clobbered at the beginning of the year, the middle-class folks, small businesses and others. but what i'm concerned about is when you look at the overall structure of what was done in december, it's contributed once again to tax uncertainty. all of the two-year provisions, the one year provisions, phase ends, phaseouts. as you know, the tax code has tripled in just the number of words in the last decade, and that has been fueled once again by what was done in december. i want to make sure for the record is clear, that when you're talking about long-term economic growth, you want a different tax model than what the congress passed in december. you don't want to see more provisions, you know, added, and

more exemptions, reductions. you think by and large we ought to be draining the swamp, cleaning out a lot of the clutter, hold down some rates, keep and provide. you want a different model than what was passed in the sender for the long-term -- in december for the long-term. is that correct? >> yes. that was understandable. but i hope that the congress will think hard about what long run tax structure will be most beneficial in lowering rates and closing the holes as i think the best approach. >> the second question, there has been considerable discussion in the last few days, really the last week or so, about the idea of instead of the kind of tax reform you and i want, comprehensive reform, just going out and changing the corporate

tax rate, i think that would be a big mistake. the reason why is that most businesses in america, probably in the vicinity of 8%, pay taxes essentially of individuals. subchapter s., sole proprietors, partnerships, a whole host of firms who aren't in effect see corporations. isn't there a real danger if you go in and just make changes on the corporate side to have further distortions, further complications, and end up with yet more uncertainty than you would have if you went in and made a comprehensive overhaul, recognizing the connection between the individual provision of code in the business provision? >> as you know better than me or anyone, there are many

interactions between the two coats including for example, the double taxation of dividends and many other issues. .. portions of the code to just split one as some have been discussing i

think could once again create a whole set of additional distortions in the american economy. and i appreciate what you're saying, mr. chairman. one other points with respect to tax reform that i think that you have touched on a past but it would be important to have on the record. today it's very clear that people loathe the internal revenue system. i mean, it is just up there at the top of all of the federal agencies and functions of federal government. people are furious about. it seems to me if you got to the point where you had a one-page 1040 form, senator greg and i have that in our bill, as you know, chairman volcker has all but proposed that -- it was in the bush proposal for pete's sakes. you know, years and years ago, wouldn't having a one-page 1040 form where most people could

complete taxes themselves, other than spending their whole spring on turbo tax and the like, wouldn't that in and of itself be a public good in terms of simplicity and understanding and making people feel more confident that the american economy and the underpinning of the american economy were sound? >> well, as a general matter, simplicity besides being more -- less likely to be distortionary has compliance of lower compliance costs which are quite significant and less need for the irs and for accountants to adjudicate complex provisions in the code. so certainly simplicity is to be desired, and i think it would -- it would make people more comfortable with the tax code because it would be less of a burden and because they would feel more comfortable that there weren't all kinds of loopholes that other people were taking

advantage of. >> one more question not from an economic standpoint but looking back over the last quarter century on this is that a mistake in '86 was to know have some provisions to make it tougher to unravel fundamental tax reform when you got -- in other words, over the last 25 years after it was enacted, pretty much a few weeks later, the ink was dry on the bill and everybody went back to normal as usual. from an economic standpoint how useful would it be when the tax code is overhauled this time so there's more fairness for the middle class and take these steps to be globally competitive? how important from an economic standpoint is it to make it tougher to unravel it as soon as you get to reform? >> well, senator, as you say there are political and probably

constitutional issues probably involved but everything else being equal, greater clarity and certainty is obviously beneficial. and to the extent that you can create more certainty about whether the tax code is going to be over a number of years, that would be helpful. >> mr. chairman, thank you. and i look forward to following up with you on these matters. and the fact that you've been outspoken on this has really given a boost to reformers. and we are very appreciative. thank you, mr. chairman. >> thank you. senator enzi? >> thank you, mr. chairman and let me follow on what the senator said. our nation's fiscal policy is in at that timers. our projected level of federal spending growth is unsustainable. our tax code is a mess. the only constant is that the federal budget deficit is large and likely to remain that way. to what extent does the uncertainty that comes with these problems undermine the economic growth? >> it's hard to make a quantative judgment, senator, but i'm sure it's a negative.

i do think that addressing our long-term structural budget deficits would not only reduce the risks we face in the future but we probably will have near term benefits in terms of possibly of lower interest rates but also in terms of greater confidence and certainty. as you say, as it stands, the one thing we know about are long-term tax and spending commitments is that they're not feasible. they can't happen. they're not sustainable. so we don't know -- how things are going to change. so, yes, the more clarity we can achieve, the better off we'll be. >> thank you. i was cosponsor of the conrad-gregg deficit bill and was pleased that we got one one way or the other and that sheds light on what needs to be done by congress. i'm really concerned about the rapidly rising debt to gdp

ratios. i've been watching over what's been happening in europe. they've enacted some programs to rein in government spending. so they didn't act enough quickly and had to be bailed out by their neighbors. during the hearing before the house budget in june, representative henserling was asking you whether the united states was nearing a similar point given our comparable debt to gdp ratio and you responded that you don't exactly have know how much breathing space we have. rather than enact austerity cuts as the europeans have done, we've seen our gross national debt increase almost a trillion dollars since june. can you give us any kind of occasion how much breathing room we do have if we continue on this course before we reach that tipping point? anything more exact since june? >> you know, i just think it's inherently impossible to pinpoint the exact date or the exact level of debt that would create a crisis or a sharp

increase in interest rates. that being said, it would be the better part of valor to take action now to make sure that we don't -- we don't get too close to that point. i don't know what the number is, but i what do know and the cbo's projection shows this very clearly that absent any action, the debt to gdp ratio is going to be not only rising but rising at an increasing pace. it will be heading straight to heaven basically. and that's certainly not going to happen. that certainly -- that can't occur. so i don't know what point exactly but that point will come if we don't take appropriate habitation >> i also appreciate your meeting with some other groups, senator warner and chambliss started a group to review these things. and i appreciated your comments about the difference between our debt to gdp ratio and the japanese one where they have a lot of savings and we don't.

just so many things that need to be taken into consideration. i know the fed took quantative easing because of the fear of deflation yet other than housing prices americans are experiencing inflation in virtually every other major household outlay, i believe it when it comes to groceries and gasoline. america's economy runs to a large degree on motor fuel. some analysts predict gasoline prices are reach $4 a gallon this summer. won't this risk choking off the economic recovery? >> well, first, just the facts are that inflation is 1% including food and fuel and taking into accounting everything buy is quite low. now it's true people are he sensitive to the price of gasoline and we're watching that very carefully. i don't think that quality tatetive easing monetary policy is the main reason that oil

prices are up in the last few months. the dollar after all has been quite stable and oil prices are up in essentially all currencies. i think the main reason oil prices is up. the demand for energy from china and other fast-growing emerging market economies. that being said, we're watching it very carefully because as you point out, higher gas prices are like a tax on families. and if they get too high, then that will, in fact, be a negative for growth as well as for inflation. we'll pay very close attention to both energy prices and other commodity prices as well. >> there is discussion among policymakers about removing the federal reserves dual mandate of a stable monetary policy and full employment. some have suggested that it makes sense to remove your mandate for full employment so that you can focus only on monetary policy. do you have an opinion about this matter? >> senator, we're not seeking

any change. we think the current mandate is workable. that being said, i think it's entirely appropriate for the senate and the congress to consider what mandate they want to set. they are after all central banks around the world that do focuses around the world on price stability and whatever the decision congress makes, of course, we will honor that decision and pursue that mandate. >> thank you. i don't have any further questions. >> thank you so much, senator enzi. senator warner? >> thank you, mr. chairman. and i thank you for holding this hearing this morning. chairman bernanke, let me first of all acknowledge what my colleague senator enzi has already said and thank you for being willing to meet with a growing bipartisan group of senators, senator chambliss and i have been working along with

senator wyden and others saying we need move forward on a real plan. and compliments to senator conrad and gregg and others. and while imperfect and i particularly appreciate your comments and your testimony about the president's national commission on fiscal responsibility and reform, that we ought to go ahead and take that work product of the last year and use that as a starting point because i think it's both you and senator sessions have said in your testimonies that simply talking about deficit reduction doesn't get us any place. we got to have a real plan to work against. and it is the intention of senator chambliss and i to take that work and put it into legislative language. and introduce it. and i think again a point that both senator conrad and senator wyden have made is that if we are going to take on this issue,

it is going to require dramatic cuts in government spending but it is also going to require meaningful tax reform and i think again a lot of the earlier attention on the commission's work focused on the deficit reduction piece. it did not focus as much on the tax reform piece which both lowered corporate rates and individual rates actually add on the individual side led more progressivity and i think it's a good working document and i look forward to working with colleagues on both sides of the aisle to see if we can get as many cosponsors as possible to at least move forward on this discussion and it is my hope that we could actually see a plan put forward this year working off of the president's commission as i'm sure it will be amended. and actually get it voted on. because the way i hear you say -- now, i can -- you would never be as impolite as to use

these terms so let me use these terms. but you're basically saying to us, the congress and the policymakers, we've got to walk and chew gum at the same time so that we've got to continue to do short-term stimulus, you at the fed have done that through your quantative easing policies and we in certain tax policies that were taken in december. both in terms of short-term stimulus but that short-term stimulus then has to be morphed into long-term deficit reduction. going back to some of chairman conrad's earlier questions, you know, what should we look at as the metric or other indicators of when we should kind of ease

off on the stimulus and ramp up the deficit reduction piece? should that be based on a timeline? i think the president's commission, chairman conrad, you had a lot of your actions starting to click in about 2012, 2013, 2014. should it be on a kind of "dateline" process? should it be based on when growth hits at a certain level, unemployment falls to a certain level? what should be the indicators that even if we get a plan in place, that would trigger the kind of hard choices around deficit reduction that we're looking at? >> senator, first let me say that i enjoyed meeting with your group. you and senator chambliss and i commend you for the extra work you're doing on this issue. i think there's an important tradeoff. we need to -- we, the american

people, the congress needs to demonstrate a credible commitment to solving the long-term fiscal problems. the stronger and more credible the plan is that is put forward the less need there'll be to take short-term cuts in order to show your seriousness so a strong long-term plan that kicks in over a period of time will make it less necessary to take actions in the short term that would be counterproductive from the point of view of recovery. so that's why it's so important to be -- to develop a strong plan. so that's the tradeoff. the stronger the plan, the less near term down payment you have to make. >> and can i just interrupt for a second. and based upon your testimony today, by referencing the national commission on fiscal responsibility and reform, by referencing that effort, is that an endorsement that that would

be viewed in your mind as a strong plan? >> yes. and, for example, it has the feature that i believe that by 2015, there's a stabilization -- the debt to gdp ratio which requires, i think, about a 2 to 3 percentage point of gdp cut in the deficit starting in a couple of years through the rest of the decade. in terms of criteria, i think there's no magic number but what we need to see is a sense of momentum. a sense that there's enough forward movement and strength in the recovery that we can feel confident that it will continue and will not be knocked off-course by two precipitous retrenchment. >> i know you don't want to give me a set indicator, but should that -- should those indicators be time, growth rate, unemployment rate, combination of all of those -- what should

be our markers if we pass this plan, whether the commission's plan or a like-kind serious plan there's got to be some markers when we shift course from stimulative activities to serious deficit reduction? >> all those factors matter but i think a sustained growth rate above sort of the long-term average would be an indication that the recovery is proceeding and has some momentum. but again, the stronger and more credible the forward-looking plan, the less need there'll be to make short short-term adjustments that might risk the recovery. >> let me in my last moment follow up on senator enzi's comments. and i think he was looking for a

percentage on when the markets will say no mas in terms of our debt to gdp ratio. i guess my feeling is it's not a question of if we are going to do deficit reduction. it's going to happen. it's really only a question of when. and whether we're going to do this on our timetable in a way that is not disruptive to the economy. or whether it is going to be dictated by the markets in terms of their lack of faith in our ability to service our debt over the long term. and so what i guess i would ask you and i know my time has expired, mr. chairman, this will be my last question. you know, we can't predict that to a specific percentage or date certain. but what would be -- or what could be some of the warning

signs that we're getting close to that precipice. could it not be some external international, god forbid, terrorist incident that might put a shock wave across the economy? could it not be another economy in europe getting close to a failing point in an economy that would be larger than, say, ireland or greece? what are some of those warning signals? and would you also say that -- if we start going down this precipice it could happen very quickly once we get to that unforeseen point? >> so in terms of market signals, i think i would look at things like government financing interest rates, long-term bond yields, the dollar. indicators of confidence in the united states. i think it's important to understand, if i may, that nobody doubts the united states has the economic capacity to pay its bills. it's really a question, do we

have the political will to do that? and demonstration of the political will, that's what the markets are watching. is the congress and the public and the administration -- are they able to demonstrate that they are serious and that they have enough willingness to work together to make progress? at the point where confidence is lost in that, you could see a relatively quick deterioration in financial conditions as we saw in some cases in europe. where things change very quickly based on the change in sentiment about the prospects for those economies. >> thank you, mr. chairman. i look forward to working with you and senator sessions and all our colleagues in making sure we don't get to that point. >> we appreciate the effort that you've mounted along with senator chambliss. i just for the record want to point out that the proposal was stable the debt down in 2014 and starts bringing it on a sharp

path after that. senator manchin? >>from my state of west virginia i'm concerned about my state and all the states for the nga. what i would like to know about the future pension liabilities of both corporate and state governments, the recent reports of the financial crisis that many of our states are facing in the very near term future, have you all looked carefully at the possibility of a default on general obligation and municipal bonds by state and local governments and the budget strains that would present to the overall u.s. economy? if we're concerned about the stimulus runs out, june of this year, what happens? and if there's no more stimulus to come, and a federal buildout

if you will and they have to work on a balanced budget amendment and they can't meet these long-term obligations, have you all looked into that or been spending any time on it? >> to some extent, senator, yes. no question state and local governments are under a lot of pressure. they've been cutting spending and employment over the last couple of years. the federal assistance will continue in 2011 but after 2011 it's going to be pretty much zeroed out, i think, and so on the one hand, states are seeing some improvement in tax revenues as there has been some growth. on the other hand, they are going to be losing some of their federal assistance so that the pressure is on state budgets and local municipal budgets are going to continue for a while and that will be a head wind for the overall economy as well as for the individual states. it's also true -- this is more a long-run issue that like the federal government, the state and local governments have some

long-term fiscal issues relating primarily both to pensions of state employees but also to health care promises which in most cases are almost entirely unfunded. so those are long-term obligations that could be as much as collectively as much as $2 trillion for all the states together in the long run. now those long run obligations don't come in the near term some very serious long-term pressures. in terms of the municipal bond market, it currently seems to be functioning reasonably well. liquidity is fine. issuance has been very high including issuance of capital projects. so we're not seeing extraordinary stress in the municipal markets which means investors are still reasonably confident that there won't be defaults on major borrowers and the reason they believe that is

most states have rules which put debt repayment and interest repayment at a very high priority above the locations of the state and local locality. bottom line, the municipal markets, bond markets seems to be doing okay but clearly there's a lot of both near-term and long-term pressure on these governments and it's going to be something that's not going to be going away in the near term. >> another question i have, is that in west virginia, when families have problems whether it's families of single parents, they don't -- they can't really respond and kind of understand what we do here in washington or what government does. they don't sit down and think how much more money can they spend or how much money can they borrow to get themselves out of trouble. they start looking at cutting expenses. what expenses could the federal government cut that would have the longest -- or have the most effect on long-term stability in your recommendation? what should we be cutting?

>> well, senator, i should just say first very strongly that these tough decisions about taxes versus spending and the mix of spending are not mine. and i don't want to inject myself too much but i will say one thing which is just obvious from the arithmetic, which is that going forward, the costs of health-related programs, medicare and medicaid are rising prospectively very quickly. and on current trends, it's, you know, would be at some point between medicare and medicaid and the social security would essentially be what is now the entire budget of the united states. so i do think an important priority for us as a country and for the congress from a fiscal point of view is to think about what we can do it to achieve better cost efficiency in the

health care area at the same time that we do all we can to maintain quality and access. so that's clearly an area we need to look at. that being said, of course, we have military spending, other discretionary spending. we have the tax code the many other things that you will certainly want to look at. >> i know there have been some members of congress who have long advocated for a federal audit on the federal reserve system. would you oppose an independent audit of the federal reserve system? >> the dodd-frank act included an amendment sponsored by senator sanders and others that includes an exhaustive audit of all the financial aspects of the federal reserve. in fact, on december 1st it will be released all the lending programs, financial programs, credit programs that we undertook during the crisis so as far as our finances are concerned, we are an open book.

and if there's any area where you or your colleagues are dissatisfied with the information, i'd be happy to work with you to make sure you get what you need. so in terms of all aspects of our finances and operations, i think it's reasonable for congress to want to have that information. the one area where i have been concerned and this goes back to my earlier comment to senator sessions is that monetary policy independence is very important for the stability of our economy and our financial markets. and where fed audit is really a code for congressional intervention in monetary policy decisions, that is where i would be much less comfortable. >> and finally, is there -- is the federal reserve considering any policy changes that would negatively impact the financial viability of local community banks around the country? >> to the contrary. we are -- have a strong commitment to community banks.

and we have, in fact, recently increased our schedule of direct meetings with the board with representatives of community banks. there's obviously a lot of work to be done to implement dodd-frank and basil iii and other regulation. it's our objective -- i think the intent of both basil iii and the dodd-frank act is to focus on the largest so-called too big to fail banks and to make them too big to fail. that's where our focus is as well that not increase the regulatory burden that small banks play. and small planks bay an incredibly important role as large banks have cut down our that lending and they have in many cases stepped up and proven their worth to the u.s. economy. >> thank you, sir. >> thank you, senator. senator stabenow? >> well, thank you, mr. chairman. and welcome, mr. chairman.

mr. chairman, thank you for your thoughtfulness and i think what you laid out to us both in terms of where we have come from, and what we've done and where we need to go, i think, is very, very important. i feel as a member of this committee now for many, many years, though, that i have a need to make sure that we don't have a revisionist history whenever we're talking about how we got here. i think it's really important if we're not going to -- if we're not going to repeat mistakes that have been made before that got us here, i think it is important to just say once again for the record that when i had the opportunity to come in and serve with you, mr. chairman, the committee members in 2001, we had the biggest surpluses in history of the country. and so we've not always been in this situation and there were a number of decisions made on spending, frankly, without accountability that have gotten where we are.

and i would argue that, unfortunately, the spending was -- in the eight years in the previous administration was not focused on those things that create innovation, to create jobs, to compete in the global economy or focus on opportunity or security for middle class families. instead, it was very much focused on the benefit to a privileged few. and at the time in the last administration we were told deficits didn't matter when we were focusing things that would benefit the privileged few. now after two very, very tough years, very tough years, very slow years, we're turning it around. we've not gotten things back on track. people in michigan are still hurting although it's better but we've got to go a long way to go. my concern is that we're now hearing with the new majority in the house that again deficits only matter when it's things that affect middle class families in terms of

opportunity, education, innovation. but that when it comes to the policies that got us in this mess, of focusing on tax cuts for the privileged few, supply-side economics, hoping they'll trickle down, that doesn't count. and so we saw this week over a trillion dollars exempted from the budget rules. that will add over a trillion dollars in debt if we go forward with that. based on a way of looking at the economy that frankly didn't work and it got us in the last decade in my judgment into the hole that we're in. mr. chairman, i want to ask you about how we get that out of this hole, both short term and long term. and i agree we need a credible plan. and i very strongly share your view we have to be very careful in the short run. it's a very fragile situation. and i don't frankly see how we

get out of this, with over 15 million people out of work. i mean, i don't know -- how do we get out of deficit? if we don't first focus on jobs? one of the things that i'm proudest of is the fact that we didn't give up on american manufacturing two years ago. we didn't give up on the american automobile industry. and this year for the first time since 1999, all three companies are making a profit. they're actually bringing jobs back to this country. and because of our investments and innovation, we are going to go from 2% of the world's battery manufacturing advanced battery to 40%. in the next 40 years. but my question, mr. chairman, relates to the immediate situation for families that are not yet feeling this recovery. and the fact that we have tens of millions of people who are

out of work. and frankly when we talk about 2008 budget numbers, i'd like to go back to 2008 jobs numbers and focus on that to get us out of deficit. but how would you focus on job creation in the short run knowing that we have serious long-term issues that have to be addressed on the deficit, but at the same time, i guess i would like your reaction to the notion that we will not get out of debt if we have over 15 million americans out of work. >> senator, the -- you're absolutely right. that a large part of the deficit we currently have is what economists call a cyclical deficit. it rises because where unemployment is well above a normal level. and we need to address -- what we need to address is the structural component, the part that remains once the economy is back to a more normal level.

again, i think that we need to think of fiscal policy as of a piece. that is we can't think of short run or long run separately. you've got to think about them together. and the more credible and effective our plans are for addressing the long-term structural issues, structural deficits, the more scope we'll have and more flexibility we'll have to allow continued support for the recovery that we need now that the economy remains in a very still weakened and fridge fragile condition. so my advice for what it's worth is again not to focus only in the short term but also think of the long term to combine those two things. you mentioned things like innovation. again, as i talked about in my testimony, the composition and

structure of government spending and tax code and so on is also very important. are we doing enough for innovation? you know, we spent quite a bit of money on that. is it well directed. is it sufficient to keep our leadership position, you know, going forward? so those would be the themes i would note. long term structural deficits that need to be addressed and in doing so would help the short term would give us more flexibility in the short term and think hard what we need to think of longer term growth innovation to help people get better jobs and sustain higher incomes. so it's a tough set of problems and they are very much interconnected. >> well, i very much appreciate your comments and share your feeling that it is about bounds. it is putting in place the long-term plan but also understanding in a global

economy we're in transition now as a country. that it's very, very important that we be investing in those things, opportunity, education, innovation that allow us to move forward in terms of growing the economy. quickly before my time runs out, just one quick question to follow up on small businesses. we passed the small business jobs bill. we've talked about the importance of supporting community banks. i would just ask you, on one hand, we are saying to banks, lend more. regulators are saying, don't lend essentially or tighten up things. it's critical, i think, that other regulators help banks, community banks, take full advantage of the lending initiatives that we've placed into the small business jobs bill and i wonder what actions the federal reserve is doing or can do to help small business? >> senator, as it happens i'm going to be on a panel sponsored by the fdic. i think it's next week with

sheila baird and senator warner where we'll be talking about small business credit and talking about all the initiative its that the congress has done, the federal reserve has done and the other banking agencies have done. but just very briefly, we are very attuned to the need to have an appropriate balance. on the one hand we don't want banks making bad loans. that's how we got in trouble in the first place but on the other hand, credit-worthy borrowers need to have access to credit so that they can hire and they can expand and they can help the economy recover. and so we've been working very hard with the banks and with our examiners to try to get a balanced approach. and i think it's beginning to pay off. there is some improvement, in my view, in the availability of credit and i expect to see more lending this year. so there is -- the terms and standards have begun to ease a bit. so i think there's some progress on that side. we've also -- and i won't take too much of your time but we have also undertaken a series of

meetings around the country, more than 40 meetings, where we've met with small businesses, lenders, examiners, local officials, trade associations and the like and tried to identify technical problems and other issues that have blocked access to credit. and we found some very useful things and we're working -- we're moving forward on those, on the things we learned. >> thank you. thank you, mr. chairman. >> thank you very much, senator stabenow. senator cornyn is recognized for 30 seconds. >> mr. chairman, i can't clear my throat in 30 seconds. [laughter] >> we're doing -- seriously, we're doing 8-minute rounds. >> thank you. >> mr. chairman, thank you very much for your service in what is by all accounts a very challenging job but, of course, we're all volunteers here. and no one is holding a gun to our head and making us do these jobs. we volunteer to do them because we think we can contribute to doing things that are in the best interest of the country.

and i appreciate very much your service in an admittedly very challenging job. it strikes me that there are three events coming up which will really provide an opportunity for congress and the administration to demonstrate its seriousness at dealing with the run-away spending and the unsustainable debt problem that we have. one is the president's budget is going to be due the first monday in february. that will be, i think, one of the first indications perhaps of the president's response to the report of the fiscal commission. and i want to congratulate all of our colleagues who participated on that on a bipartisan basis who i think demonstrated great courage in voting for a plan albeit one that we all could find some differences with, but again, the time for talk is running out and now it's time for action. >> so the first -- it strikes me the first event that will provide the president an

opportunity to respond to that in a meaningful way to set out his budget for the next fiscal year will be the first monday in february or here it may slip by a week or so. the second it strikes me as the debt ceiling vote that's going to be coming up. and there's been a lot of talk and speculation about what might happen, whether there'll be some additional conditions that would be imposed as a -- on voting to extend the debt ceiling, which is obviously a very sensitive and important issue. and then it strikes me that the third sort of watershed that's coming up here that will demonstrate our collective seriousness of dealing with this particularly from a fiscal policy standpoint will be the expiration of a continuing resolution. but i want to ask you specifically about something that senator manchin alluded to briefly on in terms of not just the federal government's problems dealing with its debt

but the states and municipalities. and the analyst who correctly saw the mortgage crisis in 2008 now predicts that 50 to 100 sizeable u.s. cities could default in 2011. she said this could cause hundreds of billions of dollars of municipal bond defaults and warns that next to housing, this is the single most important issue in the united states and certainly the biggest threat to the u.s. economy. and i would note, obviously, many states are in deep fiscal trouble also. and there's the potential -- at least the potential maybe not the probability at least imminently but at least the potential we could see some defaults at the state level. i heard what you said about the mortgage -- the municipal bond market not showing any imminent signs of crisis.

but do you agree that this is a very serious issue that needs to be confronted? >> sorry, senator. i don't have a -- i don't have a forecast about default risk. i think that sounds like a somewhat pessimistic view but something we need to pay close attention to. clearly, a lot of cities are under -- certainly no one can question they are under a lot of financial stress. and it's something we need to pay attention to because it would have some spillover effects into other markets. we don't at this point see anything of that magnitude happening. that being said, i think cities and localities will need to take strong measures to avoid default. default is only at best a short-term solution for local

governments because what they find is that it would be very difficult to get back into the market or if they do, they'll have to pay a higher interest rate. so they would obviously be much in their interest to take the difficult measures to avoid default. so again, as i said earlier, while there's no question there's a lot of stress at state and local governments at this point the municipal market seems to be operating fairly normally but we'll watch that very carefully. >> that's fair enough. let me sort of drill down a little bit because i want to get -- this is a point i want to get to in particular. in 2002, you gave a speech before the national economist club in washington. and you said, quote, and i think this is a fair quote, tell me if it's not -- quote, the fed has the authority to buy foreign government debt as well as domestic government debt. and we know that under the qe2

plan that you are implementing at the fed you are buying u.s. government bonds. but would that extend to state and local debt, that authority? >> only in a very, very limited way. so first of all, we have no intention of buying foreign debt. that's really a provision to allow us to hold foreign exchange reserves and we're not planning any policy in that direction. >> my answer is obviously really on the state -- >> on the state and local, we have very limited authority there. we do have the authority to buy very short-term municipal debt that is -- within certain categories. so we have very limited ability to buy state, local municipal debt and moreover, the dodd-frank legislation restricts our ability additionally not to lend to any insolvent borrower and not to lend to an individual borrower but only in terms of a

broad program. so we have no expectation or intention to get involved in state and local finance. i think to the extent that there's anyone to look at that, it would have to be congress to look at that. >> well, i don't have to tell you how a request for a bailout for a state or a municipality would be received here in washington. so let me ask you, under chapter 9 of the bankruptcy code, a municipality could go through a bankruptcy proceeding. but right now there is no provision in the bankruptcy code as i understand for a state to go through a bankruptcy-like proceeding, a chapter 11 where, of course, the secured creditors, the bond-hordes and others would maintain the highest priority. but there would be a procedure

by which the state could wind its way out of this crisis situation and get back onto a more sound fiscal basis. there's been some suggestion among commentators, others, that congress ought to look at a procedure that would allow that to happen as one alternative. would you think that would be a wise or a good thing for congress to do? >> i think it would be useful for congress to look at the situation broadly and try to identify what potential problems that might be there and what there might be in the bankruptcy law, et cetera. i think it would be very -- it would be extraordinarily unusual for a state to default. it hasn't really happened seriously for 160 years or so. and i think we ought to focus on

states meeting their obligations which they do have the tools to do. and again, as i mentioned before, in most states, the debt and interest payments are the top priority and they would come in front of provision of services and so on. so i think we should understand the situation. but i'm very, very hopeful and expect that we'll be able to avoid defaults of that level. >> and i share that hope but if i may conclude on this question, what would be the consequence of a large state like california or illinois defaulting on its debt? in terms of the national economy? >> well, it would -- it's difficult to know frankly because it hasn't happened for a long time. it would certainly be -- it would certainly create a lot of stress and volatility in the markets. there's no question about that. it also would mean that the state, when it came back into the market, would probably have to pay a much higher interest rate for a considerable period

and, therefore, it would be, i think, a very much last resort for any state to do that. >> i thank you very much. thank you, mr. chairman. >> i thank the senator. i thank the senator for asking the question because i think this is something we need to be paying close attention to. senators raised the question of a series of municipalities that may be under significant stress. we've also been told that there are a number of states -- i've been told as many as 20. governor manchin, maybe you have more recent information. >> i just cycled being out of the chair of the nga and we were concerned watching the fiscal viability watching everyone in the states. everything is back to 2008 levels is what we were based off and that's what you based off in congress when you set up the help that was given as far as in the aid to the states. that all goes away by june 30th. most of our fiscal budgets are done june 30th, 2011. >> and do you have a rough idea

of how many states are -- >> i think it's upwards in the high 20s, low 30s that could be in serious problems. we're concerned. we're very much concerned. >> we've got an analysis by the way underway on this question. this may be one of the things we would like to talk to you about if you have an opportunity to come up and meet with us in a session with all senators. we do have an effort underway based on the conversation i had with governor manchin earlier. >> if i could ask one question mr. chairman, and to mr. bernanke, i think what we were asking and the senator from texas is asking the same. is there any plan -- i know it hasn't happened -- we're seeing indications and concerns and states have done everything humanly possible because they have to meet a balanced budget, you know, every year and they cut to the bone if you will. and if the cash flow is just not there, with the amount of services they have to give out,

is there any bailout or any other proposal that you all have and have been looking at and i think that's what we're saying. is there any plan that's available that could help a state to prevent this from happening and falling into default or could you do that? >> i don't think the federal reserve has the authority. and i don't think it would be appropriate for us to do that. this is something that would take place over a period of time. it wouldn't happen in a day or two. and there would be plenty of time, i think, for congress and for the state legislature to, you know, look at alternative solutions. i think this is really a political fiscal issue. and we'll watch it very carefully because it has implications for the economy and for financial markets but i don't think the fed really has much that we can do about it. >> mr. chairman, i would recommend that maybe as a committee what we should do is check with the nga. they'll give you complete status of what they see and the real crisis. >> i think we better -- we better think about how we get input on this. you know, the more we look and

senator cornyn has brought to our attention here -- what we heard earlier is the result of the information you shared with us. that this is something that's out there on the horizon that we need to pay very close attention to. senator merkley, we apologize to you because we interceded on your time. we'll give you an additional minute. and you're recognized. >> thank you very much, mr. chair. i'll use a few seconds of that to say senator sessions, i'm happy to hear that you're will to wear senator wyden's tie if oregon wins. i have a pin right here that maybe you would be willing to wear this pin if oregon wins for a couple days. >> i would be glad to but i'm not going to lose over sleep. [laughter] >> will you be out there on sunday? >> having our auburn team and

come in tuscaloosa and coming out victorious, i'm a little confident. it's exciting and it's so much fun and people are so excited. i'm sure they are in oregon. and it's just one of the great things about america. that people can pick out something other than politics and have some fun with. >> absolutely. a little bit of an anecdote. well, let me turn to the business at hand and thank you very much for your testimony, mr. chairman. i wanted to start by asking a little bit around the qe2 policy. as i understand it, you could summarize it by saying that in buying these bonds, you are injecting more money into the economy. doing so reduces the interest that would be bourne on those bonds that would encourages more people to hold less of those bonds and invest more in either corporate bonds or perhaps stocks and there was a constitution effect to invest in

american business. so that's kind of one category. another category would be that in doing this, one also creates more pressure in terms of those economies such as trying to switch our our pegged exchange rate with the united states to try to reduce the impact of china's currency manipulation on our ability to sell our products abroad. do you see both of those as key components or one more important than the other or that helps us get our hands around these two pieces. >> first of all, i would say the federal reserve is neutral on the auburn-oregon issue. [laughter] >> i'm disappointed to hear that because there's two senators from oregon here and only one from alabama. [laughter] >> senator, your first part of your description, i think, was

very accurate. that we are trying to ease financial conditions to stimulate more economic activity. you know, defacto, this policy has been in effect since august. because in august we began to reinvest our securities and i began to talk about this in public and the markets began to anticipate these actions. and we've seen since august significant improvements in stock prices, in spreads, in volatility and a variety of areas. and i think we are having some positive benefits on financial conditions. and are contributing to a better outlook for the economy. it's not our intention to do anything particular on the internet front. our objectives are focused entirely on the u.s. economy, which is what our mandate tell us to do. it is true that to the extent that china or other countries undervalue their exchange rate

or maintain a fixed exchange rate, they import u.s. monetary policy which is appropriate for the united states. it is not i believe it appropriate for china given how quickly they're growth and the fact they are dealing with some inflation issues. so in fact it is forcing them to take some actions, letting their exchange rate appreciate somewhat would be helpful for them in this context because it would reduce the inflation pressures that they're otherwise going to experience. but that's -- but that's not the -- you know, that's not the key objective of the policy. the policy's objective is to try to meet our price stability and our employment goals. >> i understand that. but the employment goals also are impacted by the ability of us to sell our products overseas so there's kind of a complete picture that comes to play in that. and in that regard, let me turn then to manufacturing because one of the -- one of the

challenges certainly for american products making them here and selling them abroad is the difference in labor rates. but there's also been the argument that in our trade agreements we sometimes end up in a situation where foreign producers seem to have full access to american economy while both through currency manipulation and through nontariff barriers, american products don't seem to be able to get into the foreign markets as easily. and that differential has undermined manufacturing in america. there's also been a related conversation -- i just wanted to lay it out because i see it starting to appear here and there. and that is that one of the reasons we seem to be coming out on the short end of these trade agreements is because we also go into these negotiations with other goals that are not necessarily economic goals. that is goals related to access,

military access, fight ago key ally to, say, as we did with -- in the markets in china when we were involved in the wrestling with the soviet union, we take noneconomic goals into these agreements. and so i thought i'd just see if you'd like to comment a little bit on these challenges in terms of our ability to maintain a manufacturing base and some of the interrelated issues regarding trade negotiations? >> senator, of course, we remain an important manufacturing power. i think we still have the largest manufacturing sector in the world. employment has been declining very sharply because of productivity gains. but you're also correct, i think, that trade and currency issues are an important factor. on the currency side, i've been

very clear that i believe that the policy of china and other emerging markets to undervalue their currencies is counterproductive both for those countries and international imbalances and for global trade flows and i hope we can continue to work with china and those other countries to create a more flexible exchange rate regime. i think that's very important. i'm not deeply conversant with the details of trade negotiations. i think every country has multiple objectives when they engage in these negotiations. but i hope that we will be aggressive in pursuing wto remedies, et cetera, as needed to eliminate trade barriers in and both tariff barers and nontariff barriers and i like most economists that it works both ways, imports as well as exports to free freely. >> thank you. let them turn to another issue

which is the impact on the high level foreclosures on house prices in america we had an ongoing rate of about 300,000 foreclosure filings a month. not all of them will result in foreclosures but many will. and we still seem to be driving down the value of homes, which results in more families under water, more families that are in situation where they can't borrow against the house since the house is worth less than what they owe. how does -- how does this -- and i'll just note that our effort to intervene which was highly debated two years ago when i first came here to the senate, a decision to invest 50 to $100 billion to oregon -- not oregon, but oregon and the united states homeowners has resulted in the expenditure over these two years of less than a billion dollars.

i think last i checked was about 500 million. so our intervention has been modest at most. this remains both a huge factor affecting the quality of life for families and their ability to look positively on the future. and how does -- how does this play into our monetary policy or interrelate in ways that we should understand better? >> well, you said it very well. foreclosures continue to be very high. there have been sincere government efforts to try to address the problem but they run into lots of bureaucratic and other difficulties as well as the fact that in a weak friday with lots of unemployment there's a lot of folks for whom there's really no solution, a good alternative given the income has been lost through job loss. this is an important consequence -- has important consequences for the

macrosituations as i alluded to in my testimony. the high levels of vacancies. homes that are not only empty but are, in fact, reducing the value of the neighbors homes around them. are driving down prices which is affecting household wealth which is affecting consumer spending and confidence. it's affecting the whole residential industry. construction is very, very weak because with prices so low, new construction cannot recover its cost. ..

>> and it's one of the reasons that the recovery along with the problems in credit markets, one the reasons of the recovery is not as robust as it normally would be given how deep the recession was. >> my time has expired. i do have another question if it's appropriate. [inaudible comment] >> given the fact that we intruded on your time, go ahead. >> thank you. well, one the interesting developments is that families started saving substantial amount which recognizing that they needed to prepare for the possibility of a loss of a job or the drop in value of their home and so on and so forth. which, of course, on the spending side, that throws a wrench into the economy. but one thing that i have heard

reference to, but i'm not sure if it's right is that the amount of consumer debt has decreased by more than the amount that the national debt has increased. that is if you take the family debt and the national debt together, our total indebtedness has dropped. is that accurate? and does that -- how does that play into the macroeconomic picture in terms of the impact of our national debt? >> that is correct. one way to see that is that our current account deficit, which is our foreign borrowing has gone down. meaning the need for borrowing is lower than it was before the crisis. that's the opposite side of saying that aggregate demand to bring the economy to full employment. what you say is exactly right. and again, it is consistent with

the need for continued at least speaking from the federal reserves perspective, continued accommodative monetary policy to help support the economy's recovery. >> thank you. >> i thank the senator. let me go to a second round. let's reduce this to four minutes. so we don't impose too much on the chairman's time. let me just say, i've gotten an initial report now in the state's situation and i've asked senator manchin as former head of the national governor's association to get us the latest information that's able from that source. here's what i have an initial review since our conversation on the floor, i think it was last week, governor manchin. maybe a week ago or so. in looking at what's happened since enacting their 2011 budgets, 15 states had new

budget gaps open by late november. totally $27 billion, nearly the entire gap is accounted for by five states. illinois, half of it, roughly half; arizona about 10%; washington 7%, california roughly 7%; texas 5%. those are the new gaps that opened up in 2011 after they collectively had closed 84 billion of gaps in work on the 2011 budgets. what is, i think, a serious matter is looking at the 2012 budget gaps. ncsl survey, national committee on state legislatures projected a gap of roughly $97 billion in 2012. the committee on budget reports the gap stands at $113 billion,

and is expected to go to $140 billion once all of the states have updated forecasts. so we are talking about a significant problem here. with some 35 states projecting gaps in 2012. only 11 states reporting no budget gaps for 2012. i must say proudly, my state has no budget gap. i think governor manchin left his state in very good shape. i don't think they face a budget gap. but that -- now looking back in 2011, they closed 84 billion of budget gaps. so clearly there is capacity there to do significant budget gap closing looking at 2012. but i mean $140 billion is a big number. certainly for those individual states. and i think it is, you know, you

look at illinois, for example, they are telling you about a 2012 budget gap of $15 billion which represents 50% of their budget. that is a whopper. and i do think we need to be prepared with a plan in case we are approached by one or more states because clearly the problem is concentrated in a handful of states. as i indicated, five states where the significant majority of the 2011 gaps illinois, arizona, washington, california, and texas. we got to be ready with a plan if we are approached with respect to requests from any or all of those states. and i understand fully that's not your -- in your domain, but i think we can responsibly anticipate that we may have

requests made to us. and i can tell you i don't think congress, the house or the senate, are going to be very interested in bailouts to states. >> mr. chairman. >> senator manchin, if i may, and just open discussion here. the states are going to be in a situation where they are going to have to have the flexibility to refinance. to put their financial houses in order. everybody bet if we will, they worked out of '08 levels, the amount of stimulus that helped them get through a difficult time. we thought the economy would pick up. it hasn't. they are still story. they are making draconian cuts. we are aware of that. our bond ceilings that we have as states that we are able to go out to the market with, there might be some creative finance

that's needed to be done here. we're going to be need all of the help that we can get. can they raise those ceilings to see if there's a market to refinance a 0% bonds to go out and find out if they can create values within their states? i don't think the appetite is here in congress. here's more money to help you. can we help you help yourself? give you responsibility? restrictions that we can ease up on. that would be most appreciated. it's not if it was going to happen, it's when they are going to need our assistance and help. >> i think you make a good point. since our previous conversation, i immediately asked people to go out and do this survey. and i think it's something that committee is going to have to be prepared with an answer. and what you are saying, i think, makes eminent good sense. that is maybe there are ways of help with creative financing.

i don't think going to be much appetite here to send truckloads of money to states. i've about used my time on this four-minute round. other -- senator sessions would you like an additional? >> yeah. i would, mr. chairman. so much to ask you, chairman bernanke, i will submit some written questions to you with regard to the state situation. states are sovereign. they have issue on their own debt, and the people who loan money to states need to know their likelihood of being repaid is based on the financial condition of that state. there's a moral erosion of significant nature when we undertake and start bailing out now more. and i just think this whole

bailout mentality has far more ramifications than a lot of us think. and a lot of people have indicated. so i understand what you are saying, mr. bernanke, states need to get their house in order. they shouldn't expect lower interest loans from the fed if they get in trouble. is that correct? >> i -- they are not going to -- they should not expect loans from the feds. i think they -- the numbers that the chairman referred to are perspective gaps. obviously, they are a measure of how much spending cuts or tax increases are going to be needed to achieve balance. it's going to be difficult. but on the other hand, there is some improvement in the economy and tax revenues actually have picked up some. so it's a difficult situation. but i hope the states will be able to address it. >> i just got to tell you, places like california have been living beyond their means for a

very long time. even when the economy was in good shape. and our state is very frugal, we try to operate a good state. i think i'm not inclined to answer my constituents to rescue someone who's been in problems. i'll note with mr. christie is doing in new jersey. agriculture department, reduced 24%. banking, 12; community affairs reduced 35%; education, down 8%; human services, 4%; law and public safety, 7%; roads, 3%. now i suggest new jersey is not going to sink into the ocean. it's still going to be there. and this idea that cuts and even the deficit commission, bless your heart, i hope i would have been willing to support the commission's recommendation as about as good as anything that

we've seen. it does not call for anything like reduction in federal spending like this. actually doesn't call for any really and discretionary accounts of significant amount. so we can do better. the american people are telling us this. mr. bernanke, i criticize some of you folks, including president bush and mr. greenspan in it. i don't think you realize the political world we live in. the real world that we live in. you think that, well, we can in 2001 when we needed to stimulate the economy and run a deficit, well, we've had a surplus for a few years. we can ask the congress to spend money and then when they get to a certain point, we can tell congress to stop. but those of us who committed and were elected to try to balance the budget and participate in tough votes to balance the budget really had our legs chopped off. we weren't able then to warn against spending even the

republicans, some of them. and the feds seem to be saying deficits don't matter. and now see how hard it is to turn off the specket? maybe you in the fed can turn it off just like that within your power. for us politically it's not easy. so we got to get a consensus. i think the american people have a sense right now, don't you, mr. chairman, that they want us to do something now. and i want to ask you, are you telling us that you don't -- you think it's premature to start reducing some of our spending levels and some of the government accounts? because it might hurt the economy. the brits don't seem to think so. in a similar situation to ours, they are cutting now. >> what i said, senator, was that it's a long run issue. it has to do with, you know, the problems are not just this year or next year. the problems go out decades. and i think it's not too soon to

have a strong set of measures that will bring down deficits over time so that we have at some point a stabilized and declining debt to gdp ratio. i think action is needed. but you are not going to solve the problem by just making cuts for this year's budget. you need to think about the whole future path and all of the obligations both -- i mean the chairman talked about the debt held by the public and the gross debt and so on. all of those debt numbers don't include the unfunded obligations that we have for entitlements, for example. so the true debt is probably three or four times bigger than what the chairman is talking about. so we need to address that. but what i'm saying is we want to take -- we should take a long run perspective. that's what the markets are looking at and that's what economic stability requires. >> fair enough. i think -- but i do believe we an opportunity to eliminate

waste and spending right now. it would not damage the economy and in the long run, we need to work together to try to figure out how to create confidence in our economy as under control and our spends as under control. >> senator white. >> thank you, mr. chairman. chairman bernanke, i want to ask about china in a different way. i also chair the senate finance subcommittee on trade and competitiveness. and i want to take you through what i think is going on with china and get your reaction from the american economy and particularly the cause of creating more good paying jobs. a decade ago when china was admitted to the world trade organization, in effect, there was a commitment made to marketplace principals. that was essentially what their entry to the world trade organization was all about. in the last six months, and frankly we've seen this over a considerable period of time, seems to me we have seen

considerable back flighting in china with respect to these marketplace principals. in two areas i've been especially concerned about most recently are rare earth minerals which are so important for american, you know, manufacturing, green goods, and others. where the china in effect are saying, look, we are going to keep our railroads and minerals here. and if people in the united states want manufacturing, they got to come there. and we are also seeing it in what amounts to discrimination against american digital goods and services. which is another important area of good paying, you know, jobs for our country. my question to you is what's your sense about the implications of china back flighting on these marketplace principals that they in effect, you know, committed to? i'll tell you in my view, they

are violating world trade organization principals in those two areas. the question of rare earth, you know, minerals and digital goods. what are the implications of what they are doing there, and what is an appropriate, you know, role that our government ought to be taking? >> well, the wto agreements have specific rules and procedures and we've actually brought some actions under wto. i believe we've won a couple of them. within the rules that china has agreed to, the wto process looks like it's been working. i'm not so sure i would agree that china is backsliding. there's been issues all along with government property and government procurement, and a wide variety of access. >> those two areas most recently. >> yeah. >> and they are very important to the american, you know, economy. rare earth minerals and digital goods. this is a pretty new phenomenon. this is the last six months.

that's why i am talking about the implications for the economy. >> well, i -- on rare earths, you know, i agree that that's a strategic input. that's a strategic input. i don't believe the united states has any current capacity or very little capacity in that area. we might want to consider some strategic investments in that area. but this is just a number of -- there are a number of areas and the chinese would raise issues with us as well about exports and so on. the technological exports and so on. where i think ongoing engagement is really going to be important. the president of china is going to be here in a few days and i hope that'll be an opportunity for high level discussions. but this is part of the ongoing process that we have with china for a while which is to try to hold both sides to trade and investment obligations. and it's been a struggle at many

cases. i'm not disagreeing with you. >> i thank you. i clearly come to these trade issues looking for ways to open markets. that's why i think that we're at such a critical time. i haveveveve voted for every mat opening agreement since i have been, you know, in public life. but i also think it's important to adhere to principals that ensure that in a global market place everybody has an opportunity to make markets work. i think we're seeing in a number of areas considerable back flighting from the chinese. and i look forward to following up with you in this as well. because we cannot -- we cannot meet our target of doubling exports as we have set out to do in this country, and substantially lowering the unemployment rate as our constituents are demanding unless we have an opportunity around the world to have fair access to markets and i think in

an -- in a growing number of areas, that has not been the case. i look toward to working with you in the days ahead. i thank you for your appearance. mr. chairman. >> thank you. senator manchin. >> just to follow us, in the state of vivers we've been blessed with some of the highest quality of coking in the world. i brought this to attention. we are concerned about most of our assets being purchased by foreign countries. we still have miners mining the coal. but as the senator just mention, most of this product is leaving this country. that's the ingredients of making the still that's needed to build industry, if you will. and i i don't know if we know the critical juncture that we are at. i can tell you i see it every day. the amount of money that they are pay for these reserves. with that being said, i know this is being talked about. i'm not new kid in town.

the whole bill out in the banking system. in my area, we are very much concerned small businesses don't have access to capital, having a hard time acquiring it, individuals, commercial, developers, building industry. the thing that's really lacking and throwing us back right now is the access to capital. we bailed out wall street, but not main street. when do we see relief or what you do think needs to be done, sir, for us to open up the banking industry so it can start taking some if you will, some calculated risk and putting money back in the market? >> well, just on the narrow question of t.a.r.p., of course, capital went out to smaller firms as well as larger firms. congress just recently passed the small business plan that has nont.a.r.p. capital going to small banks that are willing to make loans to businesses.

some of it has gone to small firms, as well as large firms. it's a tough problem because you have small businesses who are used to somewhat easier conditions before the crisis. conditions have terms and lending conditions have tightened up to some extent for understandable reasons given what happened during the crisis and given the losses that banks took. it's also a situation where the economy has been weak and where the value of collateral, the value of stores or factories, et cetera, has come down. which makes it more difficult to borrow as well. so there's some fundamental reasons why credit is harder to come by. that being said, i think there is a tendency to overreact. there's a tendency in a, after a crisis or in a weak period to tighten too much. to swing too far. the pendulum can swing too far. >> do you think that's been

done? >> i think in some cases, that's been the case. as i've said, the federal reserve, we understand -- we have a responsibility to keep banks safe and sound the best we can. on the other hand, we also have considerable interest in having the economy grow. and so we have been -- and i'd be happy to give you much more detail at a more convenient time and send you a letter or meet with you personally, however you'd like to do it. but we've taken a lot of actions to try to create a better balance for banks, to make sure that they can make good loans. that they are following safe and sound procedures, we will not criticize them for making a loan to a small business or even a business where the collateral value has declined. so we are very sympathetic to what you are saying. we have been working hard. i do think there's some progress and improvement. as the economy expands and credit needs go up, we are going to see more lending take place.

we are very much aware of this issue and we are reaching out to small businesses, we are reaching out to banks, and if you have any suggestions or you have anyone would like, we have an someone that will be happy to take any complaints or concerns. we do want to be responsive on this issue. >> i'll do that. i'll bring specifics if i may, and maybe you can help. >> of course. >> senator merkley. >> thank you, mr. chair. i appreciated the reference to the small business lending fund. which was a proposal that i developed in response to a problem that we saw in community banks in oregon, they were noting because of the fdic requirement on leverage being firmly applied that helped the community banks were unable to lend. we don't yet know the results of the program. but it was one way to try to get funds into main street banks to assist main street businesses. and we have in addition to banks

that didn't have the capitalization to make additional loans, we have banks that are not only healthy, but do have funds that are sitting on them to wait and see what happens with the economy. and so we look forward to continue to brainstorm with ways that we can get liquidity in the hands of small businesses. if they can't borrow money, they can't seize business opportunities. they are a job machine that we have to put fully to work in finding the right way to do that. that's important. i wanted to turn back to housing. oregon produces a lot of lumber. and many other states produce lots of products are aren't being consumed when the housing market is done. there are a series of ideas that are still being talked about again, 50 to $100 billion promise had turned into less than $1 billion of spending to assist homeowners. one of those concepts is to do a

national short sale program in which families that have passed an economic distress test or filter, if their home is being sold at a far lower value after being foreclosured on or shortly before being foreclosured on, the family itself might have a chance to buy it back using lending that is fully underwritten based on their ability to pay but maybe not the complete traditional score structure. a second approach being talked about is down payment grants to help first time home buyers. of course, we experimented with this program. to help the inventory of foreclosured homes. to have an empty home on the block. you have family that's in that home and help arrest the downward direction of house pricing. the third is another examination of bankruptcy reform as a way to kind of adjudicate the issues

involved in home ownership where every other contract can be adjudicated by a bankruptcy judge, home ownership, home contract cannot be. and when appropriate protocols that we've been alerted to in terms of being backward looking, not forward looking, it's great concern to the banking community. so as we look at this national housing challenge which i think you echoed the concern that it's a major factor in our economy getting back on track. if these are not the right ideas, what are the right ideas? what more can we do here in congress to take on one the really big domestic issues affecting the quality of life for our families and the strength of our economy? >> well, i'm afraid there are no simple solutions as you might imagine. the ones that you mention are all interesting ones.

let me just offer in general that we'd be happy to work -- the staff would be happy to work with you on the details of any of these ideas. if you'd like to take us up on that, we'd be happy to work with you. the short sale idea have been around, likely to the idea of having a principal reduction in the mortgage, which is something that the federal reserve actually advocated for a number of years which i've talked about in speeches for some time which is a way of creating greater incentives for the home owner to want to stay in the home. that is a program that is now currently in place. building on the program that was passed a couple of years ago. i don't know how far along that has gotten. but that's one approach. >> not very far. >> not very far. >> there is an important -- i'll just interject here on this. the challenge on the principal reduction is that as long as the family looks anywhere near a

viable, financial institutions are very reluctant to write down the principal. the point that the bank or the mortgage holder that has concluded that the family is going to go under, and the home is going to be have to be resold, at that point, there's no longer kind of this competition between writing down the existing loan on the books. because the house is going to be foreclosured on, it's going to be gone anyway. that's why the conversation had migrated in that direction. >> again, economist at the board and around the federal reserve system has been working on various plans, schemes, to try to address this problem. and i'd be more than happy to work with you in more detail on these issues. but that's -- getting the principals down through mechanism is obviously one approach. on the down payment assistance, i think you want to design it in a way so that one the concerns that we had about the

homeowners, the tax credit was that it created the temporary bump but didn't seem to have a permanent impact on the housing sector. you want to do something that didn't just shift purchases in time but created a more sustainable demand for housing. that's another fiscal problem. but, you know, i've been -- i'm a member of the -- the committee that oversees the t.a.r.p.. and so we have been getting regular presentations on the treasury on the various programs and to their credit, you know, they've gone beyond their initial hamp program to look at the number of approaches, giving states money to use -- to apply to their own strategies. so there's a lot of ideas out there, and a lot of things that are being experimented with. clearly, particularly in a world where unemployment is 10%, and long term unemployment is 44% of

that unemployment, there's situations where it's very difficult to find a solution. >> my time has expired. but can i follow up on one piece of this? >> if it's brief. because we've made a commitment here that the chairman would get out of here by noon. we're a little past that now. >> the concept of a permanent down payment grant at a lower level first time home buyers addresses that issue that you were talking about of just shifting to man four. but also something more fundamental which is reducing the cost of homes for families as the home interest mortgage reduction. that kicks in primarily when you buy a larger house and you are in a higher tax bracket. so the vast book of the subsidy goes to the families who needed to lease in terms of becoming homeowners. the idea of a down payment grant, yet it should be in addition to, i'm not taking anything away from the concept of interest deduction on your home. the idea is that now you have a

family of -- a working family of modest means is buying a very modest house. we are helping them become homeowners in which they would hardly benefit at all from the mortgage deduction. it serves as a fairness factor because we should help working families buy homes as well as help successful families buy large homes. and yet also help observe obser- absorb the inventory of larger homes. that's the broader or fuller picture. >> the commission that the chairman was on talked a lot about the interest reduction and lots of, i think, interesting ways to think about whether that can be made more productive, more constructive. >> i'm not addressing the -- >> no, no, i understand. but it raises the point that some people that doesn't really help very much if you don't itemize, for example, you don't get the interest reduction. thank you. >> thanks, senator.

let me -- one final question that we've been asked and that is with the substantial expansion of the balance sheet by the federal reserve to make sure the flow of credit continued during the downturn, can you anticipate now what percentage of that expansion would be realized as losses? i've been told it's very small. can you give us some sense of that? >> well, so first as i mention in my testimony, this is not deficit spending. we are buying assets which we will either sell back to the market or allow to run off. currently, this -- we're in a profit position. our cost of funds is very low that the interest that we are receiving we are emitting back to the treasury. i got a new number this morning for 2009 and 2010, we remitted back to the treasury $125

billion from this program. which is much higher than our normal. should it be the case that short term interest rates rise, which, of course, would happen if the economy recovers and we need to normalize monetary policy, those remittances could go down. currently we are in a, you know, this is a -- at this point is a profitable program from the perspective of the federal deficit. >> and is it your -- is it your forecast at this point that you will then not experience losses on this extension of credit that was made during the downturn? >> it's -- it's a practical matter. what matters is not losses. because those are paper losses. what matters is the amount of funds, remittances we send back to the treasury. under most scenarios, because our cost of funding is so low, we will continue to remit back

to the treasury significant amounts of money. under a scenario in which short-term interest rates rise significantly, it's possible there would be a period that we don't remit anything to the treasury for a couple of years. that would be the worse-case scenario. but we would have the early payments which are above normal and the extent that this is a successful policy, it will strengthen the economy and increase tax revenues. i think from a purely fiscal point of view, i think this is most likely to be beneficial, not harmful to the governments financial position. >> yeah, the reason that i ask the question, and phrased it like i did is because in common par lents, there's going to be a great part of what the reserve did that would result in losses for the taxpayer. that was the potential for that. and you don't see that? >> i don't see that as likely. our records so far, not only in

the program, but in all of the lending and other special credit programs that we've done has been, you know, in very positive from a perspective of returns to the treasury. >> with regard to quantitative easing on the federal purchases, that money is -- that you pay back is money that came from the treasury, is that right? it's the interest? >> well, yes, but it's, of course, it's -- another way of looking at it is the interest that the treasury didn't have to pay to the chinese. >> i'm aware of that. but it's a zero-sum game, i guess, in that sense. you believe it's helpful to the economy. i understand that. >> that's the main point. >> that's the main point of it. on "60 minutes" a couple of years ago, you made reference to this is equivalent of printing money. was that when the fed buys -- is

quantitative easing, the purchase of friendly bills is that what you said when you said friendly money? >> i was actually talking about a somewhat different issue at that point. let me try to explain what really happens. what happens is when we buy securities, the money finds it's way into the banking system and shows us as reserves that banks hold with the fed. currently banks are holding a large amount of reserves with the fed which will have to some point be unwound as we exit through the program. however, there are some folks that think we are literally printing money in circulation. that's not happening. >> but it does have a tendency, does it not, to increase the circulation of dollars which like more apples in the marketplace makes the apple less valuable. >> very -- >> or not? >> the amount of currency and money in circulation has not really been affected by the

program. very slightly. in fact, money growth over the last year or two or two years has been below normal. it's not a situation where the fed is dumping money into the economy. that's not what's happening. >> thank you. >> thank you. thank you very much for your appearance. thank you for your forthright testimony here and we look forward to having you up for a meeting with the members as we try to craft a fiscal policy to get us back on track. >> i look forward to it. thank you, sir. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

that remains an issue where there are a number of elements that we need to continue to work on together. we are committed to doing so. >> we have time for one more question. >> i am from the "voice of america." what are we expecting from the

discussion on china with north korea? what will be discussed in this coming meeting? >> there are numerous senior administration officials that have commented over the past month or so since we had the shelling incident. we believe china has an important role working with us and others in the region in helping convince north korea that it pottery provocative behavior needs to -- it's provocative behavior needs to end. it needs to return to a process by which it lives up to the that it made in the september 2005 agreement and move towards taking concrete

steps toward denuclearization. michael, for taking the time. i know it is a busy time for you in preparing for the secretary's visit. we appreciate your taking the time to be here today. please join me in thanking michael. [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010]

>> next, the house votes on the role for next week's healthcare -- health care debate. live at 7:00 a.m., your calls and comments on "washington journal." >> i think news organizations have a -- the public bear some responsibility here, too. they have a responsibility of keeping themselves and form. >> sunday, martha raddatz looks at the worst in iraq and afghanistan. that is at 8:00 on c-span's

"q&a". >> now, the house debate a bill on repealing the health care law. there is one opportunity to change the bill before the final vote, scheduled to take place wednesday. this is about one hour 15 minutes. nor for me for the first time in four years to say that for the purpose of debate only i yield the customary 30 minutes to my very good friend and rules committee colleague, the the gentlelady from rochester, new york, ms. slaughter. pending which i yield myself such time as i may consume. i ask unanimous consent to revise and extend. the speaker pro tempore: without objection, so ordered. mr. dreier: during consideration of this resolution, all time yielded is for the purpose of debate only. madam speaker, i ask unanimous consent to rise and extend which i have done. and i ask all members have five lemming days to revise and extend their remarks. the speaker pro tempore: without

objection. mr. dreier: madam speaker, house resolution 26 provides for a closed rule for consideration of h.r. 2 and self-executes an amendment by the majority leader which is required under the statutory pay-as-you-go act of 2010. this is routinely required and is similar to many provisions that have been self-executed since the enactment of statutory pay-go. the resolution provides for seven hours of debate on h.r. 2, equally and controlled by the chair and ranking member of six committees and the majority leader and minority leader. it also provides the minority a motion to recommit, h.r. 2, with or without instructions. house resolution 26 provides for consideration of h.res. 9, under a structured rule, that provides an hour of debate and makes in order an amendment if offered by representative matheson of utah. it also provides for one motion to recommit h.res. 9 without instructions. lastly, the rule provides for the consideration of a resolution if offered by the majority leader or his designee relating to the status of

certain actions taken by members-elect under a closed rule. madam speaker, it was just before midnight that my great new colleague, and i were here in this chamber and filed this rule following a lengthy 12-hour hearing upstairs in the rules committee. i have to say that there were many, many discussions that took place on a wide range of issues. i think it's very important for us to note that there were those who argued that we should not be taking up this issue because of the fact that we should be focusing on job creation and economic growth. madam speaker, we know that the overwhelming message that came from the american people is that we have to get our economy back on track. we have to create jobs. we have to make sure that those people who are struggling to get under the first rung of the economic ladder are able to do

just that. and that's why when we look at a $2.7 trillion expansion of the federal government, $2.7 trillion in new spending, we recognize something that is common sense and that is if you're going to expand the size and scope and reach of the federal government by that magnitude, it clearly is going to kill the effort to create jobs and get our economy back on track. so that's why today, madam speaker, we are taking the first step in fulfilling a key promise that we have made to the american people. with this rule we are setting in motion an effort to repeal president obama's job-killing health care bill and replace it with real solutions. i underscore that again because all the attention is focused on the fact that we are going to be trying to kill good provisions that are out there.

madam speaker, we want to start with a clean slate. we are going to repeal president obama's job-killing health care bill and replace it with real solutions. this rule takes two important steps. the first is to allow for consideration of a bill to hit the reset button, so to speak, on the very damaging legislation that was passed last year under the guise of health care reform. the second is a resolution directing each of the committees of jurisdiction to craft responsible, effective, and economically viable health care solutions. madam speaker, the resolution lays out very clearly what real reform looks like. real reform will help not hinder in our goal towards creating jobs. real reform will lower health care premiums by enhancing competition and patient choice. it will preserve the right of

patients to keep their existing coverage. if they so choose. it will ensure access to quality care for those suffering from pre-existing conditions. it will implement meaningful lawsuit abuse reform so that resources can go to patients and doctors. and not to trial lawyers. in short, it will increase access to health care for all americans without compromising quality or hurting the very important small business sector of our nation's economy. madam speaker, the underlying re place resolution which i have offered will begin a robust committee process to tackle the difficult but essential work of achieving these goals and crafting true reform for the american people. this will be a process in which each and every member, each and every member, democrat and republican alike, will have an opportunity to participate.

madam speaker, as speaker boehner said, the day before yesterday when he accepted the gavel, we are returning to regular order. once again our committees will be the laboratories, the centers of expertise, that they were intended to be. rank-and-file members of both parties will play an active role in crafting legislation, scrutinizing proposals, offering amendments, participating in real debate. critical legislation is not going to be written behind closed doors by a select few. today's rule sets in motion a process that will be both transparent and collaborative. but we cannot get to that very important step without clearing the first hurdle. which is to undo the damage that has already been done. we will hear people say, why are you considering this under a closed rule? madam speaker, this was a clear promise that was made throughout last year leading up to the very

important november 2 election. everyone acknowledges the elections have consequences. the commitment was made that we would have an up or down vote on repeal. and that's exactly what we are doing. we must repeal last year's bill before we proceed with replacement. just as prekicted -- predicted, the so-called reform bill is having very real negative consequences for our economy and our job market. it is putting enormous burdens on job creators, particularly small businesses, at a time that is already one of the most difficult we have faced. imposing significant new burdens and penalties, while our employment rate remains above 9%. we got the news a few minutes ago it's at 9.3%. we are encouraged by that positive drop but only 105,000 jobs were created, not the

150,000 jobs necessary to be created to sustain the position we are in right now. so we still are dealing with very, very serious economic challenges. and that's why we need to take a commonsense approach to first repeal this measure and then deal with solutions. above all, i will say that the onerous, unworkable mandates that have been imposed are adding greater uncertainty which are job creation's biggest enemy. anyone who has spent any time talking with small business owners knows this to be the case. while the economic impact is already quite apparent, the fiscal consequences are looming down the road. while the bill's authors used a host of accounting gimmicks, i'm going to get into those further as i'm sure i will be challenged on this and i look forward to talking about the accounting gimmicks that have been utilized, by the authors used a host of accounting gimmicks, as

i said, to mask the true cost of this measure, and honest and realistic assessment of the impact on the deficit shows a much clearer and tragically a far worse picture. the budget committee has demonstrated the real cost of the health care bill, as i said, in my open, a staggering $2.7 trillion. once it is fully implemented. it will add over $700 billion to our deficit in the first 10 years. the words reckless and unsustainable hardly begin to cover it. this bill is an economic and fiscal disaster of unprecedented proportions. the time to undo it before anymore damage is done is quickly running out. republicans promised the american people we would act swiftly and decisively, and that's exactly what we are doing.

some of my friends on the other side of the aisle have asked, why there will be no amendments to the repeal bill? frankly, there is nothing to amendment. there is nothing to amend, madam speaker, the repeal bill. either we are going to wipe the slate clean and start fresh or we are not. that's not to say there aren't some good provisions in this measure. that is so onerous, nearly 3,000 pages, that we believe that the best way to do this is to wipe the slate clean, have an open and transparent process, and do everything we can to ensure that every single american has access to quality health care and health care insurance. now, once that slate is completely wiped clean, we will be ready for this open and collaborative process to develop the real solutions that we have talked about. that's what we promised the

american people as we led up to last november 2, and that's exactly what we will deliver here today. madam speaker, first we undo the damage, then we work together to implement real reform and real solutions. i urge my colleagues to support this rule and then, after we have gone through the three-day layover requirement next week, which is in compliance with another promise that we made to the american people, i urge my colleagues to support the underlying legislation, h.r. 2, which our colleague, the new majority leader, mr. cantor has offered, and h.res. 9, which i have introduced, that calls for our committees to work in a bipartisan way to develop solutions to the challenges that we have out there in ensuring that every american has access to quality health care. with that i reserve the balance of my time. .

the speaker pro tempore: the gentleman from california reserves the balance of his time. the gentlelady from new york. ms. slaughter: good morning, madam speaker. i appreciate my gentleman friend, mr. dreier, for yielding me time and i yield back the balance of my time. the speaker pro tempore: the gentlelady is recognized. ms. slaughter: what a week it's been. since we've been sworn in, the republican broken promises have been dizzying. one summed up the week up nicely when he said, quote, i don't think it would be possible to fall from grace any faster than this end quote. in november, the republican leadership, led by speaker boehner, traveled to suburban virginia and made a pledge to america. their constituents, including tea party patriots, like mr. mecker, listened intently as the republican party pledged to be fiscally responsible and serve the will of the american people. on page 6 of the republican pledge to america, the party

states, and i quote, with commonsense exceptions for seniors, veterans and our troops, we will roll back government spending to prestimulus, prebailout levels saving us at least $100 billion in the first year alone and putting us on a path to balance the budget and pay down the debt, end quote. the pledge was solemnly made by republican leadership despite being largely panned as a political stunt. despite following through on their pledge, the republican majority said the pledge to cut $100 billion was hypothetical. today now we're moving forward to do the exact opposite of the actions that they pledged as they introduce legislation to repeal the affordable care act. if successful, the republican legislation will add $230 billion to the deficit by 2021. this extra $230 billion won't be spent rebuilding our

crumbling infrastructure, teaching our children or providing for the millions without jobs. instead, the $230 billion will be added to our deficit in order to take health care benefits and protections from those who need them the most. for example, starting this year the affordable health care act will begin to close the doughnut hole for seniors. under the law medicare beneficiaries who fall in the doughnut hole will be eligible for a 50% discount on covered brand-name prescription drugs. repeal this law and seniors receive no help and will be forced to pay their rising costs alone. those are the types of protections i fight for today. fiscally, members of congress pace a $300 billion choice. according to the congressional budget office, we have two options. one, do we keep the affordable health care act and save $130 billion by 2021 or, two, do we

repeal the affordable health care act and add $200 billion to our deficit by 2021? that may be trouble for some but for most of us it's easy. for me the answer is clear and i assume to most americans it's clear as well. because they can't win by simply judging apples to apples, the republican leadership has taken to discrediting the congressional budget office. yet, a quit bit of research will reveal that republicans have long valued the nonpartisan and reliable work of the congressional budget office and have publicly supported the agency before. in fact, 2009, speaker boehner repeatedly referred to the c.b.o. as nonpartisan institution and relied on their estimates to argue against the affordable care act at the time. but now that the c.b.o.'s estimates are detrimental to their political goals, they have taken to questioning the

work. republican senator john cornyn said it's inconvenient. two years ago he said, i quote, i believe the professionals at the c.b.o. are doing a difficult but unpopular work. they are speaking the truth to power here in washington, and making the folks who would pass these enormous unfunded bills that impose a huge debt on generations hereafter somewhat unhappy. but i think they're doing important service by telling us the facts. and last week, i commended the director of the c.b.o. for saying that the c.b.o. will never adjust our views to make people happy. thank you, doctor. god bless him for his integrity and commitment for telling the truth because we have to learn how to deal with the truth, not try to remake it or try to cover it up. now, i couldn't agree more with that. the deficit estimates provided by the c.b.o. are the singular

authoritative figuring from which we make all our decisions and have for decades. even if some don't like what the numbers tell us we know that numbers don't lie. i remind my colleagues that today's actions are not, quote, hypothetical, unquote. we truly face a $300 billion choice. we can choose to provide invaluable benefits to millions of americans while paying down our national deficit. remember that it will save $134 billion over 10 years, or end health care choices for millions and add $230 billion to the nation's deficit. mr. speaker -- madam speaker, we are considering the first measure from the rules committee of this new congress, and my republican friends have already produced one for the record books. let me give you some of the highlights. first of all, the resolution includes a completely closed process for two separate pieces of legislation. that means we get two closed rules in one.

and maybe my republican friends think they can save taxpayers money by rolling all the closed rules into a single resolution. i think that's what they meant by bringing efficiency to government. the first closed rowley on the health care bill -- rule on the health care bill does heavy lifting. blocks every single germane amendment submitted to the rules committee. that's not exactly right. it slips in one change without allowing the house to vote on it. the special amendments slipped in with the famous demon pass maneuver is very interesting. it allows the house to pretend that the repeal bill is free even though the budget office says it will raise the deficit by over $1 trillion. that's a neat trick, and now we know the secret weapon for reducing the deficit, a blindfold. this closed process is especially troubling on the health care repeal because this republican bill has had no public hearing, no committee consideration and is not paid for.

the second closed rule in this two for one package blocks all amendments to another resolution, to correct a flaw in the swearing in process. apparently the vice chairman of the rules committee was conducting legislative business before he was actually a member of congress. maybe amendments are not important here because no member in the house has seen this resolution. since the rule allows the majority leader to make the changes -- allows the majority leader to make changes until the moment it is introduced. if my colleagues are concerned about not having enough time to read this surprised resolution, don't worry. the rule allows the house to debate it for four full minutes. four minutes? have you ever heard of a bill debated for four minutes? fortunately, the rule generously gives the minority two of those four minutes and i guess that qualifies as both efficiency and bipartisanship. finally, the rule allows the house to consider a sweeping press release from the republican leadership, a resolution to replace real patient protection with vague

rhetoric. and, mr. speaker, this is a very disappointing day for the house rules committee. the first action in this new congress violates the promise we heard from our republican friends, no public consideration, a completely closed process, legislative text no member has read, four minutes of debate on an important constitutional issue and so on. for all those members who were sent to washington like i was to repair our nation's finances, create jobs for millions of the unemployed, help the millions of americans in need, the decision should be simple. i encourage my colleagues to reject the efforts of the republican leadership, keep our promises to our constituents and vote to keep the affordable health care law, and i reserve the balance of my time. the speaker pro tempore: the gentlewoman reserves the balance of her time. the gentleman from california. mr. dreier: madam speaker, i yield myself 10 seconds to say that thomas jefferson said the two thinking people can be given the exact same set of

facts and draw different conclusions. well, i just heard what my friend from rochester said. i will say this is a great day for the people's house because we are going to in fact be implementing the commitment that was made to focus on getting our economy back on track. with that, madam speaker, i yield two minutes to have very hardworking and thoughtful member of the rules committee who was with us for 12 hours up until late last night, our new colleague from north charleston, south carolina, mr. scott. the speaker pro tempore: the gentleman from south carolina is recognized for two minutes. mr. scott: thank you, madam speaker. mr. chairman, i will say that it's truly an honor to serve on the rules committee. my first experience at the 12th hour experience all day yesterday. what an opportunity to serve the american people. thank you, sir. this is a great opportunity for all of us in america, to kill the job-killing health care bill that is taking jobs away from the private sector. soon we want to make six quick points.

we all recognize that the cost of insurance is only going up, up and up. there is a misnoemer that this bill somehow reduces the cost of insurance. it is simply categorically not true. shifting who pays for the insurance, the health care cost, does not make the health care cost goes down. it is simply going to continue to rise. second point, when you design a bill that has tax increase after tax increase after tax increase and say that you are reducing the deficit by increasing taxes, it is inconsistent with the reality that the american people want from their congress. third, the individual mandate is simply unconstitutional, and if the individual mandate is not part of the bill, if we don't force every single american to buy insurance, this ponzi scheme simply doesn't work. number four, bringing 10 years of revenue in and paying out six years of benefits and calling that equal, that's a

farce. number five, the lifetime benefits -- lifetime benefits, we want everybody in america to have access to health care without any question. the question we ask ourselves is from an actuarial perspective, can we pay for a $2.7 trillion expansion, a new entitlement when we have a $76 trillion unfunded liability on the current entitlements? we simply cannot continue to dig a hole and call ourself compassionate. there is nothing compassionate about increasing our entitlements by jeopardizing the future entitlements of americans. and finally, we've heard lots of rhetoric. mr. dreier: madam speaker, i'd like to yield my friend an additional 30 seconds. the speaker pro tempore: the gentleman is recognized for 30 second. mr. scott: finally, we heard lots of rhetoric of what we're doing to senior citizens and women. what we are facing is an

opportunity to stop robbing future generations, to stop the unnecessary impact -- the intergenerational cost without even taking into consideration the intergenerational cost, we consistently impact unborn americans with legislation that passed under the former house. it is good to be in the house with a brand new speaker and thank you, mr. chairman, for allowing me to be part of the rules committee. the speaker pro tempore: the gentlelady from new york. ms. slaughter: madam speaker, i yield three minutes to the gentleman from massachusetts, mr. mcgovern. the speaker pro tempore: the gentleman from massachusetts is recognized for three minutes. mr. mcgovern: madam speaker, the american people made it very clear in the last election, that they want us to focus on one thing, jobs. but the new republican majority has instead chosen to reopen an old ideological battle. i think that's a mistake. but the good news is that the american people will have the opportunity right at the outset of this new congress to see the clear differences between

democrats and republicans. democrats believe that insurance companies should be prohibited from discriminating under the basis of pre-existing conditions. republicans do not. democrats believe we should close the doughnut hole and reduce prescription drug prices for our seniors. republicans do not. democrats believe that young people should be allowed to remain on their parent's insurance plan until age 26. republicans do not. democrats believe we should provide tax breaks to small businesses and subsidies to low-income americans to help them pay for health insurance for their workers and their families. republicans do not. and democrats believe that we need to seriously address the budget deficit. republicans do not. as the c.b.o. croble made abundantly clear -- made abundantly clear. it would add $230 billion to the deficit over the next 10 years and another $1.2 trillion in the following 10 years. as far as i can tell, this is the most expensive one-page

bill in american history. 114 words. that's $2 billion per word. rather than address those budgetary facts, the new republican majority has simply ignored them, to cover their ears and pretend that the laws of arithmetic do not apply to them. in their first order of legislative business, the republicans want to take health insurance reform and toss it in the trash. and how many hearings have they held on the impact of this repeal? zero. how many markups do they have? zero. and most shockingly, how many amendments will they consider in this bill? zero. the new majority whip, mr. mccarthy, said after the election last november, and i quote, when you look at the pledge to america that the republicans have laid out, there is a cultural change in there. there is something that opens up the floor that hasn't been done for quite sometime where bills will be written in the back room, where bills actually have an open rule, where people can bring up amendments on the floor.

so much for that. instead of thoughtful, reasonable legislative language that addresses health care issues, the republicans replaced part of their repeal strategy is just a list of happy talk sound bites. it's no more than a press release. so, again, madam speaker, i believe we should be focusing on jobs and the economy and in the meantime i urge my colleagues to reject this rule and the underlying reckless bill. i yield back the balance of my time. . the speaker pro tempore: the gentleman from california. mr. dreier: we have 87 new republicans in the house of representatives. there's no more impressive group than the four serving with us on the house rules committee. among them former sheriff noon gent -- nugent, the gentleman from brooksville, florida. the speaker pro tempore: the gentleman is recognized for two minutes. mr. nugent: thank you, adam -- madam speaker. it's new to me. chairman, thank you so very much. we were there last night in the rules committee for 12 hours to hear testimony from a number of

individuals. on the democratic side and also on the republican side. let me talk to you about this. over the past year i met with thousands of people from throughout florida's fifth congressional district. whether they be small business owners, veterans, or medicare recipients, they ask me to promise, promise to repeal obamacare. it's clear that the american people know more than our democratic leadership in regards to what americans want. obamacare eliminates millions of american jobs. cuts hundreds of millions of dollars from medicare. taxes by almost $500 billion over 10 years for six years' worth of coverage. everybody knows that the health care system's broken and that reform is needed. however the unconstitutional job-killing mandates of obamacare are not the answer.

house resolution 9 is an important step in congress working with the american public to find real, meaningful solutions to our nation's health care needs. this is the people's house and we should be listening to the people. house resolution 9 will allow us to foster economic growth, job creation, lower health care premiums, and protect medicare. and inform the medical malpractice system that is bankrupting america. for all these reasons i am grateful for my colleague from california, mr. dreier, for introducing house resolution 9 and i'm proud to be an original co-sponsor of that resolution. with that, i yield back the balance of my time. the speaker pro tempore: the gentleman yields back. the gentlelady from new york.

ms. slaughter: madam speaker, i yield two minutes to the gentleman from colorado, a member of the rules committee, mr. polis. the speaker pro tempore: the gentleman from colorado is recognized for two minutes. mr. polis: i thank the chair. i rise in opposition to the rule and the underlying bill, the most expensive one-page bill in the history of congress and it costs the taxpayers over $200 billion first 10 years alone and over $1 trillion. not only have the republicans as the first bill that we are doing a rule on and facing here on the floor put forward the most expensive one-page bill in the history of congress, but it is not paid for, madam speaker. in addition to not being paid for they have waived many of the notice fors transparency requirements, the regular order that they sought to establish with regard to the way that this congress is run. madam speaker, there were many good ideas and good amendments brought forward by members of both parties yesterday during our session of the rules committee. i want to talk about a few in

particular. one, my colleague from michigan, gary peters, brought a proposal that would have made sure that this biggest one-page expenditure in the history of congress did not raise taxes on small businesses. unfortunately that amendment is not made in order under this rule and therefore h.r. 2 will be raising taxes on small businesses across the country that are now receiving tax credits for providing health care for their employees. there was also a lot of discussion and i think it's important and the american people know with regard to people with pre-existing conditions. now, we all want to do something for people with pre-existing conditions. there was talk yesterday, in fact when we are talking about h.r. 9, there might be discussion in the future with regard to agreeing on high-risk pools for people with pre-existing conditions, but what this body is being asked to do today and next week is effectively replace something that works for people with pre-existing conditions, namely eliminating prices discriminations with some vague assurance on paper that perhaps someday, some committees, some

chairmen might consider. we asked them kindly to consider something that would do something for people with pre-existing conditions. well, madam speaker, that is simply not enough for the people that have pre-existing conditions today, for those who will in the future. if we want to talk about improving health care there's ample room to do it but not eliminating protection that is exist. i yield back the balance of my time. the speaker pro tempore: the gentleman yields back. the gentleman from california. mr. dreier: madam speaker, at this time i'm very privileged to yield three minutes to the distinguished former chairman of the republican conference, my friend from columbus, indiana, mr. pence. the speaker pro tempore: the gentleman from indiana is recognized for three minutes. mr. pence: i thank the gentleman for yielding. i would ask unanimous consent to revise and extend my remarks. the speaker pro tempore: without objection. mr. pence: thank you, madam speaker. i rise in support of the rule but i rise from my heart with a deep sense of gratitude to the american people. to urge my colleagues in both parties to join us as we keep our promise to the american people and next week vote to

repeal their government takeover of health care, lock, sew stock -- stock, and barrel. i know democrats said at the time that they had made history. i said at the time i thought we broke with history. we broke with some of our finest traditions, limited government, personal responsibility, and most profoundly the consent of the governed. on a late sunday night in march, the last majority had their stay . on a tuesday in november the american people had their say. and that brings us to this moment. it is remarkable to hear members in the minority explaining their opposition to this bill. only in washington, d.c., a year ago, only in washington, d.c., could you say you were going to spend trillions of dollars and save people money, and this morning only in washington, d.c., could you say that repealing a $2.7 trillion

government takeover of health care is actually going to cost money. pleased to yield. mr. dreier: i thank my friend for yielding. i wonder if he might repeat that line. i think he said only in washington, d.c., can there be interpretation that cutting $2.7 trillion in spending is actually going to end up costing the american people, is that what the gentleman was saying? i thank my friend for yielding. mr. pence: i thank the gentleman. reclaiming my time. yes. it must be mystifying for people looking in this morning to hear about the most expensive one-page bill in american history. i say again, only in washington, d.c., could a congress vote to repeal a $2.67 trillion -- $2.7 trillion government takeover of health care and the minority says it will cost the american people money. let me explain, when you mandate that every american buy government-approved insurance

whether they want it or need it or not, when you create a government-run plan paid for with job-killing tax increases, when you provide public funding for abortion for the first time in american history, that's a government takeover of health care that violates the principles, the ideals, and the values of millions of americans and the american people know it. look, after we repeal obamacare next week, we can start over. with commonsense reforms that will focus on lowering the cost of health insurance without growing the size of government. republicans will waste no time in bringing greater freedoms to the american people, to purchase health insurance the way they buy life insurance, the way they buy car insurance. we'll deal with responsible litigation reform. we'll even use the savings to cover pre-existing conditions. i urge my colleagues to join me in support of this rule but join us as we keep our promise to the american people and repeal their government takeover of health care once and for all. the speaker pro tempore: the

gentleman's time has expired. the gentlelady from new york. ms. slaughter: madam speaker, this is not a dispute between republicans and democrats about the $1.3 trillion. c.b.o., the nonpartisan congressional budget office, is saying that. i will now yield two minutes to the gentlelady from california, ms. matsui. the speaker pro tempore: the gentlelady from california is recognized for two minutes. ms. matsui: i thank the gentlelady for yielding me time. madam speaker, i rise in strong opposition to the rule and the bill before us. the bill would increase the national deficit by $230 billion. increase costs to individuals, families, and small business owners, and deny the american public the consumer protections they have been seeking for years. repeal of the health care law would also mean the young adults would not be able to stay under a parents' plan. this is something that would have a devastating effect on constituents of mine such as elizabeth. shortly after graduating college she was dropped from her parents' plan and soon developed

a severe thyroid condition. as a result, she had to purchase her own individual insurance plan which proved to be a severe financial hardship for her and her parents. thankfully she was able to re-enroll on her parents' plan as of january 1 because of this health reform bill. repeal would also mean that senior citizens of sacramento would not see any relief for the medicare part d doughnut hole. the bill would close the doughnut hole critical to seniors in my districts. one such senior regularly pays over $2,000 a month for his prescription drugs. repeal would mean gary and the thousands of other seniors in my district would see no relief from the part d doughnut hole. this is unacceptable. madam speaker, a vote against this rule and against this bill is a vote to protect the american public from unfair insurance company practices. to provide relief to young and old alike, and to stay on the path to fiscal responsible

future. i urge my colleagues to vote down this rule and vote against the underlying legislation. i yield back the balance of my time. the speaker pro tempore: the gentlelady yields back. the gentleman from california. mr. dreier: madam speaker, at this time i'm happy to yield one minute to a hardworking member of the energy and commerce committee which will be one of those committees when we pass h.res. 9 that will be dealing with ensuring that every single american has access to quality health insurance. our friend from brentwood, tennessee, mrs. blackburn. the speaker pro tempore: the gentlelady is recognized for one minute. mrs. blackburn: thank you, madam speaker. today we do begin a very important process and it is a solid first step. and i stand to support this rule and to support repeal of this law because we have on the law -- on the books a law that doesn't improve the quality of health care. it will not reduce the cost of health care. and it is going to add billions to the exploding national debt.

we have listened to the american people. they are smart. and they know that this law is unworkable. it won't deliver on the promises that they made. and the american people voted in overwhelming numbers to repeal it and replace it. that is the action that we are going to take. congress cannot wait any longer to get this irresponsible law out of our doctors' offices, out of our lives, and off the books. we in tennessee have lived through the experiment of government-run health care called tenn-care. tennessee could not afford it and the american people know this nation cannot afford a tenn-care-type program on a national level. i support the rule. i yield back. the speaker pro tempore: the gentlelady yields back. the gentlelady from new york. ms. slaughter: madam speaker, i yield one minute to the gentleman from michigan, our ranking member of ways and means, mr. levin. the speaker pro tempore: the gentleman from michigan is recognized for one minute. mr. levin: i ask unanimous consent to revise and extend my remarks.

the speaker pro tempore: without objection. mr. levin: this is what the republicans are after, what their repeal would mean. it would take away from millions of americans, coverage for kids with pre-existing conditions, coverage for young adults under 26, recommended preventive care would be taken away, it would take away lower drug costs for seniors. and this is what the republican repeal would do. it would give back to insurance companies unreasonable premium increases, unjust policy termses, rescissions, it would take away this, it would give back profits and c.e.o. salaries

to insurance companies, not health care benefits. it will give back annual and lifetime limits on benefits. it gives back to insurance companies discrimination author against women. these are concrete reasons to vote no on this repeal. the speaker pro tempore: the gentleman's time has expired. the gentleman's time has expired. the gentleman from california. mr. dreier: i yield to a member of the energy and commerce committee, our friend from marietta, georgia, dr. gingrey. the speaker pro tempore: the gentleman from georgia is recognized for two minutes. mr. gingrey: madam speaker, i thank the gentleman for yielding. we have heard a lot of arguments on the other side of the aisle in regard to the $230 billion cost. and on our side of the aisle of course only in america can something actually cost $1.15 trillion in eliminating it that all of a sudden costs $230

billion. yes, ms. slaughter, only in america, only in this congress, numbers do lie. let me just say that what we have been talking about on this side of the aisle, of course, is the voice of american people. it's about 3,000 years ago that a little shepard boy walked into that valley of death looking up at all those philistines and that nine-foot giant goliath who had that coat of maile, sword, and javelin, what did david have? a pouch and handful of stones. he hit that giant right between the head, brought him to his knees, and cut off the head of the snake. that pouch and those little pebbles represent the voice of the american people. that's what we have on this side of the aisle. that's why we are going to pass h.res. 9 and we are going to pass h.r. 2 next week and we are going to deliver our promise to the american people to eliminate, to repeal obamacare, the american people spoke

loudly. they don't like this bill. the democratic majority in the senate and the president have one last chance to make amends. i think they'll do it. i yield back. . the speaker pro tempore: the gentleman from georgia yields back. the gentlelady from new york. ms. slaughter: madam speaker, i yield one minute to the gentleman from massachusetts, mr. markey. the speaker pro tempore: the gentleman from massachusetts is recognized for one minute. mr. markey: this debate is about health care versus don't care. the democrats' health care law lowers prescription drug costs, helps middle-class families pay for coverage for their sick children and expands health care for 32 million more americans, reducing the deficit by $143 billion. the democrats' health care law helps grandma afford her prescription drugs. the republicans don't care about grandma. they want to take back the drug

benefits in the new law. g.o.p. used to stand for grand old party. now it stands for grandma's out of prescriptions. the republicans don't care repeal shows they don't care about sick children with medical bills, pushing families into bankruptcy. they don't care about grandma and grandpa who need help paying for prescription drugs. vote down this rule so that we can help grandma, sick children and middle-class families struggling to pay for health care. the speaker pro tempore: the gentleman from california. mr. dreier: madam speaker, at this point i'm happy to yield one minute to a hardworking member of this freshman class, the gentleman from san antonio, mr. canseco. the speaker pro tempore: the gentleman from texas is recognized for one minute. mr. canseco: madam speaker, i rise today in support of the rule and in support of an underlying legislation, the

repealing of the job-killing health care act. 10 months ago president obama and his allies in the democrat-controlled house and senate committed legislative malpractice when they jammed through the congress and into the law a washington takeover of health care. they did so despite the overwhelming opposition of the american people. since its enactment into law, what was already an unpopular law has only continued to become more unpopular. there's no doubt that we need to reform health care in america. however, it's not done by assaulting individual liberties guaranteed in our constitution, bankrupting our children and grandchildren and putting washington bureaucrats and personal relationships between our doctors and our patients. repealing the health care bill will also help encourage job growth to get our economy back on track. our economy's not suffering from a capital crisis. it is suffering from a

confidence crisis. mr. chairman, may i -- mr. dreier: madam speaker, i'm happy to yield my friend an additional 30 seconds. the speaker pro tempore: the gentleman is recognized for 30 seconds. mr. canseco: thank you. policies enacted in washington like the health care bill have injected uncertainty into our economy that has eroded the confidence of americans to start new businesses or expand current ones to create jobs. the american people have made it clear, they want the health care law repealed and replaced with commonsense alternatives that will lower the cost of health care while also increasing quality and access. after meeting and speaking with thousands of texans in the 23rd district over the past year, this is their message. repealing and replacing the health care bill is one of the promises made to america in the pledge to america. today we are working on that promise as we work to -- the speaker pro tempore: the

time has expired. mr. canseco: thank you. i yield back the balance of my time. the speaker pro tempore: the gentlewoman from new york. ms. slaughter: i yield one minute to the gentleman from nouge, mr. pallone. the speaker pro tempore: the gentleman from new jersey is recognized for one minute. mr. pallone: thank you, madam speaker. this is nothing but a gag rule. i and so many of my colleagues on the krattic side went up to the rules committee yesterday and asked for amendments and they were almost all excluded from this rule. the republican chairman of the committee says there's transparency. he says that there's an opportunity for participation. he can say it as many times as he wants but it's simply not true. he also said this is a commitment to the american people. there's no commitment to the american people here. the only commitment is to the insurance companies. they're the only ones that are going to gain from repeal of this important legislation because they want to increase premiums and they want to institute discriminatory practices again against women, against men. against those who have breast

cancer, or bring back those annual caps or lifetime caps if they have a serious operation and they try to go back again and they don't have insurance. or perhaps the child who's up to 26 and also will not be able to get on their parent's insurance policy again. so let me tell you here. the only one that benefits is the insurance company, not the american people. the speaker pro tempore: the gentleman's time has expired. the gentleman from california. mr. dreier: may i inquire of my friend on the other side of the aisle how many speakers she has remaining? ms. slaughter: certainly, madam speaker. we have -- we've got every minute taken. i'm not sure everybody is going to show up. mr. dreier: i'm told 11 minutes are remaining on your side. i think with that i reserve the balance of our time. ms. slaughter: all right. the speaker pro tempore: the gentlelady from new york. ms. slaughter: i'm pleased to yield one minute to the gentleman from michigan, the dean of the house and our leader on health care, mr. dingell.

the speaker pro tempore: the gentleman from the great state of michigan is recognized for one minute. mr. dingell: i ask unanimous consent to revise and extend my remarks. the speaker pro tempore: without objection, the gentleman is recognized. mr. dingell: madam speaker, if you listen to the republicans today, they're telling us, don't bother them with the facts, their minds are made up. they are unaware of the fact that the congressional budget office says that this is going to create four million jobs in the health care legislation. they don't tell us that the same congressional budget office says that passage of h.r. 2 is going to increase the deficit by $140 billion. and they also are telling us, the american people want this repeal. they don't. they understand what this means. it means that no longer are people going to get the protections that the health insurance bill gives. no more protections that the republicans get their way against pre-existing conditions and recisions, denying people

health care because of something that happened to them down the road before. no longer will americans be protected against frivolous and improper behavior by the insurance companies. this is a bad role. it is not on facts but on fiction. if this body is going to legislate and legislate well we need the facts, not fiction, no deceit, not misleading statements by our republican colleagues. the speaker pro tempore: the gentleman's time has expired. the gentleman from california continues to reserve the balance of his time. the gentlelady from new york. ms. slaughter: madam speaker, i'm pleased to yield one minute to the gentleman from texas, mr. doggett. the speaker pro tempore: the gentleman from texas is recognized for one minute. mr. doggett: if you are hit by a truck this afternoon or your child contracts a dreaded

disease your future ought not to depend on the fine print in an insurance policy you didn't have anything to do with writing. no insurance monopoly should stand between you and your doctor. unfortunately, the republican party has become little more than an arm of the insurance monopolies. they asked for a vote to further empower those monopolies and we ask for a vote for american families to empower them. a vote to repeal is a vote to maintain health care costs as the leading cause of bankruptcy and credit card debt in this country. it is a vote to require seniors to pay more, more for prescription drugs, more for diabetes and cancer screenings. we can stand with american families today or we can bend and kneel to the insurance monopolies. the choice is clear. let's vote for american families. i yield back. the speaker pro tempore: the gentleman yields back. the gentleman from california.

mr. dreier: i reserve the balance of my time, madam speaker. the speaker pro tempore: the gentleman from california reserves the balance of his time. the gentlewoman from new york. ms. slaughter: madam speaker, i yield one minute to the gentleman and former member of the rules, mr. welch from vermont. the speaker pro tempore: the gentleman from vermont is recognized for one minute. mr. welch: i thank the gentlelady from new york. i say, madam speaker, to my republican colleagues, you can't -- you beat us good, you ran on the agenda of defeating health care and repealing it. now you're doing it. own it. admit what it is you are doing. this is not a campaign. we're playing with fire. we're taking away health care benefits to make a real difference to our families. number one, this bill will raise the deficit by $230 billion. fiscal responsibility out the window. second, things that matter to families, their kids starting out getting $10 an hour job without health care. they have it now on their parent's policies. we are taking it away. pre-existing conditions. you have cancer, want to buy

insurance, you can't. repeal, you can't. you lose it. lifetime caps. if you are with cancer or diabetes and you need that insurance, you lose it before you can go without it. and preventive care, we're taking it away from seniors who are trying to take care of themselves, get those free mammograms, keep the cost of health care down. you are taking it away. admit it. own it. state it proudly. it's what you campaigned on. it's what you're doing. but don't try to sugarcoat what this is about. i yield back. the speaker pro tempore: the gentleman yields back. the gentleman from california. the gentleman from california continues to reserve. the gentlelady from new york. ms. slaughter: madam speaker, i yield one minute to the gentleman from new york -- the gentlelady from california, mrs. capps. the speaker pro tempore: the gentlelady from california is recognized for one minute. mrs. capps: madam speaker, the issue facing the country is jobs. instead of repealing health care we should bring up a jobs bill like the china currency reform. and so i rise in strong

opposition to the rule and the underlying bill. today, i speak on behalf of millions of americans who are currently benefiting from the law and have yet been shut out of the legislative process. the way in which this legislation has been brought to this floor is a travesty. before the affordable care act became law in the house alone, we held nearly 80 hearings on the merits of reform. but this bill to repeal this life-saving law has not had a single hearing, not one amendment has been allowed for an up or down vote here today. that's probably because the majority knows hearings would show that the law is already a real success. while we may disagree on the policy, we should be able to agree on the process. and this, my friends, is not the way to move legislation in the house of representatives. we've all agreed upon that, and that's why i urge my colleagues, especially the new members who ran on the promise of ensuring an open congress, vote against this rule. i yield back. the speaker pro tempore: the gentlelady yields back. the gentleman from california.

the gentleman from california. mr. dreier: madam speaker, i reserve the balance of my time. the speaker pro tempore: the gentleman from california continues to reserve. the gentlelady from new york. ms. slaughter: madam speaker, i yield one minute to the gentleman from california, mr. garamendi. the speaker pro tempore: the gentleman from california is recognized for one minute. garegare a lot of talk here on the -- mr. garamendi: a lot of talk here on the floor about job killers. the affordable health care bill creates some 400,000 jobs. the repeal of it is actually a killer of human beings. some 40,000 americans die every year for lack of health insurance. that's the reality. repeal this bill and you're going to find more americans dying. also, you're doing away with this repeal of the affordable health care act, of the patients bill of rights. i was insurance commissioner in california. i know exactly what the insurance companies will do if this repeal goes forward. they will continue to rescind