look. i think it's a very important race, mike. i think that's why you had a national news network hosting on its airwaves last night a debate on its air waves about it. we understand that every vote and every rate is important, and obviously this one's sort of near and dear to the vice-president. and they're both happy to go do that. they were both in philadelphia over the weekend. the president and the first lady will be together this weekend. and it's an important race that we certainly hope and expect to win. >> is the president going to do early voting or in person? >> no. he's going to vote by absentee. he has requested the ballot. i believe the ballot is somewhere in the building.

i think he has it. >> you said yesterday the president hoped to speak with some of the scopes involved in -- some of the c.e.o.s involved in the [inaudible] >> i don't have the answer to that. >> is there a way you're expecting today's town hall to be different than tuesday's or is it just a different venue? >> i don't know what the participants will ask. i don't doubt that there's an element of commonality in a number of the questions that you hear throughout the country in town halls. so look, i think there'll be some overlap on topics as you always hear. but i have no idea what they'll ask. >> robert, you said that president is hopeful that the election of republicans

[inaudible] he's been hopeful before. and does having more republicans in congress give him more leverage to bring them into the game? >> well, i think there are a series of problems that are going to be dealt with and have to be dealt with by both sides. we are not going to solve our long-term fiscal problems. one party alone is not going to solve our fiscal problems. one party alone is not going to reform our immigration laws. there are a whole host of issues that democrats and republicans are both concerned with and need to take part in solving. the president has remained optimistic and hopeful throughout the process that republicans will at some point as i said come off the sidelines and begin to participate in the act of governing. the president remains hopeful that that will happen. >> by having a larger republican

presence or outright control, though, will he be using words more like obligation to participate? >> well, you take an oath to -- you largely take an oath to obligate, to participate. that's what their job is. they're drawing a paycheck to do that. we'll see if they begin to earn some of that money. >> robert, you were asked previously, i think it was yesterday, whether the president believes or unconstitutional. >> [inaudible] unjust and discriminatory. >> all right. trade deficit -- [inaudible] -- its highest level ever in china. isn't it time to get something done about the currency? >> well, look, which is why the president raises it in meetings with the chinese, why the secretary and others have been involved in pushing the chinese government to take action on its

currency. absolutely. the legislation that was passed in congress is a reminder as i've said here of the extent and the concern about this issue. it's not just something that's here at the department of treasury. it's on both sides of the aisle and it's on both end of pennsylvania avenue. we -- the united states, i think we've seen over the past many months that united states cannot drive world demand anymore. we cannot as a group create the demand all over the world for everybody else to sell their good. that's why the president has pledged to increase our exports, and we're working to do that. but there's no doubt that the president and the secretary of the treasury and others will continue to put pressure on the chinese government to continue to live up to its obligations. >> [inaudible] the new guidance

will be coming out for the military chain of command. wouldn't any new guidance have to be based on whether the justice department and the president intends to seek either an appeal or stay of the current injunction? >> again, i'd point you over to d.o.d. not that i'd point you to d.o.d. for the answer. >> the d.o.d. isn't making the decision on the field, is it? >> the d.o.d. is involved in that, yes. >> and so any new guidance they get would have to wait and see what the justice department wants to do. >> again, i think they're in the midst of constructing the guidance and it will be out soon. >> on the mtv event this afternoon, are you aware that the network put out a casting call on pro for -- asking for people to apply for -- >> my understanding is mtv is selecting their audience the very same way that -- through the very same means of seeking interested participants as abc did when we had our healthcare

town hall or cnbc did when we did our recent town hall on the economy and jobs. >> and this is a regular presidential official event, it's not a campaign eventual? >> right, that's true. >> and do you have advance knowledge of the questions? >> [inaudible] >> and is the president planning to go to cancun for the climate summit in november? >> is what? >> is the president planning to go to cancun for the climate summit? >> this november? no, not that i'm aware of. >> also has he personally heard that some members of the military overseas have not gotten their absentee ballots yet. >> i have not talked tonight president about this. i know the department of justice has recently been involved in cases with states around military ballots and the move act. have i not talked to the president about it. >> what's your reaction to that? is that outraging? >> well again, i think the department of justice has said

quite clearly that states must comply with the law. >> robert, recent polls out showing that president's approval rating among young people has become pretty precipitous. why do you think that is? they were a huge part of his success in 2008. what does he have to do to reclaim them? >> well, look. not shockingly our approval rating is not the same as it was when we came in. the good news is nobody expected that it would be. look, i don't think young people are immune to the frustrations of our economy any more than voters my age or others. look, the pain of our economic devastation has been spread wide. it's deep. it affects those who are coming out of college and looking for jobs in a job market for the

first time. i think the president will be able to make a pretty forceful case that we've taken big banks out of being the middle men in college loans, we've made college by definition in that case more affordable, more available. we have economic growth for the first time we're creating private sector jobs which are important. my guess is his message will also be the same as it is to others. and it's going to take time. >> one other thing. yesterday the first lady mentioned on a show she was encouraging supporters to pray for her. do you think that that's a good idea? >> to pray? sure. do you have anything against prayer? >> no. >> i used to pray before tests. look. >> did that help?

>> oh, yeah. but let's be serious. in church they pray for -- we pray for our troops, we pray for those in harm's way. each individual may pray for people that are important to them. and i think the president is always uplifted by those when they pray for him and for the country. >> robert, going back to this event this afternoon, what is the demographic that you're trying to reach? an [inaudible] the joint center for political and economic studies that african-americans and latinos youth are younger than white youth? what is your demographic that you're really trying to reach? >> i don't know the answer to that. i think this is -- i think the

demographic for the town hall is i think youth in this case is consideredded under 30. but look, i don't know if there's a demographic standard for such. i think again those that are participating in the event itself. but look, i think you're talking about people that are -- that participate in a democracy that are near the voting age, that are in college, that are just coming out of college, that are young professionals. so look, i think it's a whole host of different ages. >> and also, do you have a definitive answer as to when the president [inaudible] >> i believe it was during the meeting that she was last year

if that was the date then that was the case. i think the vice-president is supposed to speak with her at some point today. >> [inaudible] campaign trail. [inaudible] >> i think speaker and the president and the senate majority leader are clear about what we need to do in the remaining few weeks. margaret. >> thanks. so really busy domestic political season and he's leaving almost immediately for india. is he trying to make the time to get ready for this trip? he has not been to [inaudible] at all, has he? is he going into the schedule the next few weeks some time to meek with any americans who read any literature, who study up on the dowali? can you describe any of that? >> let me get somber -- have i

not certainly seen in his regularly-scheduled national security staff time. i know there's been a lot of staff meetings about our itinerary and our list of events. but let me see if i have -- can get a longer answer from them. >> thanks, robert. the very first question i asked you on tuesday was whether there had been any discussion of how to bring d.o.d. into compliance with the injunction. it's now 48 hours later. there's been nothing to this very minute there's been nothing yet out of you guys or d.o.d. or d.o.j. on how to bring them into compliance with the injunction. meanwhile as first reported by the "new york times" this morning i've also verified this myself, there are recruits walking into -- hopeful gay recruits walking into places trying tone list and being turned away by recruiters. one specifically omar lopez in austin, texas. are you saying -- i know you said that d.o.d. is going to be issuing guidance on this.

but you seem completely deferential to them. are you saying the white house has no concern and there is no responsibility for the fact that d.o.d. seems to be out of compliance and potentially in contempt of court? >> well, i'm not a judge or have a legal degree in terms of the last part of the question, carrie, we have been in and are working with d.o.j. and d.o.d. regarding the legal questions surrounding the judge's ruling. i expect as i said earlier that d.o.d. will have guidance soon. and i would stay tuned to the department of justice for news or developments an on the legal side. >> has there been in back and forth between the white house and the pentagon on what to do about this? on the fact that -- i mean these recruiters said -- >> i don't note nature of every discussion, carrie, but the white house counsel has certainly been in touch with the

counsel at the pentagon over the course of the past 48 hours, yes. >> and what is the nature of that conversation? >> i have not been in most of those discussions, carrie. again, i think they are working through legal issues. and i would point you over to the department of defense on that. >> is the president concerned about that? i mean, the fact that the d.o.d. -- >> as i said to earlier question, i think the president clearly has been involved in and been in meetings about our policy, about the steps that we're taking. i came out yesterday only after i'd like to him about the case itself. so yeah. >> and one last question. thank you very much. in the -- -- you talked about the hope that the senate actually passes.

this wilt president actually lobby senators and work to make that happen? will he be reaching out to people along with secretary gates perhaps? >> well, i know that president -- it's an important priority of the president, it has been for a long time. we've made progress in the house and i anticipate, yes, that president will be involved in moving that important piece of legislation that contains the repeal of don't ask don't tell in it. >> is he actually talking to senators? >> again the president believes it's time for this policy to end. that best and most durable way for it to happen is through legally repealing it. that's what he supported. that's what he's worked with. members of the house to get passed and will do so in the senate as well. >> [inaudible] talking to senators? >> i just said that he would be very actively involved in that. if that, carrie, involves talking to senators, absolutely. does that involve staff here talking to the staff of

senators? absolutely. i think you took yes for a no. >> is it unusual the president would go more than two weeks without talk together speaker of the house? >> not that i'm aware of, no. >> do they regularly go that length of period without speaking? >> i don't have a list of all the times that they've spoken, tim. again, congress hasn't been in session, i'm fairly clear from every part of this white house what our objectives and goals are for the next several weeks heading into the election. >> that would seem odd, though. >> no, not actually. >> no? >> [inaudible] >> back to the peter baker interview, one thing that struck me is the president said one thing he's learned is you can't be neglecting of marketing and p.r. and public opinion. is that a general admission on his part that we did a lousy job

selling. >> i think, bill, i think what you've heard him and others say, myself included, is we did a lot of things that we knew didn't poll well. i've said it in here 100 times. if the actions that we took were based on the information that we got interest a pollster, it would be time to get a new pollster, right? nobody ever went into a meeting and thought, you know what? helping the auto companies stave off bankruptcy is huge. nobody thought stabilizing the financial system had dramatic political benefits. leading the country, though, is about doing what's right when it has to happen, not waiting for it to be politically popular. >> [inaudible] it wasn't enough to do it, we should have been better salesmen. >> i think -- i don't think anybody would dispute that. >> and was he particularly

talking about the healthcare reform legislation or just in general? >> i'd have to go back and look at what surround that sentence. my sense is -- again my sense is it has a lot more to do with again some of the things that had to be done that weren't necessarily easy or popular to do. nobody likes to -- i said nobody likes to have to take extraordinary action to ensure that economy doesn't fall off a cliff and into a great depression. but that's what we had to do, and those are the actions we took. and it staved off that great depression. >> [inaudible] is the president pleased with what he's doing and is he frustrated that bill clinton is so popular and can go so many places where the president doesn't seem to be welcome? >> i think that president clinton has long relationships

with many people that are running on many -- for many different jobs and many different levels. we're of course enormously thankful for former president clinton to be able to go and campaign on this administration's behalf and onen half of candidates that we also support. look, i think president clinton would probably be the first one to tell you he travels with a slightly smaller entourage of assets as a former president than you do as the sitting president. that's true for -- that's also true for the vice-president and for the first lady. plus you don't have that day job called the presidency. but look, we're enormously thankful. i think bill clinton has done a wonderful job.

thanks [captions copyright national cable satellite corp. 2009] [captioning performed by national captioning institute] >> the c-span network. we provide coverage of politics, public affairs, books and american history. it's all available to you on television, radio, online and on social media net anytime through c-span video library. and we take c-span on the road with our vehicle, freeing our re-- bringing our resources to your community. it's washington your way, the c-span network, now available in more than 100 million homes created by cable, provided as a public service. >> the mid-term elections are two weeks away. and each night on c-span we're showing debates from key races around the country. we'll start off at 7:45 eastern with the u.s. house debate between the two candidates running for the ohio ninth district. democratic congresswoman marcy captor and republican rich iott. live at 9:00 p.m. watch harry

reid and senate candidate sharon engle face off. and then at 10:00 the final debate between tennessee's democrat ending our debate block live at 11:00 is the nevada third congressional district debate. looking at the louisiana senate race, the "washington post" reported that democrat charlie milalsaw leads republican senator david bitter by seven points. but poll numbers shows mr. bitter with 49% to mr. milalsau's 42%. and now to minnesota, the associated press reporting that governor tim paul lenity's national fundraising committee has raced more than $65,000 between the month of july and september -- bringing funds raced to $3.1 million. if he runs for president he'll have to raise separate campaign money. >> all this weekend live

coverage from the texas book festival on book tv with eugene robinson on the splintering of black america, ingrid betancourt on her six years of captivity in the columbian jungle, and sam harris on science and human values. plus president civility and throughout the weekend panels on medical mysteries, capital punishment, and infamous fugitives. get the entire schedule at book tv.org. >> this weekend on c-span 3's american history tv, follow our cameras to the national archive -- for a rare look at the newer em berg laws, u.s. federal prison system's first institution, leavenworth, and how political divisions of the early 19th century gave rise to what hillsdale history pro the old republicans. american history tv, every weekend all weekend on c-span 3. >> federal officials met

yesterday to discuss the 2010 winter fuels outlook. richard newell, who heads the enaur information administration, members of the national atmospheric association and state enaur officials. from the national press club in washington, this is about two hours. >> we're pleased to host this event with the department of energy today as we have for a number of years. i want to thank in particular the department of energy, the office of electricity and energy reliability, and the energy information administration for working with us to put on this conference. the importance of this to all of you, we have a variety of people in the audience, business, industry, government officials.

you're here for different reasons, to hear about the energy outlook for this winter for oil, gas, electricity, et cetera, for varying reasons. i wanted to say just a little bit for a moment, though, about the value to the 56 state and territory energy offices around the country that nasio represents. the energy data that's presented at this conference and that we work with d.o.e. and our industry partners throughout the year on is critical to our planning activities. you know, three general areas that really impact state-level energy, economic development and reliability and resiliency. one is the strategic energy planning that goes on at the state level in conjunction with the governors, legislatures, and utility commission. the state energy offices are really central to providing the input and basis for much of that work. those plans help to guide how a state develops its energy resources and uses them efficiency.

energy planning, we're engaged with the office of electricity and reliability on and our partners at the utility commissions really looks at energy emergency planning and preparedness. and again, the kind of data we see at these meeting and hear from various points of view helps us form those plans and revise them over time and track the situation as it unfolds. energy prices, supply disruptions, et cetera. and the thirdly, another planning area that i think is often forgot about and that's at the state level, the state energy offices deliver programs, economic development, green job development, integration of renewables with the grid, development of our fossil resources in an efficient manner. and those program plans have a big impact on consumers and business where small shifts in energy prices have a big impact one way or the other. and at a time where we have a very tough economy, actually, i think these issues are particularly important. so we're pleased to host the

conference again. we are making video of the conference available on the nasio web site following the meeting for those of you who would like to follow up as well. with that i'd like to introduce patricia hoffman. she's the assistant secretary of the office of energy reliability. assistant secretary hoffman leads the office's grid modernization, research development, and other energy reliability and energy assurance activities. these are very complex systems critical to the nation's future ensuring the resiliency of the grid, ensuring the competitiveness of the economic system, and tremendous challenge to stay on top of. the first time that i met assistant secretary hoffman was in one of our previous positions working in combined heat and power area and later with the u.s. department of energy's federal management program. she has been i think a good friend to the states and really

a solid leader with the department and we're very please today have her today. [applause] >> good morning. i also want to extend my welcome and thank you all for attending here at the 2010 and 2011 winter fuels outlook conference. before i give my remarks i also would like to thank nsa, david terry and tamika spencer. i think the partnership with nasio as well as the energy information agency is critical in this venue as we bring together technical experts and staff. i'd also like to thank alice whitberg for organizing this event. because it is important to bring those key leaders, policy and decisionmakers to share information about the upcoming heating season. the department of energy is the

sector's specific agency and is responsible for closely monitoring our energy emergencies as well as for supporting our nationalern security policies. today we have a set of energy experts who will provide us with information on the four casts of this winter's weather and outlook from petroleum, natural gas and biofuels. we will hear from the administrator of e.i.a., richard noel, who will provide with us an official forecast of what we can expect this winter with respect to energy inventories and how much consumers will pay for their heating bills. at lunch we will hear a talk on cyber security by bobby brown. and lastly at the end of the day we will receive an update on our state and local energy assurance planning initiative. as david has said, the state and local initiative is quite important as we expand our analysis. we do take a national look at what is a high-level aggregated information but it's very

important also to take an in-depth look at what is happening at the local level. because some of those local variations are very important to understand. as part of the department's domestic responsibilities and operations, our staff actively tracks and monitors the weather as well as the energy infrastructure. we track the weather since it often has dramatic impacts on the energy infrastructure. as you know, this hurricane season was predicted to be quite active. we had approximately 16 named storms with nine of them actually hurricane -- named hurricanes. only two storms actually were considered significantly strong enough to warrant a staff redacted employment from our office as a responder. we deployed staff briefly in anticipation of hurricane alex which actually was a category two hurricane. on june 30th it landed in mexico about 110 miles south of

brownsville, texas. and our e.s.f. staff were also deployed again as hurricane earl rolled up the atlantic coast as a category two hurricane. earl made landfall in canada as a tropical storm on september 4th. in both cases we issued our hurricane situational reports which are found on our web site, www.oe.energy.governor. this hurricane season does not end officially until november 1st, we are hopeful this hurricane season will still remain uneventful. in addition to monitoring the weather, we also keep a close eye on energy infrastructure. we had been very concerned about the reliability and security of our national energy splice if any of our infrastructure becomes damaged. for example, the department provided technical support to the deepwater horizon event as well as monitor the impact of

the spill on our energy supplies. we also kept a close watch over the pipeline spill that occurred this summer. as you know, many midwest refineries received splice of crude oil from canada. at one point, two main lines were shut down resulting in approximately 600,000 barrels per day of crude oil lost. more recently, we have been monitoring propane supplies in the northeast. the propane that delivers supply to this area has had problems. and propane is a critical and important heating fuel of the northeast. but much of our monitoring and tracking is done and reported through our energy daily newsletter, the energy assurance daily, which many of you receive. we have been preparing this daily to inform you of situational awareness for seven years, and the entire archive is available on our web site.

i think between the combination of the energy daily and these conferences we have been trying to expand our reach on making sure that there is a greater depth of situational awareness. we often see trends in this energy daily reporting. some of these trends require separate impact investigation and analysis. recently we are releasing the updated assessment of copper wire theft. and this will be released this week. electric utilities have suffered from crimes for years with respect to copper wire. and we issued our first assessment back in 2007. as copper prices rose this year, we saw an increase in stories about copper wire theft and re-evaluated the data. other trends indicate reoccurring problems like the southeast vulnerability to gasoline price run ups and supply shortages because of their limited supply operations

after major storms such as hurricanes. as a result, we conducted a study that focused on measures, refiners, patrolling and product pipeline operators, and electric utilities in the gulf coast have taken to harden their assets and make energy supply in the southeast more resilient. hardening efforts included actions to protect against floods, storm surge, winds, as well as modernize the infrastructure. resiliency measures enable energy assistance to continue operating despite damages and promote a rapid return to normal operations when damages do occur. our report, hardening and resiliency, u.s. energy industry response to recent hurricane season, was released in august and is also on our web site and available. we also look at high-risk major consequence events that would

have a major impact on our nation's energy infrastructure. for example, my office has been currently working with the north american electric reliability corporation commonly referred to as naerc that might have a potential to significantly affect the reliability of the north american power system. last fall d.o.e. and naerc host add workshop that focused on three high impact low frequency scenarios. a coordinated cyber, physical and blended attack, a pandemic illness, a geomagnetic disturbances or electromagnetic polls -- that addresses potential mitigation efforts, including planning and response actions. this can be found on naerc's web site, www.naerc.com. in addition to event monitoring

and supply assessments, we are very active in research and deployment activities to modernize the electric sector. our mission is to advance the national economic and energy security of the united states, to promote scientific and technological innovation. i am proud to be partnering with secretary chu in leading the office of electricity delivery and energy reliability. as we lay the foundation for america's clean energy future. our mission continues to strive specifically on leading national effort to modernize the electric grid, which also means allowing the flexibility for the grid to tap diverse domestic clean energy generation. we also work towards enhancing the security and reliability of our nation's infrastructure. we also strive to mitigate the impact and fa sill disruptions to this energy supply.

part of our activities has been investing 4.5 million of a.r.a. funding into the smart grid activities. we also stimulated another 5 billion in cofunding investments. the goals of these activities is to improve situational awareness and operational awareness on the system. when most people think about smart grid, what we're trying to do is actually deploy sensors, the ability to collect information, take the information, provide better operational performance, and optimization of the system. so what what we are looking at is continuing to provide increased situational awareness. the department has also announced over $30 million in cyber security investments, covering systems, components and cyber security organizational development. our office is very much involved, especially recent stand up of the national electric sector cyber security

organization. it is a broad-based, public-private partnership that will work on improving electric sector control systems security. our goal is once again is to build industry capability as they look at situational awareness within the sector of cyber security issues. once again, building on situational awareness, stronger understanding, anomaly detection, and mitigation. additionally we are having our first meeting of our electric sector advisory committee on october 29. it is my goal for this committee to review, discuss, and actually debate some of the current challenges in the electric sector and provide independent feedback to the department. this concludes my remarks this morning. i thank you for the opportunity to speak to you today. and i actually look forward to the discussion on the information provided. thank you. [applause]

>> next i'd like to ask jeff tillen to come forward. jeff leads naerc's energy assurance program in an expert in this area. he'll be the moderator for today's program. jeff? >> thank you, david. well, as we look forward to the winter it's going to be interesting to hear the analysis that will be presented here today. we certainly have had a very hot summer. it will be interesting to see what the outlook is for the winter. and to that end i'm pleased to introduce our first speaker, michael helper center of the national oceanic and atmospheric administration. mr. helpert began his career -- he led their real-time climate monitoring effort through much of the 90s and became deputy director in the climate predictions center in october of 2007. with that please join me in

welcoming michael helpert. [applause] >> thanks a lot. i want to thank naerc, dave, shamika for having me back for the ninth year in a row. i'm not sure if that says more about them or about me that i keep coming back or they keep having me back. especially the forecasts aren't always perfect. i have to admit that. certainly last winter was an interesting winter for pretty much everybody. c. area and in the east coast had a lot of fun with all the snow. and i'm sure everybody is wondering what this winter will bring, as am i. [laughter] >> oh, yeah, i'm not supposed to say that, am i? sorry. let's see. i need to -- all right. there we go. i will use the same outline of my talk that i've given. it seems to work pretty well. i want to talk a little bit about -- all right -- about what

these outlooks are. it's not like your forecast for today that said today will be a high in the upper 60's and it will probably be within a degree or two of the upper 60's. i'm also happy we're doing this a few days ago because i hate talking about winter when it's almost 90 degrees. that doesn't work for me. but these are probablyistic forecasts. i'll harp on last winter a whole lot as we go through. this but it's important to realize that when we get to the forecast at the end and you'll see colors on the maps, that's the most likely outcome. it's certainly not the only outcome. and so it's important to realize, and really on our forecasts there it's a fairly modest shift off in times of the probability and the three-class system to upper to maybe 50 or 55% likelihood of something happening. but it still leaves quite a bit of room for it not to happen. so if you were looking at these

type of conditions 10 years in a row you would expect this to happen only five or six of those times. so it's important to realize again we forecast it's three classes so it's above normal or above average, near average, below average. there are parts of our maps that are left white. the northeast is often left white. that's what we call equal chances. meaning our tools have demonstrated a complete inability to make a skillful forecast in those areas. and since nobody's paying us to make these forecasts, we don't feel obligated to guess. so what you see on these maps are what we believe our tools and the science allows us to forecast. there we go. these forecasts we go out a year into the future. so if you want a quick glance at next winter when we update this forecast on november 18th we will give an early look at winter of 2011-2012.

now, we can't forecast things like el nino or la mean yeah a year in advance. so those forecasts are certainly subject to change. it seems like we're in a period right now where every winter is either el nino or la nina which should be good for our forecast because it gives us a strong underpinning for the forecast. but we are right now in a period. i think we have to go back to the winter of 2005-2007 where we term neutral conditions. so let's go back and look at last winter and see how we did. and while it wasn't our best forecast -- when i stood up here last year this is what we were looking at. it was last october. we had weak el nino conditions and we were fairly confident that they would strengthen as we went through the winter, possibly becoming a strong event. bullet point three is actually the big winner for last winter. and i always include it on these slides. some years it place less of a role. last winter it played a very large role.

but the north atlantic oscillation or arctic oscillation completely different phenomenon from el nino or la nina can pretty much do anything in any given winter. we don't believe and we haven't figured out how to forecast it on a seasonal time scale. we can forecast it out maybe a week or two into the future. so that's why if you're looking at your shorter-term forecast you'll see that next week is going to be cold and a lot of times those forecasts will be very skillful. and that's picking up on the ability to forecast this phenomenon at shorter time scales. the trends, as i said, as i said favored above normal in the northern part. but we really expected el nino, a strong el nino should have dominated the winter.

so we felt that a good part of the eastern and central portions -- as far north as the d.c. area a slight tilt towards below average temperatures. figure on the right, those are now temperature departures and degree sells sus. so you can see that well, the southeast was actually a good forecast. all that area was cold. there were hints of warmth in the west and in the northern great lakes region and into the northeast. but there's the middle part of the country really extending up into montana and all was much colder than we would have expected. and i'm guessing somebody else is -- maybe i'm doing it. i don't know. any way, those are our skill scores. it was roughly a 15 -- a forecast that's completely random would have a scale of 0, a forecast that was completely right would have a score of 100. so 15 is what we would term modestly positive. it's a little lower than our

long-term average. and it's really lower than we would have expected to see with an el nino. i want you to also just kind of focus in on that right panel and just kind of in your own mind remember the pattern with a cold band extending up through the dakotas into montana because we're going to see something that looks a lot like that as we go a little further on. so this was, as i stood here in early october, this is what the pacific looked like. it was modestly warm. the time series for that mean yeah 3.4 region in the central eek was tore yal pacific was running somewhere between plus a half and plus one degree. so this was a weekend. so the figure on the right shows what a sweet roughly 20 or 22 different forecast tools are indicating that current conditions would strengthen, maybe peak a little bit before the true d.j.f. winter, but still a respectable dish mean,

there are some that are on the lower end. certainly everything continued to show el nino conditions. if we go to the next slide, and i'm guessing i'm not showing that, there's what happened. or this is the january pattern. so it was a strengthening. the time series at the bottom shows that we peaked at up close to two degrees celsius above average. noaa's kind of unofficial break point for a strong event is a degree and a half. so this would be termed a strong event. if you look back at some of the earlier el ninos in 1997-1998 kind of the strongest one on record peaked up about two 1/2 grease. certainly as strong as some of the earlier ones maybe back to 1991-1992. .

the 2 up at the top show you what you would get in eight neutral oscillation nutrient they look very similar. the bottom is what happens when you combine palomino would be negative on the arctic oscillation carry it -- el nino with a negative ok'd dick oscillation. if someone would have told me i would have seen such a nice arctic oscillation, that would have been our forecast. i would have been happier last march. anyhow, no idea what the arctic oscillation will do this winter. that certainly plays a role in keeping are probabilities my best. certainly, as a certain level of uncertainty. it is extremely unlikely to see another record-breaking-pattern. there are some subtle hints that

el nino doesn't favor a- -- does favor a negative ao. we are ready to look at what we will experience next winter. if we hope. this is my two minutes of science. we are looking at the average january ocean temperatures and i have a green circle round the central part of the pacific. that is the key area. we go forward when more slide. blues see that the extended further to the west. often the international date line. we seek an extension. the bottom figure shows the departures. this was a previous event. i am selling this because we had one minya -- la nina this

winter. areas that typically see tropical rainfall do not and all the tropical rainfall shifts into the western pacific. even albert in indonesia. you are looking back -- even over in indonesia. you can see them the right hand panel, all of the brown colors. those are the areas that had less precipitation that average. we changed the pattern of heating the tropics and if we go to the next slide, that impacts the trajectory. this is why we care. if they did not impact the jet stream, it would not impact the weather over north america. typically, we see that the jet stream across the pacific retracts westward. you end up with a very big blocking high pressure ridge in

the middle of the pacific ocean. it allows the south bend -- the south and our area to remain at warmer than average. that is the -- i apologize for the 1980's graphics. if we go forward again, these doubts are composites based on previous events. we have had 20 cases back since 1950. on the right is just an average of what the temperature departure was over these 20 cases. you can see some wheat area or the tendency of cold and the west. above average temperatures in the southeast. kind of up to our doorstep here. the figure on the right shows

the frequency or the percentage of those 20 cases that actually were the sign of be a map on your left. they are not 80% or 90% reliability, but the cold signal above the dakotas is somewhere near 70%. the warm signal is strong is back in texas and louisiana. those are actually pretty decent. if i could give you a 70% probability, i would be happy with that. if we go forward -- this is where we are with -- that a black box on the left is centered on our key region. you can see a good part of that region has departures colder than 1 degrees celsius. some are even two degrees celsius. even if we just maintain what we

currently have, this will become a strong event. it is colder than an hour threshold. the figure on the right is our forecast -- there is still a good number that would imply that this will be a strong event as they go through the winter. we talked a bit about the north atlantic arctic oscillation. i just throw this slide in every year. the importance bullets point is number 3. if we go forward again, this is just a schematic of what you get. last winter, we got the bottom pattern. we even had a nice area of above normal snowfall. that is your idealized -- in my

view, maybe i am being too hopeful, it is very unlikely to see a repeat of last winter. these now are ao composites. the basic pattern is not quite as different as you saw when you compare the arctic oscillation with el nino. the pacific northwest is a pretty good bet to be cold, no matter what. the southern part of the nation is a pretty good bet to be above average. obviously, the magnitude really will depend on the face. if you flip a coin and say, maybe it will be somewhere in the middle, you get a pretty decent look at a warm southeast and a cold north and west. if we go forward, we do have another suite of tools.

this is a cold ocean and atmosphere model. this is the equivalent of a forecast model that run every day that give a forecast for tomorrow or tells us that it will rain tomorrow. there are models running every day. there is something that runs on the climate timescale. i am showing you the december- january-february, but it is interesting because it does have a week tendencies for cold and the southeast and the east. it is to a much lesser extent that what we saw last year. it is giving some hand to a pattern that we saw early on in the winter with this-phase -- negative phase. much of that departs and we get

a pattern that we would expect to see you. another told that we use, and this is a key told we are not dealing with el nino, it is called the optimal climate normal. it is fairly straight forward. it just looks at the trends over the past 10 years. it is a tool that had done very well up until the last few years. for whatever reason, north america has decided to be the one part of the glove that has not really follow the trends very well. if you look at the maps of global temperature departure from 2008 and 2009, you see a lot of red everywhere, except when you get over the -- over north america. things have not been cooperating for us. the trend over the last 10 years, they are much weaker than

they were. they still lean to above average temperatures. that is the map on the left. the frequency map is on the right. you can see the highest frequencies are on the 60% and 70% range. we have seen cold over the last few winters. finally, the last told that we use, this is an objective skill weighted combination. we have a few other statistical tools. one thing that it really does not take into account is el nino and how those are represented in the climate forecast. this is still somewhat dominated by deep trance. it would give a fairly weak pattern of above average temperatures over much of the country. i think if we go forward --

there is our rationale. we do have moderate to strong conditions and there is little chance that these will fayed any time sen. we will be dealing with forcing from the tropical pacific this winter. my favorite a third bullet is about the nao (ao). lester, i said that palomino would dominate and -- last year nino would palominel dominate. this will be updated twice more. this is what the forecast favors, above average temperatures from the south and southwest into georgia with the greatest likelihood of it being

above average in texas, parts of new mexico, into louisiana. we do see alaska and the pacific northwest into the northern plains being cold. these are typically areas that should see colder than average winter. we go forward -- this is the map that factors into the projections. these are probabilistic forecast and you are shifting an entire distribution. this is the distribution of the middle. you can see they are fairly modest. these are degrees fahrenheit. somewhere between a degree or two fahrenheit. i would not bet anything on these types of projections, but they do factor in. if we look in terms of heating degree days, these are just for

djs. i know when richard shows their numbers, compared to our base period, it looks like heating degree days is roughly 1% less. certainly compared to the cold winter last year, it is somewhere in the neighborhood of 6% or 7%. we are anticipating a milder winter than last winter. this is the outlook. with regards to climate, it might be a bigger story of this year. there is a pretty decent shots of drier than average conditions over much of the south. those are areas that oftentimes, when we -- we end up with a drought in those areas, the west in particular is very dominated by winter rainfall. it is not a good story out west.

the southeast, certainly they have more even distribution for the year. there are some parts of the southeast right now are already starting to see some levels of drought. my gut feeling is that the bigger story this year will be dropped developing across the south. if we go forward, we do these forecasts every year. these are the next six seasons, starting with november, december, january. this is the pattern that you have as they go through april- may-june 2011. it extends over to minnesota and wisconsin. here is the summary. this is back to the dgf

forecast. we expect colder than average in the pacific northwest and the northern plains. the southern part of the nation, milder than average. dry across the south and west in the pacific northwest, northern rockies, and the ohio valley. i have done a number of interviews and it looks like this winter should be good skiing. hopefully, not so good here in the d.c. area. i will take any questions. if i can see any questions. >> this is a little bit outside of the forecast of this year. in the nine years that you've been doing this, have the tools changed dramatically?

have they changed your ability to forecast seasonal changes? d.c. any major changes in the next few years that may help improve that forecast? >> the biggest change was are coupled model forecast. when i started here in 2002, we did not have that model. that came on line in 2004. is a first generation, we are actually do for an upgrade. we are getting a new version of that model. we are on a seven-year schedule. it will be 2011. will that help us? i honestly do not know. we have not seen enough to know. i think we are probably doing a better job forecasting. largely, there was a study that just came out from the national academy of sciences of about

predictability. they highlighted six main areas where they fought work needed to be done. i still view the seasonal called looks as in their infancy. i am hopeful that as we go forward, we will seek more tools and have a better understanding. if week -- if anyone could ever nail down the forecast in the arctic oscillation, that would go a long way in improving his winter outlook. >> -- and in these winter out books. >> does it include new england and the mid-atlantic as well? >> the numbers that i gave for actually just for the country as a whole. the forecast for the north east was equal chances, meaning that there is a lot that could go wrong if we were to attempt to

forecast it. i assume it that if you plug in and that normal distribution of a one-third likelihood of that being near normal, but you will get heating degree date summary. it is whatever the normal is. last winter in the north east, the northern part of the north east was warm. up in maine and that area. it was cold as you went further south. if you looked at the northeast as a whole, the forecast will give you a similar number of heating degree days as what we saw last winter. i suspect that the northeast is going to balance out. >> we have been very fortunate that we have not had a major tropical storm or hurricane. is there a reason for that from the climate models? >> no. when noaa is used for seasonal

hurricane outlook, we make a pretty strong point of saying that it is not a landfall hurricane forecast. it is a very skillful forecast. the forecast this year was somewhere between 14 and 200 named storms. they are at 16 right now. the reason why we do not try to access landfalls is that a lot of times, what controls or determines landfalls is more of the whether circulation at the time that the hurricane forms. certainly, when you are making forecast in may or august and the storms are not even dare, to try and guess that on this particular day, there will be a system that will enable it to curb up and hit florida, that there would be no skill. there are probably the odds would favor, if you have 20 storms, are any of them by to this land? we have seen hurricane seasons

like this before. in 1995, we had 18 it named storms and they all stood out in the atlantic. i do not believe there is any climate factors. i was watching somewhere that it has been about five years since we have seen a -- maybe it is time for a break. [laughter] [applause] >> with the u.s. among the world's largest oil markets and the price and availability of petroleum products and are growing reliance on imports, and the world will situation and markets are very important to our overall energy situation.

in this regard, it is important that we understand those world markets because they have such an impact on our overall energy use. while prices does affect prices of other commodities as well. we have catherine specter, a commodities strategist. she joined the group in 2010 to do research on the commodities based group in new york trade sheet is responsible for the energy forecasts and market abuse. -- market and views. she serves on the board of the new york energy for all periods -- energy forum. been i would like to welcome catherine specter to the podium. >> thank you very much. it is a pleasure to be back

here at the conference. that has been a few years. whenever you are asked to give a 20 or 30-minute talk, there are a lot of ways you can go with that. i want to touch on a few key things that we think about right now when we are coming up with our forecast and abuse. subsequent speakers will go into a lot more data on many of these. i want to plant some seeds for what we will hear about going forward. first of all, our outlook -- i think it is useful to look back over our price history and what is particular notable about our 2010 prices, which were averaging about $78, it is a very tight range that we have seen this year. it is no fun at all for traders. it is a departure from what we have seen in recent years. going forward, we see crude in a

range of found area for an average price of $80. there is some upside in 2012. the forecast is calling for a $92 average in 2012. i would be neglecting my duties if i did not talk about money flows. as an oil analyst at a bank, people only ever had variables to your to do list. things never gets taken away. starting at about 2003, analysts had to start spending a lot of our time looking at the finalization of commodities and oil as well. one lesson that we have learned

in particular it is that when the market starts to cheat commodities -- treat commodities the same as any other asset class, commodities are to behave as any other asset class. what is remarkable is that -- the correlations that we are seeing between commodities and equities and commodities and the u.s. dollar. these are correlations that never really existed previously court in any meaningful way. over the last three years, they have been meaningful and consistent. commodities trade -- are traders as a lot more questions about macroeconomic drivers. they used to take a backseat to what are true commodities drivers, things like supply and demand and inventories. that is really a start sort of

picture, that bears noting. we still look at a physical supply and demand, of course. eia is really a top source for this. we will hear about this in quite more detail a little bit more lute -- a little bit later. our macro economists are quite bearish. we are reflecting that in our demand forecasts, which i believe is a bit more bearish than what the eia has. we are giving 2012 sum up side. we may be of little bit too optimistic, but that is what we have penciled in any moment. we will keep a close eye on how the economic recovery panned out over the next 12 months.

the chart that i put together is in my data would look quite a lot like anyone else is charged in terms of the trend. it is no secret at this point that most of our demand has been in the -- for the number of years running. that is certainly what we foresee over the next couple of years. this is a trend that is going to be with us for a long term. in 2011, we are looking for a slight contraction, but continued growth. our macro economist are quite bearish for the u.s. economy in the first half of 2011. all lots of other economic indicators that we can afford diesel demand, which is our best economic barometer would then be, a lot of those indicators are signaling that trend where we have very strong

growth in the first part of 2010 and a bit of a plateau across many of these indicators. the ones that we look at our port activity, and air freight, and truck tonnage. these are all sectors of industrial activity. these are the ones that we look at most closely for indications about u.s. oil demand. one place where we have seen very strong growth this year is china. if you think back to 2004, that was the year when chinese oil demand growth really took off and got is the year that we were off talking about the next three years. when people talked about strong chinese of oil demand growth, they were talking about 2004. what is notable about this year's data at -- i am looking at the strongest rate of chinese

demand will growth and 2004. one question that i guess it is to what extent does chinese demand dependent on a strong u.s. consumer? 2008-did that the nine gave us a little bit of a case study. -- to dozen eight-2009 gave us a little bit of a case study. my methodology here is unpleasantly including refined products, but is not including crude oil stock changes. the bottom line here is that what happens in china with respect to oil demand really does drive back global picture. chinese demand growth has continued to offset the weakness that we have seen in the united states. just a very great slide on international geopolitics, i am not quite doing them justice here. it is hard to sort of pick when

we are looking at international geopolitics. as a general statement, and geopolitics are perhaps a softer that the market has become a little bit in desensitized to. these are perhaps the variables that are a bit underpriced to the market right now. nigeria is always the country that you can count on for some distractions, when we approach an election cycle. there was an election in nigeria in january. we can count on some meaningful disruptions to their production over the next several months, leading up to that election. i will give you a timeline of nigeria and oil production and keep political events. we have seen months at a time as much as 800,000 offline in nigeria and for briefer periods of time, 1 million barrels.

what is more difficult to anticipate in terms of the scale of the risk and the timing is a potential disruption in iran. i would say the market does seem to be desensitized to headlines. we will see how those headlines are interpreted by the market. those are some key things to keep an eye on. i would also emphasize that we already looked at the correlation between commodities and the dollar, one other reason is that it is meaningful for many of the producing countries. they are relying on the dollar- denominated oil price for their budgets. just very quickly, the eia will get, more detail on the distillates. this is a picture of what our inventories look like in europe right now.

here are the u.s. pictures. increasingly, with heating oil, it is important to look at those numbers on a big demand cover the bases. are heating oil inventories are falling because are heating oil demand is falling. i would point you to that demand cover charge as a key one. residential demand for distillates and has declined over time and the top states that are still at users of heating fuel and do have specification changes in the works. many of them do. i am giving you a list here of the past and proposed changes for heating oil, which is going to be, over the next step -- several years. i do not know if this is a top market driver, but whenever we do get a change in a nynex

contract specification, it always seems to catch people off guard. that is what is going to happen in response to the shift in the fundamentals. the nynex contract will reflect that. not necessarily an earth shattering a variable, but something that may catch some people off guard. finally, one thing i would like to spend a little bit of time on is what i would call the post mortem on the age of refining. the golden moment of refining, which is what it turned out to be here. if you recall, one of the variables that we are talking a lot about is a shortage of refining capacity and refined product lead market. this is eight markets that

always does to respond eventually. it comes to shoot itself in effect a bit as well. that is what we have seen over the last several years. perhaps not surprisingly, a lot of the additions have been -- a sort of makes sense. our global policy has lucent and increasingly, that capacity is still at. we not only see a growing share of primary refining, but also sophisticated or upgraded refinery capacity as well. a couple of games that we are left here with, now that we have broken out refinery capacity to more comfortable levels. we have seen a shift in not only

refining -- where refining capacity is, but where the utilization has increased or decreased. we have seen an increase in market share. this charge is showing the annual change in refinery utilization over the past number of years. what you see that is in almost every year, the utilization has increased or decreased last -- decrease less. when the going gets tough, we and continueduts refinery activity. this is something that would make me a little bit wary. a theme that we have seen, not only in oil, but in gas, a lot

of times those investments are undertaken for reasons other than economic reasons trade -- reasons. i recall, as i was visiting some of the refineries several years ago during the spill, some of them said to me, the powers that be were asking them to show revenues, not profits. i think that is a pretty striking message to hear from some of these refineries. it is something that is borne out in the data here. part of the story is china. china has had a fairly massive refinery capacity built out and it is not over yet. what is notable here -- we will see what happens when a global economic growth recovers more. china has become a net exporter

of most refined products. diesel has become a component with china's growth over the last several years. it may be a recession era phenomenon. we will see as global growth recovers, discharge looks. it is something that is worth keeping an eye on. it is quite meaningful to the asian regional dynamics. finally, refined products globally are increasingly in the wrong place is relative to our demand is. perhaps, the best example of this is western europe. if you look at the vietnam its imports of gasoline and distillate put together in europe, you get a number that is pretty close to zero and has really changed a whole lot in the last 10-15 years. if you break back into nets and

ports of distillates and net exports of gasoline, you get some much bigger volumes. growing up volumes as well. increasingly, europe has to import distillate, but get rid of gasoline. this is a structural phenomenon that has been true for a long time. more barrels are having to move from one place to another. in the united states, we have a couple of good examples. you have distillates exports that have grown quite significantly over the last several years. this may be a recession impact that we will moderate overtime. it is worth noting. i would also note that u.s. gasoline imports are coming from further and further afield. they used to be that many of our imports came from a relatively regional sources, such as venezuela.

increasingly, we are seeing a europe providing more gasoline. in a sense, are marginal gasoline a barrel in the united states is now 14 days away. one question that i would pose is, we are saying these refined products having to move longer distances to get to their end user. should this change the way we think about refined product inventory? should this change with the market considers to be sufficient? it balances on the one hand the weak economic outlook in the first half and a conservative demand forecast with more supportive influences, the weak u.s. dollar, and some heightened geopolitical risk as well.

we do see more upside for oil in 2012 on the back of economic and demand growth recovery. this is a term that is becoming increasingly prevalent on wall street trading floors, this risk on, risk of phenomenon. this is one of those places where week -- phrases that we used to not hear much, and now we hear it every day. when money pours into asset class is, it pours into all asset classes. this is a type of float back is increasingly subject to. probably not a top driver of price, but heating oil. it is something to keep in mind. there are quite a few folks out there that still heads their heating oil exposure.

while the fundamental shift will happen as well, i do suspect that there might be a little bit of confusion. one thing i would point out as a side note is that in this run-up of prices, we've had a lot of education of investors and consumers. we have seen a lot of consumers hedging their district or natural gas exposure for the first time because it has become such a significant component. now i work for a canadian bank and i am learning about that client base, that there are quite a few municipalities in canada that hedged their distillates exposure. this spec change will have to be part of that education process. on the refining front, the

extensive refiner buildup over the last several years has left us with enough capacity for the moment. the shift of market share, and more refining barrels having to travel longer distances to get to their end user. in addition to these development changing the way we think about regional price are charges and inventories, i think we also have to keep a close eye on what i would call the down-down stream infrastructure. things like pipelines and storage at ports and terminals, i think is perhaps our final bottleneck here in the supply chain. that is one bottleneck that i will be keeping an eye on it with respect to the oil space

going forward. i will leave it at bats and openings of two questions. -- leave it at that and open up things to questions. >> [inaudible] >> the refined in front? can we get that charge back? -- chart back? there is one chart that showed it particularly well before i start citing new numbers. that one. there we are. the dotted lines are showing refinery capacity share. the black dotted line of the total. i'm mislabeled there. i apologized.

there is always at least one typo in there that you did not catch. it is almost 50/50 at now. >> the sources of crude oil in china [inaudible] >> one thing that bears noting that and should be on might geopolitical slide is some of the collaborative efforts between russia and china and putting pipelines for oil and gas. pressure will be more and more important for the chinese picture as well -- russia will be more and more important for the chinese picture as well. >> is there a theory as to why it natural gas seems to be last -- why it does not have the same correlations would equities and

a dollar exchange rates? >> that is a good question. the simple answer to that is that it has not been as good of an investment. a lot of people have left it out. even if they go back several years, natural gas was always be dragged on a basket of commodities. that is the way that investors approached the market, with a basket of some energy and some metals and agricultural products. for some time now, natural gas has been a bit of a drag on that basket. as we see investors gets more sophisticated, a lot of folks do just leave the natural gas out. i think that is part of the reason why we have not got the sort of commodities asset class phenomenon it nearly as much in gas. >> how are the field affecting

the movement of [unintelligible] >> that is a good question. when you join a new bank, you have either the opportunity or the burden of rebuilding all of your spreadsheets and models. that is what i have had to do in the last several months. it was striking to me. in this spreadsheet glitch, i accidentally pushed the biofuels into the demand side and let them out. i was trying to figure out why my numbers did not add up. two years, i would not have noticed as quickly. i think it is quite important. to the extent that we get a further announcement in the near term this is changing the macro

picture a bit more quickly than i might have expected a few years ago. it is something that i am grappling with myself to account for properly. i believe that we have someone speaking on biofuels built later, so i believe more of that to them. >> a question on your discussion on the distancing of supplies. to what extent do you believe that that really increases potential risk of disruption? coupled with less inventory, which are relatively small component. there is more of a just in time the inventory philosophy apparent. now we are moving greater distances. what do you see it as the risk? >> there are two ways of looking at it.

one is a diversification of suppliers is probably a positive thing for a market to function and reliability. in a sense, we have to start to think about are refined products a little bit more like we think about crude. geopolitical risks might be more of a factor, and things like that will be a factor. one sector that has responded much like the refining sector has done is the tanker industry. that is perhaps the industry's second most likely to shoot themselves in effect on the investment cycle. they have responded and invested in quite a lot in clean tonnage. that side of the market has responded quite well. what i would keep up -- things like a storage capacity imports and not the things -- and not at

last stage of the supply chain and what might need to be smoothed out there going forward. > this is going to be a hard question. [laughter] >> i want to expand on why you are bearish for global demand growth. it seems like you are still fairly bullish on china. you had that one charged on the u.s. -- charged on the u.s. that look like things work showing the optical for the u.s. -- uptick for the u.s. >> those charts may have been a little bit too small. all of those charts have plateaued and started to slow.

our macro economists are more bearish on the u.s. economic demand growth. we not positioned evolves, i will reflect that in my demand forecast as well. i am anticipating that chinese demand growth will not match what we have seen this year, which seems particularly robust. that would be a big part -- demand growth is not insignificant. i am giving it back in the 2012. i think i am a bit more bullish in 2012.

>> [inaudible] any changes that we should anticipate? >> i just saw some officials from alberta yesterday and they would be very pleased that you made that point for them. we do get a significant amount of crude from canada. i believe it is 17% now. i think that is something that will certainly continue and will certainly grow. it is also contingent on a pipeline capacity. we are all quite familiar with the bottlenecks that have affected the term structure for wti over the last several years. there is a bottleneck there. one concern that the canadians are trying very hard to address

is environmental concerns. to be honest, that is a higher profile issue in canada than it is here. they are quite sensitive to any noise in the united states about attempts to move away from canadian crude for environmental reasons. they are working quite hard to address those concerns. canada is one of our nearest, quite reliable, and that is certainly a trend that will continue. thank you very much. [applause] >> denali we have heard a little bit about the world situation --

now that we have heard a little bit about the world situation, increased use of canadian crude oil and things like the pipeline, things that we need to be aware of as we are shifting the supply sources. we have investments going on in the u.s. the marathon refinery in detroit is making a significant investment. the market is really beginning to change and we are seeing different conditions emerged. they want to take a look at the domestic picture. we have with us today on richard newell. he will provide us with an overview of the winter fuel outlook for the u.s.. he is currently on leave from his position as the professor of energy and environmental economics at duke university. he previously served as a senior economist on the president's council of economic advisers. he spent years as a senior

fellow. he holds a ph.d. from harvard university. please join me in welcoming them. -- him. [applause] >> perfect. thank you very much for that introduction. i will focus today on the winter fuel outlook. we have heard an excellent presentation from catherine on the world side of things. i will focus the presentation on refined products and natural gas and propane as opposed to the oil input. the winter outlook depends on a number of different key factors, which are interrelated.

we heard a presentation from noaa on whether the expectations. -- weather expectations. other key issues that weather can directly affect is consumption, prices, expenditures. i will talk to each of these things in my presentation. i will go through a natural gas, then electricity, heating oil, then propane. i will present a lot of numbers today, our forecast are inherently uncertain. price forecast are inherently uncertain. it is important to keep this in

mind. prices can change significantly in a short period of time due to the fact that it takes a fairly significant price change to restore balance between supply and demand. you will see our efforts to quantify this uncertainty where it is possible. there we go, excellent bread -- excellent. we are expecting the average heating bill to be 3% higher on average relative to last winter. this is an increase of $24 on the average u.s. bill. this is due to a couple of different factors. one is higher fuel prices this year relative to last winter for all of the major heating fuel.

2% higher electricity prices. 6% higher for residential natural-gas prices spurted 11% higher for propane prices relative to last year. the increases are a combination of the average price and how much we are consuming. bill increases will be moderated by a warmer winter for the south. we are expecting little change in the midwest and west. you will see a price of fact in the northeast. you will see a somewhat compounding effect of a cold dark northeast winter. inventories for fuel, oil, and for natural gas are currently well above typical levels. this should provide a cushion in the event of any colder than expected weather.

propane stocks, which are a bit of an anomaly this year, they are well in the new england region due to a leak in the pipeline there in new york state. there we are. on average, the u.s. -- we are forecasting 3% higher heating bills this winter. $24 per adult and we have summarized here for each of the main and hitting -- heating fuels, and on the bottom, the average of all fuels. this is based on the central scenario from the noaa forecast. we also do a sensitivity analysis. it looks at a situation where the weather could be 10% warmer or 10% colder than forecast.

this 10% sensitivity case would capture about 90% or more of historical experience. if you look at past history, 90% or more. you have to look at a regional level. it captures the vast majority of historical experience. it gives you a sense of what the range might be. we expect households that use heating oil as a primary source of heating fuel to see the largest increase in their heating bill because of a combination of forecast higher prices as well as a colder winter in the north east, which is where most heating oil is used in the united states. household heating with electricity are forecast to see a small decline in their total winter energy bill primarily because of projected warmer weather in the south, which more than offset a slight increase in

electricity prices. natural gas and propane part in between. i will be and going into more detail on all of these in a moment. the difference and expenditures are driven mostly by changes in consumption. there is not much of a feedback due to the change of -- giving -- due to the change of consumption that we have seen. if somebody turning my slides for me? ok, good. this is getting to the temperature part of this, which we measure in terms of population heating-degree days. that is what will drive energy needs. what we have distinguished is the distinguished between noaa definition of winter any eia

heating season, which runs from october to march. for the purposes of this presentation, we expect a 3% warmer winter. if you focus on noaa, you get a 7% warmer. that is the difference so that does not confuse anybody. if you look at the other months outside of december, january, federate, a difference is different to you get a less dramatic warming been season than any noaa. the weather is a key variable affecting demand and expenditures. our forecast is based on noaa's projection . one thing to keep in mind is that a rule of thumb will be about a 1% warmer winter will

mean one percent lower consumption in terms of heating fuels. that is important to keep in mind, so if we see 80% warmer winter than last year, you will see how it turns out from what we expect. turning to each of the major fuels, natural gas, and then on to the others. 52% of households in the united states rely on national corp. natural gas, but it varies by region, and the chart is broken down into the western, south, midwest, and northeast, and then the united states as a whole. then the green bar shows the percentage of households in each region using in this case natural gas as the primary heating fuel. the chart shows three different columns, and this is% changes from last year. most of the presentation will reflect on how they compared to

last year. the percentage changes, and consumption, which is the quantity of energy consumed, in this case, cubic feet of natural gas. the average price per cubic foot, and then the total expenditures. these are all percentage changes. a nice roof gum will be reflected in these -- rule of thumb is if you add the changes in consumption + the percent change get the percentage change in total expenditures. this is the rule of thumb that i teach my students. that is a convenient thing, an apartment -- an approximation. that average household is expected to spend 4% more this year compared to last year for natural gas heating. a combination -- let's go back to the previous chart.

a combination of a 6% increase in prices, the national average, decrease in consumption, and so a 4% increase in total percentages. the weather forecasts vary by region. the northeast we expect 5% colder winter, so consumption is 5% higher. in the south we expect a 50% -- a 15% warmer winter, so we have lower consumption. the midwest leads the country in terms of its reliance on natural gas consumption, for heating. over 70% of midwest households rely on natural case -- gas. the midwest shows negligible changes in consumption doo-doo whether -- due to the weather changes. there you see reflected in total

expenditures the price changes as opposed to any changes in consumption. there is differences across the midwest. we proved we -- with president -- we predict a 6% increase. in the midwest we expect lower prices for natural gas, which leads to lower expenditures, even though we see the weather patterns the same. on the national average, we expect -- residential natural gas prices and shows the spot price for natural gas for compared of bases. we expect the average spot price will be about 70 -- 7% lower this winter compared to last winter. we expect the price to remain

the same through november, and the end -- and then increase as we go into the space heating season. in contrast, we expect 6% higher natural gas prices this winter. why are residential prices expected to be higher when we see lower prices this winter, compared to last winter? there are two key reasons. one is that some of the winter gas supply was purchased during the summer, and spot prices were almost 25% this summer than they were in previous summers. the other is the spot prices last winter spiked when the cold weather kept the south and there could be seen that it lags into residential prices, which are still regulated by local -- and

enter into distribution companies pricings. we expect gas prices to remain relatively low for a number of different reasons. the one is high inventory which is expected to end at the end of the stock-building season, which we expect to be about 100 pillion -- billion cubic feet less. we expect continued development. shale gas resources in united states. there is increased can supply capacity. these things hard together leading us to see continued relatively low natural gas prices compared to the past. the next slide is showing natural gas, showing the spot

price. some of the work we have been doing characterizing the uncertainty. we have a number of different lines, and this is dollars per million btu's. the black line to the left of the horizontal -- the vertical club of line is past history, and the part of the right is the forecast. the solid blue line is the futures contract price, going out from to the right to the vertical, out of line. the solid red line are the short-term crisis, which is quite close to the hendry hub contract strip. dotted blue lines are the conference intervals or the uncertainty bounds of the prices for the nimex future strip.

these intervals we have been presenting in the study, exactly a year and at last winter because fuel out what i presented those for the first time -- they have been an important addition to our short- term energy outlook. what these are showing, based on backing out from the nymex futures and options contracts, what the market assessment is about the chance that the price of natural gas will be above or below a particular amount. longer dashed blue lines show at an interval which makes you think that there is a one in three chance that prices would fall outside of that band, and the shorter-blue line, which is a wider price band, according to

the methods that the markets are telling us about contracts trade to be -- to get specific, for the five days ending last october 7, the nymex natural gas futures traded at $4.30 per btu for gas delivered in january, 2011. there is a 95% -- to win $3.60 dollars, a chance that it could fall outside that range it is important point out that residential prices are not as volatile as spot prices for reasons i alluded to. local distribution companies buy gas throughout the year, and changes only affect winter delivery to residences. the key reason why in the earlier charge the prices were

higher than the spot prices. you have volatility in the spot prices, it will not affect the residents a price as much. if you look at past history, if you have a particular change in the spot price, half of that would show up in the change in the present price. not nearly as volatile. this is a different way of presenting this information. this shows that there is less than a 10% chance that it will be higher than $5.50 per btu for the january, 2011, contract month. four different price levels, what is the probability that the press to be higher than that level as of january, based on this method? you can see that there is a 35% chance that he could be higher than $4.50. 55% that it could be below that level. you can see that for the others

as well. this presentation will be on the web site, if it is not already there, after the presentation. that will be available to you with data behind the charts. next slide. turning to natural gas inventories, on october 1 of this year across the working natural gas in storage was 3000 499 billion cubic feet -- 3000 499 billion cubic feet. it is a bit below 150 billion cubic feet below this level at the same time last year. the working gas stocks are forecast to reach 3730 billion cubic feet by the end of october, which will be somewhat less than it was last year.

we have two different methods for calculating the maximum natural gas storage capacity, which ranges from four trillion feet to 4.4 trillion feet. last year there was concern about whether or not we could fill up the storage capacity and would not have room to put more gas. that is not a concern this year. the level of storage is lower, and the second is that our estimate of the available capacity is higher than it was last year. we do not see that being a big issue. the final point, and you can see this with the-blue lines, would show our forecast stock levels in the event that there is some warm weather -- whether or colder weather, as you can see this warmer weather, the stocks will be higher, if colder, the reverse. even in the colder case, we do

not see stock will -- levels going below. turning to electricity. this is the same format of the table that i showed you for natural gas, so i do not need to explain details. one thing to mention is 37% of all u.s. households rely on electricity as the primary heating fuel, and it is the dominant source in the south. half the household heating primarily with electricity is projected to spend 2% less on average. this is a combination of somewhat lower consumption, due to the fact that you see in the south we have a 6% lower consumption of electricity. that shows up in the national average because electricity and heating is heavily weighted to the south. a modest christ -- price

increase for lower all electricity increased. other areas should see slight changes can electricity, modest increases in the rest of the country, and in the south, which is the reason with the court -- region with the largest share talks predicted expenditures we expect will fall by 4% from last winter because of the projected 15% reduction in heating degree days. when question i asked, why is consumption only 6% lower when we expect a 50% -- a 15% warmer winter? liking and all the other things that show up in the bill are also in here, so that smoothes out any changes you would see in the keating park. it is less dramatic. turning now to heating oil, we

expect bills the be higher in most regions of the country, not all. in the northeast, which is the most important region to focus on here, we are 80% of the total heating takes place, consumption should increase due to higher prices and the winter. we can see 30% of households in the northeast use heating well as their primary heating fuel, and we expect 5% higher consumption due to a colder winter average prices, higher than 8% higher than last year. despite variation, the vast majority of heating oil shows up at the natural -- and national average directly. heating oil is the most key feature or factor affecting prices and crude oil prices

treatment slide. this slide shows in dollars per gallon and also in dollars per barrel and the right hand for those of you who are thinking about crude oil prices in barrels. we forecast the average price of west texas intermediate crude will be about $80 per barrel, which is $2.50 per barrel or 6 cents per gallon, higher than it was last winter. we expect this will show up in heating oil prices. one note is that the projected average cost of crude oil the u.s. refiners will be higher than the wti price, so the price will be 8 cents higher compared to the 6 cents higher just for wti. we have heard a presentation on

global oil markets, and some other quick notes. oecd mentors for commercial stocks tend to be high, but flooding will has been declining somewhat. we expect world oil prices to continue to rise as global economic growth, led by asian economies, is rebounding from where we had been globally in the last couple years. this leads to higher global demand for oil and products. we expect opec production to increase over the next year or two to cover increases in global demand for oil, which should keep prices from rising dramatically. we expect heating oil prices, u.s. residential prices that averaged $3.60 per gallon this winter, which is 23 cents per gallon higher than it was last year. a couple key features, you might

ask, it seems like the 23 cents per gallon higher in heating oil is more than the 8 cents per gallon higher price for the crude input, what is the difference? the difference is a return to the margin between heating oil prices and oppressivewiti, back to typical levels. last year at those levels were historically low, and never turned to more typical lovers -- levels. one final note is that we have got high distillate inventory levels in the southeast and northeast, which should mitigate against any side of a good price changes should unexpected shocks occur. the next slide shows a similar figure for natural gas, but to characterize the uncertainty in heating oil prices, and as i

mentioned, the uncertainty in heating oil price will be driven by uncertainty in crude oil prices. over the last five days that ended october 7, last thursday, the nymex heating oil futures contract for january, 2011, delivery, the middle of the winter heating season, averaged $2.33 a gallon. what we see, the 95% level are in the future price, between $1.83 and $2 per gallon, so there is a 5% chance that the market could be outside that region. to distinguish between the wholesale stock prices and the residential heating oil prices, we see like we did for natural gas, lower volatility in residential heating oil prices than we do in wholesale spot

prices, so over the last 10 years, u.s. heating oil prices have been a bit more than half as volatile as spot prices treated this is similar for what we have seen in natural gase. next slide. similarly, a different way to characterize and uncertainty, less than 10% chance based on market expectations for -- that a wholesale heating oil price will be higher than $2.75 per gallon as of the january, to the sullivan, price -- january, 2011, contract price month. a 73% chance it will remain below that level.

turning the inventories, going through the winter, you see distillate inventories well above the upper end of the normal range. this is the national coal here. on october 1, total the silicon inventories, which include heating oil, but also distillate fuels, stood at 172 million barrels. this is the same level as last year, is 21% higher than the five-year average for this time of year. we expect inventories to remain well above normal levels throughout the winter, in the event of a 10% colder winter, which is reflected in the-lines -- in the dashed lines. a couple different factors enter into the inventory levels. one part is the recession, which you can see, where we came up over the last couple years, starting their in the latter

part of 2008, early 2009. we had a disproportionately overhaul large decline in consumption relative to other prices. the other thing we have seen, and we heard this at a previous talk, there is also higher distillate stocks support higher exports of distillates of ride from the united states, which, if you have a higher exports, the need more inventory to manage that export. both of those factors are entering into these higher inventory levels pricking -- levels. the final part focuses on higher expected for progress probing bills this year relative to last year, 8% higher. focus on the bottom row of this chart, that this is due in large

part to the average prices being 11% higher, and we see an expected overall expected consumption level to be lower, but the price increase over wants that. -- overwhelms that. houses that heat with propane can expect it spent eight% more than they did last winter, but there is regional variation due to the weather and regional price difference. the midwest and northeast expenditure, we expect it to be 14% higher. the midwest leads all the regions in terms of its consumption with 40% share of u.s. residential parking market. households in the south received 6% or propane bills in contrast to the warmer than last year weather in the south, which overwhelms the change in prices. the next slide shows the

forecast for residential propane prices, which were expected to be averaging $2.42 per gallon. propane is supplied equally from natural gas and from crude oil refining, so propane prices tend to be driven in part by dynamics in both natural gas as well as crude oil markets, and in crude oil we have seen prices higher and in natural gas we have seen lower levels. both of those can enter into propane prices. nationally, we expect prices to average $2.42 per gallon. in terms of just what we saw in terms of the other fuels lot propane prices should be less volatile than oil or natural gas spot prices. the final point, and i will get

into more detail, the key feature is that we have got unusually low propane levels in inventories in new england, which is: to represent a significant source of uncertainty in the outlook, as we will see in the next life. u.s. national propane inventories were 64 million barrels at the end of september, 11 million barrels lower than last your possibles at this time, 2 million barrels lower than the five-year average at this time of year. the red line there, you can see the black line, and this is getting toward the lower part of the range, and then you can see as you go into the red line, which shows you the forecast into the future, you start getting close to the lower end of the rage at a national level for propane inventories. there are differences regionally, and regions matter, as we have seen in all these charts.

while probing stocks are higher than normal in the midwest and they are high in the middle and south atlantic regions, they are low normal in new england, southwest, and the west. propane stocks are particularly low in new england where recently our latest numbers are about 151,000 barrels versus levels that over the last five e ranged for similar time. the forecast propane prices in this region will be about 10 cents per gallon higher than they otherwise would be. as i mentioned at the beginning of the talk, a key reason for this was a leak that was found to be in a pipeline in new york. the pipeline has been closed. it is not clear at this point when which it will reopen, so this is again tending to lead to depletion of a stopped there.

-- of the stock here. in terms of inventories and volatility, this issue stands out relics of the rest of the market. that was it for my prepared remarks, but i will be happy to take any questions. [unintelligible] >> have a question about he oil. how much of a factor are refinery-run cuts and refinery closures on the landing coast having on your outlook for heating oil this winter? among the most direct way that you can see that reflected his there has been strengthening

margins in heating oil relative to what was last year, and one factor that would support those margins would be increased refinery utilization, which is reflected in part in some closures. that would be the key factor that reflected in our forecast. >> i had a question on your projections, 7% over this year. the price is projected to grow at 3% only. i was wondering what is adding to the number, 7%, because it is the most price-sensitive part of any imports, natural gas. >> there have been significant changes in terms of the longer- term out