boost from a pure economic standpoint, not even talking about humanity, that in countries like afghanistan we are seeing women become more and more involved in a general society. a case a lot of people make for why we need to keep fishing in afghanistan is that there are a lot of people out there who are free to suddenly run away from afghanistan at some point. there are a lot of people that would end of being killed. the taliban would work force against those people. those reforms come with democracy. host: frank oliveri, thank you for joining us. a quick note, bob dole was briefly hospitalized and has left according to a spokesperson. that is courtesy of "the new york post." for tomorrow's program, a discussion of politics to talk

about many things especially about the house of representatives this week in the ongoing political climate here in washington, d.c. we will have stephen bell on the deficit and julie rovner on health care. it starts at 7:00 a.m.. we will see you then. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] [captions copyright national cable satellite corp. 2011] [captioning performed by national captioning institute] >> c-span is a private, non- profit company created in 1979 by the cable television industry as a public service.

coming up, federal reserve chairman ben bernanke on the u.s. economy. also, the house budget committee chairman talks about the federal budget. later, american petroleum institute's president and ceo on his opposition to the obama administration's limits on offshore drilling. monday, the national press foundation is hosting a seminar on understanding the 2012 federal budget. the speakers include the politico bureau chief. that is live here on c-span. >> the c-span network to provide coverage of politics, public affairs, non-fiction books, and american history. it is all available to you on television, on-line, radio, and social networking sites online. find our content any time on line in the c-span library. we take c-span on the road with

our local content vehicle. it is washington your way on the c-span that works. n morenow available i o than 100 million homes, provided as a public service. >> chairman ben bernanke announced the economy is showing signs of self-sustaining recovery. he cautioned it would take five years for unemployment levels to fall to historic norms. these are his first remarks before the new congress during a senate budget committee. other topics include the fed's six under dollar billion plan to buy bonds as part of a strategy -- $600 billion plan to buy bonds as part of a strategy to stimulate the economy. >> i want to welcome senator

sessions. he has not been formally recognized as the chairman but will be as soon as the organizing resolution is adopted. i intend to treat senator sessions as the ranking member here today. i think that is the appropriate thing to do. i very much welcome senator sessions as my partner on this committee. he has considerable knowledge of the budget and the budget process. i look forward to working with him as we confront the significant challenges facing the country. i also want to welcome the chairman of the fed, ben bernanke. this is his third appearance here. we have always benefited from his wise counsel. i believe when history is written, that you will be one of the heroes in averting what could have been a financial collapse.

i was in meetings with the former chairman and u.n. warned about how significant the financial circumstances work in 2008. -- when you warned about how significant a financial circumstances were in 2008. i personally believe you and the secretary of the treasury hank paulson, followed by this administration, have taken steps that were critically important to averting a financial collapse here and globally as well. our nation faces serious challenges. we know we are on an unsustainable course with the budget. it cannot continue for very long. we also face a fragile economy. one in every six workers in the country are unemployed or under- employed. that requires our attention as

well. we need to put a plant in -- a plan in place to get our fiscal house in order. that needs to be phased in over time along the lines with what the fiscal commission proposed. we also understand where we have come. this has been an extraordinary time in our economic history. i would like to go over a brief history of what we have experienced. i personally believe the federal response did avert what could have been a financial collapse. i believed it could have been that serious in the meetings with secretary paulsen. the risks were very clear. we've seen some progress made. there has been important

progress made. private sector job growth has returned, although not as much as we would have liked. we heard the numbers this morning. over 100,000 jobs were created in the private sector. it is a dramatic improvement from where we were back in january of 2009 when we were losing 800,000 private sector jobs per month. we have now had 12 consecutive months of private sector job growth. in economic growth, the pattern is the same although somewhat better. in the fourth quarter of 2008, the economy contracted and shook -- hand shook -- and shrunk. we saw improvement of 2.6%. we have now had five consecutive quarters of growth. inve seen a dramatic rebound

the stock market after falling to a low of about 6500 in march of 2009. the dow is now over 11,500. two of the most respected economists in the country, one was a consultant to the keep mccain campaign in the other a former deputy of the federal reserve, did an analysis of the impact of federal actions with the tarp and stimulus. they also included the fed monetary policy actions. they concluded as follows. "we find that its effects on real gdp, jobs, and inflation are huge and probably averted what could have been called 2.0.t depression t

will have cost a substantial sum but not nearly as much as some feared or as much as if policymakers had not acted at all. " if the responses saved the economy from another depression as we estimate, they were well worth the costs. the next chart shows their estimate of the number of jobs we would have without the federal response. it shows we would have had 8 million fewer jobs in the second quarter of 2010 if we did not have the federal response with the tarp and stimulus. we see a similar picture of the unemployment rate. the unemployment rate averaged 9.7% in the second quarter. according to both of them, if we had not have the federal response, the unemployment rate would have been 15% in the second quarter and would have continued rising to over 16% in

the fourth quarter of 2010. clearly, the federal response to the economic crisis has had and continues to have a significant positive impact on the economy. we're not out of the woods. we cannot forget that one in every six of our fellow citizens are either unemployed or underemployed. the unemployment rate in december was also announced this morning. it was 9.4%. this is still far too high. federal reserve projections showed the rate is likely to come down slowly, averaging still in the high a percentage point range by the fourth quarter -- height 8 percentage point range before quarter of 2012. we must also commit to addressing the long-term fiscal imbalances that the country confronts. i believe we are at a critical juncture. we have been borrowing 40 cents

of every dollar that we spend. that cannot continue much longer. spending is up the highest level as a share of our national income in 60 years. revenue is at its lowest level as a share of our national income in 60 years. i believe it indicates you have to work both sides of the equation if we are to make progress. gross federal debt is already expected to reach one under% of gdp this year, well above the 90% threshold that many economists see as the danger zone. a leading economist came before our commission and has come before this committee. dr. reinhardt has studied 200 years of fiscal crises and around the world. she concluded that when government debt is a share of the economy and exceeds 90%, she

is referring to gross federal debt, that economic growth tends to be about one percentage point lower than it would be if debt levels were not so high. if that association were applied to the united states today, it would translate into potential economic loss of hundreds of billions of dollars and substantially fewer jobs for americans. i believe the deficit and debt reduction plan assembled by the fiscal commission could provide a blueprint and a way forward. the plant would upset -- stabilize the publicly held debt of 2014 and in lower to 60% of gdp by 2023. it would roughly the 30% by 2014. i emphasize that is the publicly held debt and not the gross debt. the bipartisan commission voted for the planned. 60% of us supported it. five republicans and five democrats and one independent.

i think that demonstrates we can reach across the aisle to do things that are critically important for the country, facing up to the debt threat is something we must do and must do together. with that, we will turn to senator sessions for his opening remarks. i want to welcome him as the ranking member of the budget committee. >> thank you, chairman conrad. it is an honor to be here with you. i respect you very much and value of our friendship. i enjoy being removed -- ribbed by you, effectively, i might add. i look forward to working with you to make our country better. we have serious challenges ahead of us. i also want to say how much i have admired our former ranking member. i know you had a great relationship. his leadership was particularly

valuable. people listened to him and trusted his judgment. i hope that i can come close to being as effective as he has been in this position. i would like to share some thoughts and concerns. i know when the mortgage crisis hit and the economy was w acked, a lot of people got together to make decisions. it would have been better if we had seen the mortgage prices to the years in advance and taken action to make the crisis less real. i say that because we ought to be humble about where we are today. i do not think anyone fully understands this magnificent world economy we're part of. oneo not think any

person can have a meeting and be sure that the action we take will of certain impacts on the massive economy of which we are part. when you are confused in the end, you need to return to the fundamentals of blocking and tackling, paying your bills on time, and creating confidence in the economy. today is our first hearing of the one in the 12th congress. -- 112th congress. we meet on the heels and important election. the american people rebelled against wasteful washington spending and a government that has grown too large and interest. the american people also rebelled against politics that has placed our country on a path to fiscal decline. solving our debt crisis is about more than economics. it is about protecting our way of life at home and our standing

abroad as a great nation. it is not honest and moral goals. our goal is not one of austerity but of prosperity. restoring fiscal discipline and strengthening the private sector is the only way to create growth and opportunity for every hardworking american. it is the only way to protect our country's greatness and its vital role in the world. to solve our problems, we must speak about it candidly. our debt will soon be equal to the size of our entire economy. 40% of our budget relies -- the interest on our debt cost $187 billion in one-year loan. the congressional budget office projects that under the president's budget, these interest payments will climb to $916 billion in 2020. that exceeds any other part of

our budget and is growing faster than any pilot -- other part of our budget. it is vastly superior to the defense budget. we're on a path that is unsustainable. the real question is how much road is left between us and the edge of the cliff. the american people understand the situation. they understand that years of unchecked growth in federal spending has squandered our nation's wealth and threatened our children's futures. the american people understand what the elite in washington seem to forget. you can only live beyond your means for so long. eventually, the bill comes due. fundamentally, it is immoral to take from our children their wealth so that we can spend unearned wealth today. there are other problems. considering the house in both

been -- housing bubble, congress delayed action for years. the federal reserve was asleep the switch and failed to sound the alarm. one day, the bubble burst and the whole world changed. no one knows exactly what will happen if we continue our spending on the current course. we must not find out. james bacon wrote a piece in " the washington times" describing some of the worst potential consequences saying that we need to be more specific about what the consequences will be. he said, "one day the treasury will hold an auction and there will not be buyers. the federal reserve will step in as a buyer of last resort, theruring money from the easte to buy bonds. it will trigger fears of hyperinflation causing the dollar to plunge in interest rates to rise. if the resources of the u.s. and

international monetary fund are stretched to rescue greece and ireland, the united states will not only be too big to fail, but too big to bail out. absent emergency action by the government, the economy will plunge into a depression roughly three times more acute than the recession we just experienced." i do not know if it would happen like that. the barron's also had an editorial by an experienced wall streeter warning of a hyper- inflationary spiral. he explained that while the federal reserve to monetize the debt, historic fleet -- historically, a break point occurs when the government borrows 40% of its expenditures for an extended period of time. in a recent interview, chairman bernanke said that he was one of the% confident the fed could prevent such inflation. i am not sure the masters of the universe, you may be the master

of the master -- i am not sure how confident you can be about that. you have been wrong before. we can debate how great an imminent the risk is. there is no debating what the american people have declared in poll after poll. we are on the wrong track. where is the leadership from our administration? just last december, the president would only agree to maintain current tax rates if congress agreed to new spending , all borrowed, it would add another $250 billion to the debt. instead of slowing down, president obama hit a accelerator. simply easing off of the battle will not solve the problem. -- simply easing off of the pedal will not solve the problem. when you are driving off the cliff, you cannot just hit the bricks. you need to steer on to the

right road. congress's only changed the pace and not the direction we're going. last november, the american people said "in f." -- "and f." -- "enough." it includes a budget that changes our to directory and genuinely reduces the size, cost, and burden of government. we can learn from those setting a strong example. in new jersey, gov. chris christie has a plan to close his state's funding gap without raising taxes. in britain, the new conservative government has taken strong action and has a plan to reduce their deficit from 10% to 4% of gdp in just a quarter years. as britain's chancellor said, and "is a hard road, but it leads to a better future."

yet some would argue that reducing government spending, even a small amount, will reduce the quality of our life, but the surest way to lower the quality of life in america is to continue on our current course. spending without restraint, crushing private enterprise, and mortgaging the inheritance of our children. the challenges ahead may be difficult, but the choices we face are not. we need to limit government, control spending and create an environment where the free market can thrive and flourish it's a roadmap our founders laid out more than two centuries ago. there's no doubt it will work again. america's progress is not a thing of the past. we can do this. to achieve this progress we can no longer compromise our nation's founding principles. instead we must fight for, and

in so doing hope to find common grounds in doing so. chairman bernanke, i look forward to discussing these and other issues with you today. i look forward to getting your thoughts on how you and the administration, you're working together, with the plan for strengthening our future. thank you, mr. chairman,. >> thank you so much, senator sessions. i just want to say i welcome your analysis. we may not agree on every solution. i think the one thing we are agreed on is that we are on an unsustainable course, and we've got an obligation. we've got a very specific, serious and somber obligation to come up with a plan and to do it sooner rather than later. and i look very much forward to working with you on that. >> thank you. i value those comments. >> thank you that you so much for coming. i want to tell the committee that chairman bernanke is also

offered to come up here in a closed session with committee members to discuss what he sees with respect to the economy. we very much welcome you being here as our first witness as we embark on the challenge of putting together a budget for this year and succeeding years. welcome. >> thank you. thank you chairman conrad, senator sessions and other members of the committee. i want to thank you for this opportunity to offer my views on current economic conditions, recent monetary policy ask, and issues related to the federal budget. the economic recovery that began a year and half ago is continuing, although to date at a pace that has been insufficient to reduce the rate of unemployment significantly. the initial stages of the recovery, the second half of 2009 in early 2010, were largely attributable to the stabilization of the financial system, expansionary monetary fiscal policies and a powerful inventory cycle. gross -- growth slowed some this

past spring as it went and its european sovereign debt problems lead to increased volatility in financial markets. more recently however we've seen increased evidence a self-sustaining recovery in consumer and business spending may be taking hold. in particular real consumer spending rose at an annual rate of 2.5% in the third quarter of 2010, and at able indicator suggested it likely expanded at a somewhat faster pace in the fourth quarter. business investment and new equipment and software has grown robustly in recent quarters albeit from a surely low level. as firms replace aging equipment and made investments that had been delayed during the downturn. however, the housing sector remains depressed as the opening of vacant houses continue to weigh heavily on both home prices and construction, and non-residential construction is also quite week. over all the pace of economic recovery seems likely to be my resolve or in 2011 than it was

in 2010. although recent indicators of spending and production have generally been encouraging, conditions in the labor market have improved only modestly at best. after the loss of nearly a .5 million jobs in 2008-2009, private payrolls expanded at an average of only about 100,000 per month in 2010. of pace barely enough to accommodate the normal increase in the labor force and, therefore, insufficient to materially reduce the unemployment rate. on a more positive note a number of indicators of job openings and hiring plans have looked stronger in recent months and initial claims for unemployment insurance declined through november and december. notwithstanding these hopeful signs, the output growth is likely to be moderate in the next few quarters and employers reportedly still reluctant to add to payrolls. considerable time likely will be required before the unemployment rate is returned to a more normal level.

persistently high unemployment by dampening household income in confidence could threaten the strength of sustainability of the recovery. moreover, roughly 40% of the unemployed have been out of work for six months or more. long-term unemployment not only opposes the exceptional hardships on the jobless and their families, but also erodes the skills of those workers and may inflict lasting damage on the employment and earnings prospects. recent data show consumer price inflation continued to trend downward. the 12 months ending in november prices for personal consumption expenditures rose 1.0%. and inflation excluding the relatively volatile food and components which tends to be a better gauge of underlying inflation trends was only 0.8%, down from 1.7% a year earlier from about 2.5% in 2007, the year before the recession began. the downward trend in inflation

over the past two years is no surprise given the low rates of resource utilization that has prevailed over that time. indeed as a result of the weak job market, wage growth has slowed along with inflation. over the 12 months ending in november average hourly earnings have risen only 1.6%. despite the decline in inflation, expectations have remained stable. for example, the rate of inflation households expect over the next five to 10 years has measured by the thomson reuters university of michigan surveyed of consumers has remained at a narrow range over the past few years. with inflation expectations stable, those levels of resource utilization expected to remain low, inflation is likely to be subdued for some time. although it is likely economic growth will pick up this year and the unemployment rate will decline somewhat, progress toward the federal reserve statutory objectives of maximum employment and stable prices is expected to remain slow.

the projections submitted by the adult market committee or of all in see, showed that notwithstanding growth in 2011 and 2012, most participants expect the unemployment rate to be close to 8% two years from now. at this rate of improvement they could take four to five more years for the job market to normalize fully. fomc participants also predicted inflation to be at historically low levels for some time. very low rates of inflation raised several concerns. first very low inflation increases the risk that new adverse shocks pushed the economy into deflation. that is, a situation involving ongoing declines in crisis. experience showed deflation induced by economic slack can lead to extended periods of poor economic performance. indeed, even a significant proceeds risk of deflation may lead firms to be more cautious about investment and hiring.

second, with short-term nominal interest rates already close to zero, declines in actual and expected inflation increase respectfully, both the real cost of certain existing debt and the expected real cost of new borrowing. by raising effective debt burdens and by inhibiting new household spending and business investment, higher real borrowing costs create a further drag on growth. finally it is important to recognize that carries a very low inflation generally involve very slow growth in nominal wages of incomes as well as in prices. i have already alluded to the recent deceleration in average hourly earnings. in circumstances like those we face now, very low inflation or deflation does not necessarily imply any increase in household purchasing power. rather because of the associated deterioration of economic performance, very low inflation or deflation, arising from economic slack is generally lead to reductions rather than gains of living standards.

in a situation which unemployment is high, expected great to remain so and inflation is unusually low, that fomc would normally respond by reducing its target for the federal funds rate. however the federal reserve target for the federal funds rate has been close to zero since december 2008 leading essentially no scope for further reductions. consequently for the past two years that fomc has been using alternative tools to provide additional monetary accommodation. notably between december 2008 and march 2010 that fomc purchased about $1.7 trillion in longer-term treasury and agency backed securities in the open market. the proceeds of these purchases ultimately find a way to the banking system with a result of the depository institutions to hold a high level of reserve balances with the federal reserve. although longer-term securities purchasers are different tool for conducting monetary policy than the more familiar approach of managing the overnight

interest rate, the goals and transmission mechanisms of the two approaches are similar. conventional monetary policy works by changing market expectations for the future path of short-term interest rates which in turn influences the current level of longer-term interest rates and other financial conditions. these changes in financial conditions and affect household and business spending. by contrast security purchases by the federal reserve put downward pressure direct on longer-term interest rates by reducing the longer-term securities held by private investors. these actions affect private sector spending in the same channels as conventional monetary policy. in particular the federal reserve earlier program of asset purchases appeared to be successful in influencing longer-term interest rates, raising the prices of equities and other assets, and improving conditions more broadly. thereby helping stabilizing the economy and support the recovery. in light of this expense and with the economic outlook still

unsatisfactory, late last summer the fomc began to signal to financial markets it was considering providing additional monetary policy accommodation by conducting further asset purchases. at its meeting in early november the appleton city formally announce its intention to purchase an additional $600 billion in treasury securities by the end of the second quarter of 2011, or about one-third the fight of securities purchased in earlier programs. the fomc also maintained its policy adopted at its august meeting of reinvesting principal received on the federal reserve's holdings of securities. that fomc stated it will review its asset purchase program regularly invited income information and will adjust the program as needed to meet its objectives. importantly the committee remains unwavering passion and we fully committed to price stability any particular to maintaining inflation at a level consistent with the federal reserve's mandate for the congress. in that regard it bears emphasizing the federal reserve has all the tools it needs to

ensure that he'll be able to smoothly and effectively exit from this program at the appropriate time. importantly the federal reserve's ability to pay interest on reserve balances held in federal reserve banks will allow it to put upward pressure on short-term market interest rates and dust tight monetary policy we needed can't even if bank reserves remain high. moreover, the fed has invested effort into developing methods to drain or immobilize bank reserves as needed to facilitate the schools -- when conditions warrant. if necessary the committee could also tightened policy by redeeming or selling securities on the open market. as i met him before the budget committee is worth emphasizing defense purchases of longer-term security are not comparable to ordinary government spending. in executing these transactions the federal reserve requires financial assets, not goods and services. ultimately at the appropriate time the federal reserve will

normalize a balance sheet by selling these assets back into the market, or by allowing them to mature. in the interim the interest of the federal reserve earns from the securities holdings as to the feds assistance to the treasury. in 2009, 2010, those remittances totaled about $120 billion. fiscal policymakers also face a challenging environment. our nation's fiscal position is deteriorated since the onset of the financial crisis and recession. to a significant extent this deterioration is the result of the effects of the weak economy, along with the actions that were taken to these through sessions of steady financial markets but in the planning for the near-term, fiscal policymakers will need to continue to take into account the low level of economic activity and the still fragile nature of the economic recovery. however, in an important part of the federal budget deficit appears to be structural rather than cyclical.

that is, the deficit is expected to be unsustainably elevated even after economic conditions have returned to normal. for example, under the cbo's so-called alternative fiscal scenario, which assumes that most of the tax cuts enacted in 2001 and 2003 on a permanent and that discretion as spending rises at the same rate as the gdp, the deficit is projected to fall from its current level of about 9% of gdp to 5% of gdp by 2015. rise to about 6.5 a set of gdp by the end of the decade. in subsequent years the budget outlook is projected to deteriorate even more rapidly as the aging of the population and continued growth in health spending. under this scenario federal debt held by the public is projected to reach 185% of the gdp by 2035. up from about 60% at the end of fiscal year 2010. the cbo projections by design

and ignore the adverse effects of such high debt and deficits would likely have on our economy. but if government debt and deficits were to grow at the pace and vision in this scenario, the economic and financial effects would be severe. diminishing confidence in the part of investors and deficits will be brought under control would likely lead to sharply rising interest rates on government debt and potentially to broader financial turmoil. moreover, high rates of government borrowing would drain funds with adverse long run affects the u.s. output incomes and standards of living. it is widely understood that the federal government is on unsustainable fiscal path, yet as a nation we have done little to address this critical threat to our economy. doing nothing will not be an option. the longer we wait to act, the greater the risks and the more wrenching the inevitable changes to the budget will be. by contrast the prompt adoption of a credible program to reduce

future deficits would not only enhance economic growth and stability in the long run, but could also yield substantial near-term benefits in terms of lower long-term interest rates and increased consumer and business confidence. plans recently put forward by the president national commission on fiscal responsibility and reform, and other prominent groups, provide useful starting point for a much-needed national conversation about our medium and long-term fiscal situation. although these are his proposals differ on many details, each gives a sobering perspective on the size of the problem, and offers some potential solutions. of course economic growth is affected not on by the levels of spending but also by the composition and structure. i hope that in addressing our long-term fiscal challenges, the congress will seek reforms for the government tax policies and spending priorities that serve it on to reduce the deficit, but also to enhance the long-term growth potential of our economy. for example, by encouraging

investment in visit passion in fiscal and human capital, by providing necessary infrastructure and by reducing disincentives to work into safe. we cannot grow out of our fiscal imbalances, but a more productive economy would ease the trade-offs we face. thank you, mr. chairman. senator sessions. i look forward to taking a question. >> thank you for your testimony. i want to go to your final point. that is the budget committee. we have of our colleagues, and the country to propose a fiscal policy going forward. but i hear you saying is it is quickly important that we adopt a credible plan, longer-term plan to deal with our deficits and debt. is that an accurate understanding of what you're saying to us? >> that's correct, mr. chairman. our fiscal issues are very long-term in nature. they increase the difficulties increase over time.

merely addressing this your spinning is not going to solve the problem. we need to develop a plan, an incredible player, won the markets will accept as plausible to address the longer-term structural deficits that we face. >> the fiscal commission proposed a plan that would reduce the debt over time by $4 trillion, which was stabilize the debt in the short term. but importantly bring the debt down as a share of the economy to roughly publicly held debt to 30% of gdp. that's over an extended period of time. is that about the magnitude, besides a plan that is necessary to? >> senator, no one knows exactly what the desirable debt-to-gdp ratio is in the long run. you mentioned a 90% number as an upper level of comfort. i think in the near term i think we need to focus on stabilizing

the debt-to-gdp ratio. under the alternate scenario of the cbo, it just rises indefinitely and that certainly is not sustainable. if we could achieve in the next decade, two or 3% reduction, that would be sufficient to bring the primary deficit close to zero and was stabilize over the next decade. we need additional steps after that. i think stability is the first up, bring it down as a bonus if we can do that. >> that was really the conclusion of the commission. the conclusion of the commission was, job one is to stabilize the debt. we talk about these different measures of debt. publicly held debt is currently roughly 60%. the gross debt is currently about 90%. and most of the advice to the commission was you've got to stabilize it, publicly held debt at 60%, gross debt at 90%. but over time you really need to

bring it down. you shouldn't stabilize it and consider that you finish the job. because you'd need to have a margin to deal with future shocks. is that your judgment as well? >> yes, mr. chairman, but stabilize would be a very important first step. >> job one, stabilize. second question is the timing of imposing the tough choices that need to be made here on both the spending side of equation and the commission proposed roughly to point to $2 trillion of spending cuts, propose nearly $1 trillion of new revenue. the rest of the savings was savings of interest. in terms of when you pet it that is a critical question. the commission's conclusion was you ought not to take the really

tough steps that need to be taken for the next several years. you need to begin picking a to a drop -- you need to adopt a plan to cut the tough medicine needs to wait until the economy is on stronger ground. what would your recommendation be to us? >> mr. chairman, i think the issue is credibility. if we can come is not sufficient to say we are not doing anything now because of the recession. we will do something later. not specify what that is. i think if we could adopt a credible plan that is specific enough and credible enough, to address the long run situation, that would be the most positive thing that we could do. and in doing so we could get really all the benefits without having to take actions that would endanger the very near-term recovery, which is still somewhat fragile. >> that was very much the conclusion of the commission. it's not enough to say we will

do something in the sweet bye and bye. you've got to adopt a plan. you've got to put in place. you've got to put in place legislatively so people know, yeah, we are going to cut spending. we are going to improve the revenue base. we are going to shave savings of interest costs. and it's got to be credibly scored. it's got to be real. but it shouldn't, shouldn't have the bite, a curve too soon or you endanger this fragile recovery. you made another set of comments i've that was very important. and that was the composition of the spending reductions, the composition of the revenue is also critically important for future economic growth. you are saying look, you have to pay attention to human capital, education. you've got to pay attention to infrastructure because that improves the economic competitive position of the united states. but when you are imposing the

spending cuts you got to go after things that are superfluous. and goodness knows as we look across federal spending there are places that we are not doing things that enhance economic growth. there are things that constitute waste. although the idea that just cutting waste audit abuse is going to solve this problem is, i wish it were the case, but it's necessary but not sufficient. on the revenue side, where the best things we could do is broaden the tax base, lending some of the tax expenditures. but simultaneously reducing rates to make america more competitive. is that what you had in mind when you talk about paying attention to the composition of the changes that are made? >> yes, mr. chairman. on the first point, the national income accounts don't distinguish between government consumption and investment very sharply. there is a technical distinction.

we need to think about making investments for the future as opposed to simply spending our seed corn on current needs. so thinking about government programs, we should ask the question will this provide benefits in the future, provide more productive competitive economy in the future. on the attack site i don't think it's controversial among economists that rising rates combined with multiplication of extension, productions, credits and so on leads to a tax cut which is very complex and can distort economic decisions. i think all of the major deficit reduction committees have taken the opportunity to talk about the need to lower rates but a low, close the loophole so as not lose revenue. so i think that is something i hope the congress will talk about. if not at all, to address the long-term deficit issues but also to think about making our tax code and our spending

priorities more friendly. >> i will take, there's nobody that can participate in this process that didn't include this tax system that we have is just completely outdated. you know, it does not take account of the world that we live in today. the other conclusion of the commission was that you've got to everything on the table. spending, revenue, and every part of federal spending has to be dealt with. and you know, even defense. one of the most startling, i received my colleagues, one of the most startling pieces of information that came to the commission was 51% of the federal workforce, is the department of defense. that does not count contractors. when we asked the defense analysts who came before the commission how many contractors does the department of defense have, they told us they couldn't tell us. not because it was secret.

it's because they did not know. when we asked them what was the range. they said between one and 9 million. that's a pretty broad range. so we've got issues throughout the federal government that we will have to address. i very much appreciate the good advice that you've given us. senator sessions. >> by the way, we're going with eight minute rounds. a little bit longer than usual because of the numbers who are here. and i've tried to respect that in my time, and help others as well. >> thank you, mr. chairman. first, mr. bernanke, let me pursue the question that revolves around your confidence about being able to prevent inflation. you note that you remain unwavering committed to price stability in your statement. and in particular maintain

inflation at a level consistent with the federal reserve's mandate. in that regard it bears emphasizing that the federal reserve is all the tool it needs to ensure that it will be smoothly and effectively exit from this program at the appropriate time. well, forgive me if i am less confident. that you know precisely when and how to exit. and if you can do so smoothly. and i noted that the bond market and the comment seems almost in consensus view now around wall street and investors. bonds are bad investment, that presumably because they can affect a realistic reality of an increase in interest rates in the future, as a result of quantitative easing, deficit and the like. can you assure us?

it looks to me like, wouldn't you agree, that investors are getting nervous already. >> senator, first on your earlier comment about the 100% certainty, what i was talking about there wasn't that we would know exactly with certainty the right moment. what i was trying to convey was i thought i was certain that we have the tools we need. it's always the case that we are reversing monetary policy in a period of growth that it's a matter of judgment you can be too early, too late. that is to for normal monetary policy as those unusual monetary policy. so i'm not try to claim our missions. and, of course, it does possible that we'll be either a little too slow or a little too quick, and we would do are very, very best to move at the right time. as far as inflation is concerned though, again and the actual inflation rate is at essentially a postwar low. and inflation expectations look

very stable. >> what about ,-comthem is their difference between interest rates on the federal debt and inflation? >> the interest rates on the federal debt are also quite low, of course. in the index bond market the breakeven inflation rates are about what you think they want to be if people expect that over the next five to 10 years the fed will keep inflation at about 2% which is about where we think we got to be aiming. we will pay close attention to the inflation situation, and we take that very, very seriously. >> but tell me just, trying to be, bring a little common sense to an honest question to you, it does seem that the bond market is nervous. it does seem to me that the quantitative easing plan continued and they continue again. and that the deficit continues. at an unsustainable rate. why shouldn't people be worried that eventually there could be a

tipping point reached in a rather dramatic surge in our interest rates would occur? >> on the monetary policy side, as i said we are in a situation similar to where we always are, which is we need to find the right moment to begin tightening. you mentioned the bond market is expected short-term rates to rise in the future. that would be corresponding to the fed tightening and reversing the easy money policies. on terms of fiscal side, there i agree with you. i think that if congress and the administration don't find a credible plan for controlling new long-term structural deficits, there could be very serious problems in financial markets, and inflation. that's the history of many, many situations in the past. so i do very much urge this committee to look forward strong and credible actions to control the federal debt.

if that is done, then i don't think that inflation will be a long-term problem and what we are trying to do i think in the short term is to create an appropriate balance between the risks of inflation and the risks of deflation which have not yet gone. >> with regard to unemployment i think you made clear in your statement, but it's important for us to understand and even though the rate dropped three tens, four-tenths, 9.4, the 100,000 jobs, 103,000 jobs added is really sort of treading water about what you have to have to just maintain the current employment rate, is that not right, and that's not really a number that we can celebrate today? >> it's about what we expected, but as you say it's not a number that is going to come if we continue at this pace we will not see sustained decline in the

unemployment rate. >> my predictions were as much as 275,000 jobs being added. >> i was serving on our prediction and certainly not most wall street predictions. there was a number that came out of so-called adp number which was very high. but that is only loosely connected with the actual numb number. >> i think the american people are deeply concerned about we -- about where we're headed economically. their jobs are at stake. i believe that's a legitimate concern. to what extent do you have, a plan, and to what extent do you have does the administration, the president have a plan that sees into the future and it says we're going to do a b. c. and d., and those things will bring us out of this? and is it written, can we see at? >> center, first of all, --

senator, first of all it was concerned about the failure of unemployment to decline that motivated us back in august and september to adopt more monetary accommodation. in my view is we've already had some benefits from that. we have seen some improvements in the outlook. we've seen some improvements in the financial markets. that is part of what we're trying to do is try to keep this recovery going. in addition of course we are working very hard and our role as a regular to try to improve the availability of credit to small businesses and to other borrowers. senator warner i know is interested in that issue. we are working very hard. that's our top priority. >> well, we've got a changeover in the white house. mr. summers is gone. peter orszag left. we've got a new chief of staff. i hear today.

but i don't sense anywhere in our government that we have the kind of clarity of leadership we had under mr. volcker, when we had a crisis in the late '70s and early '80s your one of the fed members said we knew we were doing the right thing. they were protesting mr. volcker. some called for his resignation. we had a plan and we were staying with it. the american people have confidence that you and the administration on the same page. we have a plan other than reacting ever -- every month or two to some new changing condition. >> the federal reserve is independent of the administration. we tried to coordinate with the administration, tried to courtney with congress. the federal reserve is independent. so the administrations plan and the congress this plan, those are not our province.

that's what the administration and congress to decide. in our case we do have a plan, and i have tremendous respect for chairman volcker. one of the things he did as you say is he did what he thought was right even though there is a lot of criticism. i think that's the importance of independent monetary policy is eric at the federal reserve we recognize that there are different views, but we are trying to do the best thing we can for the american economy. that's the beauty of having an independent central bank's. thank you much. mr. volcker, history records i think was correct in his plan. i hope history will record the same for your leadership. >> thanks, senator sessions. let me just indicate that on our side, senator wyden, senator manchin, senator stabenow, senator merkley. republican cited senator enzi, senator corker. senator wyden. >> thank you, mr. chairman. i too want to welcome the

senator sessions as our ranking minority member. he is someone i greatly enjoyed working with, respect very much. i do want to note for the record that i don't believe the auburn tigers have a realistic chance of keeping up with the university of oregon's fast-moving, innovative offense in the championship game at but we will say that for another discussion. i just want to welcome my good friend. >> you're correct in that i would be pleased to wear that tie you have on, for a few days perhaps. >> we have an agreement and i will reciprocate. senator conrad, thank you very much. thank you we are so glad to have you here. and i especially, because you and i share similar views, this big idea for economic growth in our country is fundamental tax reform, where you go in there and clean out this job killing,

thoroughly discredited mess. and you address that i thought very well on 60 minutes discussion that you had back in december. here's my first question. it was clear at the end of the year that you had to take some steps with respect to the tax code in the short term. so that people wouldn't be 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. ..

we've got several on the finance committee and senator sessions interested in it. the chairman is making an important point. there is today such a connection between the individual portions of the code and corporate portions of the code to just split one out as some of have been discussing i think could once again create a whote set of additional distortion in the america economy. and i appreciate what you're saying. 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. .. so, in a number of different directions over and above how it is affecting individual families, at the community about, at the -- at the community level, at the economic level, it is a very serious problem. it is one of the reasons that the recovery, along with problems in the credit market, one of the reasons that the recovery is not as robust as it would be, given how deep the recession was. >> my time is expired. i do have another question, it is appropriate?

given the fact we've been treated on your time. >> go ahead. >> -- we have intruded on your time. >> go ahead. >> thank you. >> one of the effects of the recession has been the families have started saving. they have realized that they might need to prepare for the possibility of losing a job. that has thrown a wrench into the spending side. one thing i have heard a reference to, though i am not sure it is right, is that the amount of consumer debt has decreased by more than the amount the national debt has increased. that is, ed the family debt and the national debt together, our total indebtedness has dropped. does that sound accurate? how does that play and to the macro economic picture in terms

of our national debt? >> that is correct. 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 have voted for every market 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 martht is d. 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] >> c-span is a non-profit company created in 1979 by the cable television industry as a public service. up next, paul ryan talks about the federal budget. later, the president of the american petroleum institute talks about his opposition to obama's limits on offshore drilling. monday, the national press foundation is hosting a seminar on understanding the 2012 federal budget.

speakers include the congressional bureau chief and staffers from the house budget committee. that is live on c-span at 10:00 a.m. eastern. >> middle and high school students, it is time to upload your videos for our documentary competition. this year's topic is, "washington d.c. through my it blends." -- through my lens." the competition is open to students from grades 6-12. for full details, go to c- span.org. >> house budget committee chairman paul ryan said that the debt ceiling will have to be raised. he said republicans will want something in return for their support. he spoke with the editorial page editor of the "wall street journal."

this is about 50 minutes. >> let me ask you to take your seats, and i will do an introduction and turnover. from wisconsin, the first half of the session will be on the packers' prospects on saturday and wisconsin's unfortunate defeat, culminating a big week for the big 10. at least wisconsin made a competitive. i edit "the weekly standard," but i am also on the board of these organizations. one of the sponsors is the manhattan institute. i am a also a relatively inactive member of the board, so i get to do the introduction and

leave. listen, i should say, of course. listen attentively. but you all know it is a very fine think tank in new york. it was probably best known for its contribution to the policy ideas which mayor giuliani implemented in the 1990's, and many other mayors and governors took the lead on in the 1990's. in the last few years, they have done terrific work on the state pension crises. and also on the fiscal crisis, the financial crisis. they are happy to be a sponsor of the institute. they're dedicated to innovative public policy ideas. both websites are really worth going to each morning.

sign up and get the e-mail from them to save yourself having to find them each morning. i honestly recommend that to keep up on the economic policy debate, both at the state level and the federal level. both are worthwhile. we are pleased that we will have a series of conversations with major public figures, and the conversation will be moderated and led by another major figure. it will have mitch daniels and a month and other governors and senators, actually, and other political leaders who have consented to do this. it is terrific to kick off with paul gigot and paul ryan.

at the their needs and the introduction. bestgigot wrote the column and washington for the wall street journal from 1998- 1991, and -- from 1988-2001, and he has been editor of the journal. paul ryan came to washington in 1988 as a 7-year-old -- [laughter] yeah, he came as a young member of congress. it hard to believe that he just entered his seventh term as a republican member of the house from wisconsin, now chairman of the budget committee, obviously a crucial position to have. he was already crucial for his intellectual leadership, and not institutionally as well as for what happens in the next the years with fiscal and budgetary policy. i will turn over to paul gigot

and paul ryan. >> it is a great pleasure for me to be here. it is a pleasure to be here with congressman ryan. the plan today is we will talk about 40 minutes and then we will open up for questions. before we get into the details of the budget year and the debate, let me ask you to think ahead two years, to 2012. >> the packers will have their second super bowl ring by then. >> you are more optimistic than i am, i am afraid. but you are running for reelection, you want to present to the voters what you have accomplished. thinking ahead, what is it that you want to tell the voters, show the voters that you have done in these two years? >> that is an import question. what i hope we will have done is have been responsible. we will conduct ourselves with

humility. we will have work with president obama on occasion where we find common ground on issues to get things done for the country. but at the end of the day, and 2012, -- in 2012, i think there are large chasms of government philosophies that will not be bridged. i feel that we owe it to the country to give them a choice, an alternative future for the country. by 2012, hopefully americans will have in front of them a very clear choice to make. on the one hand, it will be the future of what we have in front of us right now. based on the current objective we are on, based on all the government that has been created in the last two years, had been proceeding that, from both political parties, which is putting ads on a path of debt ruin, which is putting us on a path of being more like a social

welfare state. that is the path we are on today. hopefully we will give the choice of a different feature where we reclaim the american idea, embrace american essentialism -- exceptional listen, and we are priced -- and we read apply the principles and we have a debt-free nation, prosperous economy, and opportunity with a safety net as opposed to a welfare state. and give the country a choice. i believe that we will win that referendum and therefore have the moral authority and the opportunity in 2013 to make good on that vision, to reapply these principles and fix these things. it is also important that they see us as that, party of growth and opportunity, not crony capitalism. we have fallen into that party

track before, that we believe in being pro-market, not necessarily pro-business. so what we believe then is a system and society where everybody has the chance to make the most with their lives and that we have prosperous, growing, internationally growing economy where people have a bright future. we know for a vote irrefutable fact we're getting the next generation and inferior standard of living based on the future we have right now. we just created two new open entitlements. give the next generation higher living standards. t>> he did not mention any specific legislative achievements, necessarily. he suggested the main goal, as you look at two years from now,

you think there is anything legislatively that you really want to have done? >> i think for that to take place, we have to define ourselves with our action. we have to draft and pass legislation in the house to frame that choice, accomplishments we want to have by then? it is difficult to have that question because we did not know what the president will want to sign into law or not. the way that i hope this goes is the president -- i think the triangulation, whatever you want to college, is a foregone conclusion. he has to come to the middle to get some things done to work with house republicans. hopefully he will say on a, b, c, let's do these things. hopefully some spending cuts, trade, spending reforms, and we do those things. but on x, y, z, repeal of the health care law -- so we will

still advance legislation doing these x, y, z things. at the end of two years, the people of this country have a have a clear choice. >> but you have to take care of the budget, fiscal 2011, and then pass the budget legislation. you are taking over it to committee with spending of gdp is about 25%. the deficit is about 10%, roughly, and the deficit is about one $0.20 -- $1.2 trillion. is there tangible progress? >> we will get our first bunch

of numbers at the end of this month. i think the president submits his budget february 14. then we get another set of numbers from cbo in march. that is where we see where we are and what kind of deficit targets we can hit. yes, i expect in the spring, probably april, when the deadline is hit. in april, we'll have a budget resolution which will map out how we will do things differently, what are fiscal prescription for the country it will be. containing, controlling, cutting spending, but also growing the economy to get an opportunity, prosperity, and jobs back in the economy. those will be in the budget resolution. the technical part of the budget resolution that is necessary is fiscal year 2012 discretionary spending. that is where the government shut down scenarios come into play. will have a lower number, probably lower than the fourth

president. of the course of the summer and into the fall, -- over the course of the summer and into the fall, will have to negotiate a resulting number that comes out of that for discretionary spending to continue. >> first you have to deal with fiscal year 2011. you have probably heard the democrats criticizing you for backtracking on the $100 billion reduction campaign promise. could you respond to that charge? >> if people think we are afraid of cutting one of a billion dollars, they have another thing coming. -- if people think we are afraid of cutting $100 billion, they have another thing coming. when we said we would bring down to 2008 levels, that was part of that. what has happened since then? the c.r. occurred.

>> continuing resolution. >> and to things that happened sincet happened. he c.r. itself brought spending down, and have the fiscal year's spending has gone and out the window. hitting the spending target we have pledged to hit in the pledge to america now scores at around $60 billion, not $100 billion. so the savings estimates of our policy in october was one of a billion dollars. now have the money is out the door because of the c.r. it is not a backtrack of policy. the republican policy has stayed the same. >> is it fair to say that the $100 billion, that is just a down payment? >> wait until we do it the fiscal year 2012 spending bills and the budget resolution. we will keep going. >> the discretionary accounts,

you think that you could get a lot of that. does that include defense? >> yes, we have caps. you cannot throw $700 billion at the government and not expect weast to occur. >> you would reduce that? >> i would reduce the entire cap. iand then we would prioritize. i don't try to do the job of the appropriations committee. they are guarded about their jurisdiction. the way i look at defense spending, first, let me say something that think might be counter to what you thought i would say, i would want that to be at a peace dividend budget, but we're not at peace. at second, there is waste at the pentagon and we have to go after that. we have to save money in the dod budget. >> any specific examples?

>> there is lots of waste in operations and management accounts and procurement as well. about any particular programs? -- >> any particular programs? >> i have opinions but i will keep and to myself right now. i want to go after the waste, get the savings and the pentagon, and put that back into defense spending to prevent supplementals. what we typically do it is passed a defense appropriations bill, and we pass a supplemental on top as if it is an emergency that we don't know we are in afghanistan. i would rather see savings occur from within the pentagon budget by cleaning up the books at the pentagon and then putting that back into the pentagon to reduce the need to have the supplement pills which occur outside of the budget and on top. to me that is the better way to go. we need to force government to prioritize from within.

and let's recognize the fact we cannot have a peace dividend at a time when we are not at peace. >> what kind of magnitude are you talking? where is the 2008 target still -- >> 2008. that your talking about lower? >> i am talking about more savings coming into the budget. i cannot give you the numbers because i do not have the cbo baseline. but we will continue cutting spending after this current fiscal year expires. >> the other big question, it york on to reduce spending, are the entitlement accounts -- medicare, medicaid, social security. will you include those and reductions in those, reform and those? >> i literally do not know the answer to that question. what everybody seems to think

these days, gosh, i am the chairman, i could just make my road map to the budget resolution. that is not how it works. i wrote the road map from 2008- 2010, to reach the consensus of one person, myself. i now have to reached a consensus of 218 people, the majority of the republican caucus. it is difficult to say, especially since i don't have the baseline, but we have to deal with entitlements. what we will do, we are launching lots of hearings on entitlements at ways and means, lots of hearings at the budget committee on entitlements. the commerce committee will do hearings on entitlement reforms. it will bring governors ought to tell us about the reforms. we will look at medicaid solutions, all parts of the federal budget. nothing is going to be immune from oversight and from hearings, so we can get the best ideas to try to figure out how

to get this turned around. ultimately, you cannot fix or preempt the debt crisis without dealing with entitlements. we have to take some sizable steps in that direction. >> so your argument will be that we must do something about the medicaid, medicare, and social security in this to your time frame, despite the fact the president is a democrat and the senate -- >> i look at the three of those in the same sentence. at the debt commission, social security reform should not be a function of deficit reduction or debt reduction. social security reform should be to fix and reform social security. whether or not we do social security reform, i don't know the answer to that. i'd love to see if the president wants to engage in that dialogue. i don't know the answer. >> would you recommend it? >> the last budget that i wrote in the minority, but modest

social security reforms in there. -- i put my best to socials kurta reforms in there. >> would you like to see that? >> i would. i think it is one of the policy options we should consider given this at fact that states are so different from each other. it is leading to state in solvency and contributing to their fiscal problems. >> what do you think the prospects of that happening are? >> in the interim, i think that holds the best promise. i think social security and medicare reform will take longer to achieve, because i don't think this issues are there yet. because of the divided government that we have. >> medicare is obviously the most politically difficult -- >> i am familiar with that. >> not only because of the difficult politics, but the case

your party ran against the medicare cuts as part of the health care reform. so has that complicate your task this year? >> if you look at what we said, we were against taking $522 billion of medicare money to create another government program that did not do anything towards helping solvency. a lot of republicans drop that last sentence and were just for cutting. >> imagine that. >> but taking $522 billion to create another in totten that was a bad idea. medicare is going broke. the biggest fiscal problem of all of them, i believe we need to make down payments on medicare reform.

>> in these two years? >> i will have hearings from the budget committee on this. i don't know if we have consensus on this. i don't know whether we will be moving legislation on this, but i think it is something we need to consider and talk about. >> you are young, but you are still old enough to remember 1995, 1996, when the republicans -- i think you were an aide at the time, newt gingrich was the speaker at the time he pushed dramatic reforms in entitlements, medicare and medicaid in particular, and they were the party's and doing politically, -- they were the parties on doing politically. >> that is the historical view right now. >> i think a lot of members of

the party think that. so the question is, what is different politically now to make you think he could make the same kinds or similar reforms and survive politically? >> because the economic day of reckoning is right around the corner. because the tens of trillions of dollars of unfunded liabilities are in front of us. medicare is going insolvent later in the decade, and medicare is the greatest cause of our debt problems. because the baby boomers start retiring this year, we're going from approximately 40 million retirees to approximately 80 million retirees. we are increasing the benefit by 100%, but we're only increasing the texting generation by 17% to pay for these programs.

we have a looming insolvency. if you look at the gao unfunded liability figure, the general accountability office, it was 62.9 trillion dollars. it is not 88.4 trillion dollars this year. we are going that much deeper into whole, that much faster. after the 1996 medicare imbrue political football -- after the 1996 medicare political football issue, this bipartisan commission, that recommended some innovative reforms to medicare that would have put it on a path towards solvency. we co-authored some reforms that are innovative that put medicare on the way to solvency. a commission advocated medicare

reforms and put it on the path to solvency. let me tell you what the road map does on medicare. what people like me have been saying is let's guarantee that current seniors with the medicare benefits they have coming towards them, people have already retired or near retirement. if you are under 55 years old, guess what, it will not be there for you. you'll have to severely and deeply ration medicare to seniors at that time if we keep the program going as it is, and the new law puts a lot of these rationing mechanisms in place. >> my guess is that if you put a question of the it -- if you put a question to the american public about this, saying that these are real and if there understood, would you favor reductions in medicare spending in the future, you would get

60%, 65% against. but you have a significant technology and education hurdle in front of you? >> we do, but we will never fully fix the budget situation without addressing medicare. whether we do with this year or next, i don't know the answer, but we have to keep talking about this. whether we pass legislation, i don't know, but we cannot stop talking about it. >> is this the kind of major change that you need presidential support for? >> i think so, for either party. >> to actually accomplish? >> yes. >> so with the president says, don't touch medicare, which just took $500 billion out of it to put to health care reform, then the republicans, should they marched into the fixed bayonets,

politically? how many sponsors do you have? >> i have not reintroduced it. i was not looking for co- sponsors. i cannot tell you whether we will push comprehensive medicare reform and the budget or not, but we will be talking about it. will be doing hearings on it. i will be personally advocating my own legislation and outside of my role as budget chair. >> ok. let me ask you about the president. the last time we talk after the election, you were pessimistic about the degree of cooperation you would get from the president as the republicans move forward on their agenda. since then, you have the tax deal, which was something that you supported, and it passed with big majorities in both houses. did that negotiation the judah think that perhaps the president

will move more dramatically than you thought, on more items or you could actually get things done? >> that does not lead me to think that because that is something he had to do. he did not have a choice of the matter. >> why? >> because of the votes and the date. the tax increase clip was happening, anybody, whether you are keynesian a classical economist, would argue that it would do damage to the economy. he had to do this, plus the votes just were not there for his school of thought, i would say. he had to do that. i don't look at tax deal as necessarily a sign of things to come with respect to cooperation. i believe, i would like to think we will have cooperation on some issues, but i think days -- i think those will be more the exception than the rule. >> you mentioned trade. what else boxed -- what else?

>> hopefully spending reforms. budget limits, budget caps, but reforms perhaps. i have a line item veto bill that i've had with democrats in the past. >> you want to push that? >> yes, that is among the things. >> does the leadership support that? >> they always have. >> out where else can you get agreement with the president? >> i am curious what he will do with immigration reform, whether it will be a political issue or try to get things done on that. two years as a long time of not doing anything. obviously, the priority is getting the border under control, but we have all these other issues in the immigration law that have to be addressed, and that is also for economic reasons. i wonder out loud, talking to john mccain yesterday, and he seems to think there is a shot at this, i don't know if it is

possible or not. energy policy as well. i would like to thank -- i would like to think that somewhere this administration would allow us to explore for domestic energy supplies. >> what you have to get? >> more natural gas than oil. i don't think that he will open at outanwar, but i think natural gas, that is cleaner burning -- i don't think he will open up anwar, but hopefully energy legislation and natural gas. epidemic is the price for that that would have to give green energy subsidies? >> my opinion, no. >> so you are going after that, subsidies for wind?

so you still think he may compromise on energy? >> i don't know, but i think there is a chance of it. >> what about tax reform? you have talked about this for a long time. dave camp has talked about it, even charlie rangel supported in the last congress a cut in the tax rate from 35% down to 30%. so the president may have headed at this -- the president may have hinted at this. it is that something? >> we will see what he says in the state of the union address. i think so. most people -- i have been involved in tax reform for a long time, but they all involve broadening the base and lowering the risk. so how you do that matters greatly with respect to our competitiveness, but i would like to think we can get a

consensus on broadening the base and lowering their rates to make the tax code more competitive. i hold out some hope that there is a shot at some actual -- maybe not wholesale fundamentals, but hopefully a good step in the right direction to make the tax code more internationally competitive. >> would you support a more narrow flat tax, lower the corporate tax rate, and reduce some? >> yes. >> how do you feel that goes with the caucus? >> i think generally speaking, pretty well. my own tax reform bill basically does that. the budget that i brought to the floor last session. the corporate rate down to 25%, investor based broadening measures. it has already been in the

caucus. we have to confront the continent. i have been on ways and means now for 10 years, and the tax expenditure lobby has an interest in this. they succeeded pretty well and protecting those interests through both political parties. we have to confront that. if in 2012 we do our job right, we're looking out for the american people. we are looking out for the american economy. we're not looking out for narrow special interests that have this tax code carved out that serves as a barrier to entry. we want growth, competition, lower barrier to entry. it won a haven for capital formation in this country, -- we want a haven for capital formation in this country, not some other country. >> there is a debate a lot about how to handle the debt ceiling. i think the president today submitted his formal request that the debt ceiling be raised. it will have to happen sometime

this spring, some people disagree about the timing, but sometime in the next few months. there are a lot of republicans making this almost into a moral issue, saying i will refuse to vote for a debt ceiling increase without major spending reforms. >> i am glad to hear that. i am in the major spending reform camp. >> what do you think about that strategy? >> just refusing to vote for it, i don't think that is really a strategy. i believe -- i don't want to rubber-stamp big government in raising the debt ceiling. do i want to see this nation default? no, but i want substantial spending cuts and controls in exchange for raising the debt ceiling. that is related.

it is not unrelated. so i believe if we're going to do this, which obviously you cannot default, we need to have some real fiscal fixes to do that. this is very serious. it is something we care a lot about, and we will not turn the fiscal ship around overnight, but we want to point in the right direction. the debt ceiling is not dealing with current spending, it is old spending. it is the recklessness of the past. >> but it is your watch. >> doesn't have to be raised what -- does it have to be raised? default is not the alternative. we did not want to just pass some naked debt ceiling increase. we want to have real fiscal controls, or spending cuts in order to do that. >> the former senator phil gramm

once told me one of his political roles was never to take a political hostage you are not prepared to shoot. you have to pass a debt ceiling increase. so that is a hostage you are not prepared to shoot, because she cannot. how was that a winning strategy? >> how long will we raise it for? two years, one year? there are lots of ways of doing it that could speak to our strategy. i don't like negotiating in the media on how we will propose this issue, but republicans are not interested in just a naked debt ceiling increase it. >> you well want something in return. >> at a minimum. >> what you what remains to be negotiated. >> exactly. >> if the president refuses and says you guys are irresponsible, you are wrecking

the full faith and credit of the united states and that is irresponsible -- >> i think it is irresponsible if he refuses to sign a bill and country defaults. but it is his choice. >> but you think you could do that when he has the bully pulpit? >> we are on the stage right now, are we? >> i am a local journalist. he has the bully pulpit. >> what we really do not like is runaway spending that is bankrupting this country. we want to see the fiscal direction of this country change. the debt ceiling is a symptom of the fact that the fiscal policy is way off track. we want to do some things that it was pointed in the right direction as the debt ceiling increase occurs. the letter this morning said march 31-may 16. there is an effective time frame. nobody really knows the answer.

it is receipts and expenditures and things like this that are a little on forseen. we're not interested in a naked debt ceiling increase. >> ok, another issue that is likely to come up is the fiscal position of the states. there are a lot of them, including major states, and very tough fiscal positions, big deficits, and there is a prospect one or more of them will come to you and say we cannot avoid truly awful cuts in services without help from the federal government. what is your response? >> california, we cannot do a bailout. if we bail out one state, then the other states is not just implied, it is almost explicitly put on the books. then the federal debt will go way up because of state debt. there seems to be some implicit belief that these are federally

backed. they are not. it is important. i am a supporter of the nunes bill which is asking for more clear accounting. if you want to enjoy a tax free bonds at the state or municipality, give us a clear accounting of the liabilities. they have discount rates of something like 8%, which is just not reality. a, let's get more clear accounting, and b, we will have lots of hearings on this. we need to learn more about what states are in what situations, what are the timing of these things, and what the proper response is. i have been working on something myself on what i think would be the proper federal response, but we're not interested in a bailout. >> so this is a flat "no." what if some states say they are

in danger of default? >> they are already telling us that. >> take it somewhere else? >> should taxpayers in frugal states be bailing out taxpayers in other states? going to become a frugal state, but we have not been one. it should taxpayers in indiana who have paid their bills on time, should they be bailing out californians who have not? no, we should not and that is a moral hazard we're not interested in creating. >> you have probably heard some democrats say and repeal of the health care bill, there will be a big hit to the deficit increase. what do you think of that idea, and why did you exempt the repeal from the new budget rules that make it impossible

under the rules, at least, to increase the deficit? the only reason why anybody suggest that this will reduce the deficit is because the books have been severely cut. it is not the cbo that did the book cooking. the cbo has to score what you put in front of them. if you put a bill in front of them that ignores the discretionary cost of $115 billion. that double counts the medicare savings. that double count the social security revenues. that does not count the fix. if you add all that stuff up and net it out, we are talking about a $7.10 billion whole. if you actually do real accounting and get away from the

budget gimmicks, this is a huge deficit increaser. it is better than accepting all of the budget debt -- budget gimmicks that democrats used to cram this into law. this thing will not reduce the deficit. i am very confident in saying that. that is not reality. >> will you seek a we score from the cbo? >> we got one yesterday or this morning. it is about the same as it was before -- $145 billion. we are going to ignore these budget gimmicks. the press has been hitting us on this. we are bringing it up under a closed rule this week. we promised the american people that we would do this. i have a notion that if you say you are going to do something,

you do it when you are in office. we said we would bring up a straight up and down vote to repeal this health care law. what are we doing? that is what we are doing in office. we do not think we should be paying for the repeal of a law that we believe will increase the budget deficit by $700 billion over the next 10 years. i get a little animated. >> fair enough. [laughter] he mentioned that you want to have a growth agenda. >> if yes. a lot of things that are a necessity you have to do as budget chairman is through reducing this and reducing that. the danger, i suppose, politically is you become -- you

get a reputation for austerity. the president takes the high ground and says he is the growth died. we need spending for investments and growth. i am the growth candidate. you began to look small and austere. you are the national accountants. how do you avoid that? obviously read rick is part of that. what do you do to be able to avoid that austerity level? >> it will be on the budget itself. let's focus on the foundations of we need for economic growth. i am not one of these people do things you can scratch some big bill with a magic silver bullet and turn the economy around. lower tax rates -- that is something we can do with a budget resolution. in your resolution, you assume

whatever tax policy you will have going for. tax reform is number one. it is a key ingredient to economic growth. we need to go after regulations. that is not something you do on the budget, that is something you do on the other committees. we need regulatory uncertainty. we need businesses to understand what the rules are. we need fair, honest, efficient , a transparent regulations. that is the second thing we ought to address to get growth in this economy. we also need to become the party of sound money. our money has to be honest and reliable to our values. we have a federal reserve and a monetary policy that is anything but sound. >> that implies you are going to bring up chairman ben bernanke and talk about monetary policy. >> i am sure ron paul has a few

plans of his own. [laughter] >> are you going to push your bill for the dual mandate? you want to see the boat for that in this congress? >> if yes. >> if you vote to get a bill on the floor. >> i have to do that, yes. >> what else? >> we need to focus on these foundations. we need to do the things we think are important to get growth in this economy and make ourselves better as america. trade, led tax rates, sound money, as our resident -- sell regulations -- that is what we need to make us internationally competitive. some of these things are other bills will have to pass. i would also attack on top of that an energy policy that creates jobs here at home, makes us less dependent on foreign oil, lower our commodity

prices, and lowers our fuel prices. these are the things we need to do to have growth. yes, we need to cut spending. >> we want to open it up for questions. >> it is important that we are the growth party. cutting spending now is really not a root canal. wait until we do not do that and what happens later. the question we have for this country is, do we reform government, reform our entitlement programs, getting these programs to work in the 21st century, and have a growth policy that makes our businesses internationally competitive -- that is growth. what austerity is, is doing nothing and having our own debt crisis and our own european kind of a fixed where we are raising taxes on the current economy to slow it down. the question we still cannot

answer is do we have a pro- growth policy to get us going again? without economic growth, you cannot fix this budget problem. or do we manage load segment growth, watch us tip over to a debt crisis, and then manage our decline as we go into a welfare state? we are coming to a country where we are getting more and more takers than makers in america. if we have more takers, then we are denying people their ability to make the most of their lives. it drains them of their intentions to make the most of their lives. that is the end, these types of policies we are discussing. -- that is the outcome of these types of policies we are discussing. [applause]

>> we are going to open up the floor. we do have microphones. please identify yourself and ask your question. the gentleman in the corner. >> thank you, mr. chairman. on the issue of entitlements, you mentioned that is the biggest area you would like to create a contract with the obama administration. quite the biggest area of contrasts -- i would say all of the budget. >> and thomas is the biggest part of the problem -- and entitlements is the biggest part of the problem? you talk about the road map and the budget which seems like less of a likelihood. you also want to put the spending cuts out there before the state of the union. are you backing all of the

willingness to go after this? >> we are cutting the congressional budget. we will put bills on the floor. i cannot speak to the timing of before or after the state of the union, but we will be bringing spending cuts of all first corder long. i am not suggesting the budget will be one thing or the other. i do not know the answer to the question. i do not have a baseline. it is a collaborative process. we have not gone through that yet. we have not had our committee hearings. we have not done the research we intend to do to formulate a good public policy. it is not like we are the majority and we have everything figured out. congress has not had a lot of oversight in the past few years. we need to get into policy. we need to bring innovative policy makers in to discuss how best to achieve these goals of keeping america exceptional.

we're not done all of that yet, so it is impossible for me to tell you what the budget resolution will look like. there i want the roadmap in the budget? i never intended when i wrote the roadmap that this would be the budget for the platform for the republican party. what i intended was to create a debate, create a discussion, encouraging other people to jump in with me to discuss how to fix these fiscal problems. what i wanted to share with the roadmap is that you can still have the american dream. but is still keep our government limited and our economy free. it is still not too late. i think i achieved that. i want to advance the discussion to an adult level. it is not quite there, but it is getting closer. when i read the roadmap, that was not me saying, "this is

exactly how to do it and this is the only way i will go." far from it. this is one way of doing it and what i personally think is the better way to go. i want other people to bring their ideas to the table to get the best outcome. we are in the process of getting other people to bring their ideas to the table. we have not completed that process yet. that is why i cannot tell you. we were just worn in yesterday. [laughter] >> we have a microphone here in the front. >> i am from the washington post. the is the roadmap, according to the cbo, does not balance the budget until 2015. -- 2050. now that you are in the majority, what your duty budget should be balanced? >> i do not know that.

i do not have the base line yet. >> but the roadmap, which is considered lead -- which is considered to be a conservative plan -- has a 50 year time frame. >> this shows you how all all the numbers have become. the shows you how deep we have gotten. we are not measuring our budget deficit in billions anymore, we are measuring it in trillions. the baby boomers are starting to retire this year at full retirement. white budget people call -- what budget people called the "pig in -- pig and the python." if you choose to grandfather the grandparents, which is what the roadmap does, that does require more spending or borrowing to finance entitlements for people

who are currently on them given more people are retiring. this just shows you how tough this is. it shows you how you are not want to balance the budget in a couple of years. why do i want to do? i want to budget -- i want to balance it as quickly as possible. it will not balance if we do not fix this economy. we will not budget be balanced -- budget the balance anytime soon. the cbo does not menaced that stuff. we need pro-growth and economic pros >> c-span is a private company created in 1979. pop next, american petroleum institute president and ceo jack gerard.

then, defense secretary robert gates how lines tens of billions of dollars in potential savings in the existing pentagon budget. monday, the national press foundation is hosting a seminar on understand in the 2012 budget. speakers include the congressional bureau chief from politico. >> i think news organizations have adapted. is it agreed that overall they're not -- is it great they are not doing international news? the public bears responsibility of keeping themselves informed. >> sunday, abc news senior corporate -- foreign affairs correspondent martha raddatz looks at the coverage.

>> the american petroleum president and ceo jack gerard discusses opposition to the obama administration limits on offshore drilling and its plans to increase taxes on the oil and grass -- gas industry. if they also released a report. this is about 45 minutes. [captions copyright national cable satellite corp. 2011] [captioning performed by national captioning institute] a and shelby coffey. i would like to thank you you all for joining us to kick start

2011 with energy. back in the day, i was the editor of a newspaper in dallas, texas, and another in los angeles, california, both states were energy demanded and got a lot of coverage. i have watched the energy dialogue evolved over the years. like you, i am eager to hear what the state of american energy is as we begin a new decade. speaking of, please note you should have received the api report on your chair. no-space you have question cards under table like this. please fill those out, if you would like to ask a question, and at the conclusion of the program will collect them. four members of the press and bobbers, i asked that you hold

your questions until after the speech. leslie, please insure that yourself loans are silent. our speaker today, the jack gerard is one of the all stars of washington, and a classic example of the mobility of american society that gives this country it's unique dynamic. he grew up in an idaho town of less than two hundred, and now presides as president and ceo of the american petroleum institute, whose membership includes a number of the most important and successful organizations in the country. it has been said "it is a long way from the mud lake area of southeast idaho, to washington d.c., but it is a road that jack gerard has thrived dead. when he joined in 2008, he brought strong experience that he worked for idaho's representative, while earning

his bachelor's degree from george washington university. he and the center started a government relations firm -- the center started a government relations firm. he went on to leave -- lead the national mining association, the american chemical council before taking the helm. with each opportunity, he has tackled one challenge after another in his remarkable career. one of the few things he has ever come up shy on the is the rank of eagle scout. he was only four merit badges short of the necessary 21. he probably did not have time with taking care of the cows. he had many households chart -- taurus in nidal, but has been making up for it ever since, and

is now chairman of the council of the boy scouts of america. the model is be prepared, and that he is, also brave, clean, thrifty, reverent -- all of those things, and he is prepared with thought-provoking remarks about the state of american energy. ladies and gentlemen, jack gerard. [applause] >> good afternoon, ladies and gentlemen. i guess i should thank you for that introduction. i am not sure who wrote that. >> i wrote that you wrote that, shall be -- shelby coffey? of tape.

i want to thank each of you for being here today. when we start a new new session of congress. we have a lot of distinguished guests. i wish we had time to go to each table and introduce everyone and talk particularly about your tied to energy. unfortunately, i would like to dispense with that and thank you you for being here, but i would like to introduce the head table. the first one that you all know well as the new chairman of the house energy committee, chairman fred upton, of the great state of michigan. chairman? [applause] >> he has a lot on his plate, not the least of which includes a portfolio of energy. we look forward to working with you. let me introduce two consumers, former governor bill graves of

the great state of canada -- kansas, the president and ceo of the american trucking association. [applause] >> next to his tom gibson, a friend, and currently the president and ceo of the american iron and steel institute, an energy-intensive industry. thank you. [applause] >> as shelby coffey mentioned, during my spare time working in the house and senate, i was privileged to attend an esteemed institution called the george washington university. i have the privilege dollars to co-chair the council on political affairs, the graduate school of political management, and then pleased to welcome the president of george washington university. president, to life for being here. [applause] -- thank you for being here. [applause]

>> and, a new-found friend. marketeers, the president of the building and construction trade of the afl and cio. about a little over zero years ago, we came together, and -- a little over a year ago, when we came together to work together on mutual interests. we are pleased to have a partnership organized labor. mark, thank you for being here today. [applause] >> let me also introduce frank stewart, was the president of the american association of blacks in energy. we of work with him before, and talked to him today further about the old rule -- what we can do to expand our responsibilities and the work force of the americas -- african-american community. frank, thank you for being here. and, we always say the best for

last. it is a rose amongst the storm's -- thorns. esther, would you please stand? she is the president and ceo of the hispanic institute. she is one of our coalition partners, representing a broad and growing constituency. thank you. [applause] >> with that, again shelby coffey, to lead for hosting this today, and i hope i can share some thoughts that will provoke some thinking, and encourage us all to think hard about the question of energy, particularly in the united states. i am particularly pleased to be here to share our thoughts on the state of american energy. as you know, this building it is devoted to the chronicling the events in world history. he then said, in many cases, defined generations, or moments

-- events that in many cases the fine generations. the greatest moments occur when we overcome the challenge or recognize and take advantage of key opportunities. in my remarks today, i want to focus on the challenges and opportunities before our country, related to energy, and how will we do this year could have a profound impact on the country's energy future, and with that, our economic prosperity. while this particular story has yet to be written for the newse um, at this moment our options for the future are coming into focus. today, we are issuing the state of american energy, such a report that provides our industry's perspective on energy and economic issues, and the way the two are tightly linked.

the report captures the challenges and opportunities that have lost. of the one hand, even in this challenging economic climate, one where people are looking for ways to create jobs, to boost revenue, and to spur investment, our industry has a great story to tell. consider just a few highlights from last year -- in 2010, when oil and natural gas companies created 57,000 new jobs in pennsylvania and west virginia alone. that is part of the marcellus shell natural gas development. these are good-paying jobs that are highly sought by local communities. the no. 1 ranking in gallup's job creation index belongs to the great state of north dakota. why? it is thanks to the record- breaking oil production numbers

over the past year. last year, oil and natural-gas company's investments in u.s. capital projects over the previous decade now hit the $2 trillion marks. finally, this industry provides to the u.s. treasury on average well over $95 million a day in taxes, rent, loyalties, and bonus payments. on the other hand, without policies that encourage the continued safe and reliable production of our domestic oil and natural gas resources, the story would be much gloomier. our report contains a wealth of facts and figures about the state of american energy. its conclusion is this -- american growth is economic growth. energy security is economic

security. when we invest in energy, we invest in america. today, after a year in which we faced as an industry unprecedented challenges, and i am glad to stay that the state of american energy has been strong, but it will remain strong only if policy makers chart a course of opportunity and certainty. with the right policies in place and all levels of government, of our industry stands ready to beat the engine of economic growth and recovery this country needs in 2011 and well beyond. with the rise in world population and developing economies, demanding more resources -- economy is demanding more resources, we will see the global demand for energy rise significantly, but that means that economies are

growing and billions of people around the world are a sending out of poverty and gaining access to a better quality of life. the international energy outlook of 2010 projects that world energy consumption will increase by over 50% between 2007 and two thousand 35. based on government projections, oil and natural gas will continue to provide more than half of the total of u.s. and global energy needs until 2035, and well beyond. these numbers clearly demonstrate that meeting this growing demand for energy of all types, including oil and natural gas, will require more safe and reliable if exploration and production, particularly here, in the united states. our industry supports 9.2

million american jobs. that includes 2.1 million workers directly employed exploring, producing, refining, and transporting the oil and natural gas. if the number also includes 7.1 billion workers whose jobs support the oil and natural gas industry. he equipment suppliers, construction companies, management specialists, food- service businesses, and the list goes on, are all tied in one way to the oil and gas sector. many of these are small business, medium-size businesses, those with potential to grow. every size -- every sector of our economy depends on affordable energy. every business and they're all it every business owner, every worker, every household, every consumer depends on reliable

supplies of oil and natural gas. for the 9.2 million workers in the millions of depend on oil and natural gas? you can see some of them if you look around the room and look the posters to have been displayed. these are images of real people who we have featured in our new "i am 1" advertising campaign which launches on capitol hill in the south might -- capitol south metro station. we will then roll out a further campaign to educate the public on issues important to the energy industry. the ads features the workers, the consumers, and homeowners, and others, who are part of the american story of oil and natural gas. this is why, as i mentioned earlier, the american energy and the american economy are closely linked. the state of american energy

must be strong in order for the american economy to thrive. how, then, do we strengthen the state of american energy? for starters, there are vast reserves, best resources of domestic resources and natural gas resources that are currently off-limits to exploration and production. billions of barrels of oil, trillions of cubic feet of natural gas onshore and offshore. >> we interrupt this program to bring you breaking news. rep gabriel gifford has been shot outside of a grocery story in tucson, arizona. a number of reports are coming in saying that she was holding a congress at your corner event near a safeway store in northwest tucson when an unidentified man ran up and started shooting. 12 other people have also been

injured with unconfirmed reports of fatalities. if the tucson citizen reports to congress woman was shot in the head. the gunman was taken into custody. rep gifford was first selected in to the u.s. house in 2006. we will have pockets as details become available. -- we will have updates as details become available. >> excuse me. >> in developing the new found natural gas reserves in the marcellus shale. that is good news to be sure, but it is just the tip of the opportunity icebergs. if expanding the marcella share natural gas could create two hundred 80,000 jobs in addition

-- and an additional $6 billion in government revenue just over the next decade. similar success stories are playing out in other parts of the country like northern louisiana, texas, arkansas, and colorado, to name just a few. we can build and maintain an even more vibrant natural gas sector with a clean-burning abundant and affordable resources, but we need the political will to make this a reality. two more energy sources that deserve mention -- for the first is canadian oil sands. if greater oil sands from a friendly, nearby neighbor like canada could create 340,000 new american jobs and economic benefits that could add up to $34 billion to our gdp by 2015 in just four short years.

the second is oil shale. increased oil shale production costs could add as many as water than thousand new jobs, millions of lease payments and royalties topping $2 billion a year. our industry is also researching alternative and renewable sources of energy including solar, geothermal, bio formal, fuel sells, hydrogen power and wind energy. we even invested $58.4 billion in low and zero carbon emissions technology is just between 2000 and 2008. that is more than either the federal government or all of the u.s. based private industry's combined have invested in these alternative forms of energy. we can and should be doing all of these things to improve the state of american energy and our

economy, and we can, and are doing them safely. the callss tragedy of brought new attention to the risks associated with what doing what men and women in our industry do every day. in the days and weeks after the incident, i am proud of the way the industry responded, quickly, molding vessels materials and manpower to the effected areas. we immediately brought together industry experts from around the world and created task forces to identify ways to enhance the focus on safety, even before we knew the actual cause. the task force recommendations are already helping to improve safety through the development of new industry standards, and new corporation and government regulations. we have a read-doubled our commitment to safety, something we have been focused on for more

than 60 years that we have operated in the gulf, and more than 42,000 wells later. we have developed the technology standards and best practices that have helped insure the work place safety and environmental stewardship remains at the forefront of the offshore development process. while the strength of our existing system is precisely why incidents like the one last year are rare, there is always room for improvement. that is why it worked on advancing safety will never be done -- that is why work on advancing safety will never be done. we will continue to strive to improve performance. the commitment to improve safety while we continue to develop and explore resources must be paramount for industry and