accommodative. that being said in situations like this where unemployment is very high and inflation is low, i think that monetary policy does have some scope to support recovery, and, therefore, to help on the employment site. so i say that but again, reemphasizing just like other central banks the federal reserve is very committed to price stability and we will make sure that happens as well. >> would we have the unemployment numbers today if you didn't have the ability, or the mandate to look out for unemployment and try to keep it low? >> it's really very hard to tell because, again, inflation is also very low so we might have been -- we would have a very easy policy because of the need to keep inflation away from the deflation zone, to keep deflation away from zero. that being said, it may have been some less accommodative.

>> at the fed doesn't have that authority that we could be any worse scenario to recover and come out of this stuff. one of the things that struck me, one of the gentleman from the other side asked you about ambitiously 4.5% growth. if we had that emphasis growth, it would still take five years. if we had three plus growth percent a year we're still be, take 10 years to get out of here. that's a lot of decades as far as i can tell. we're in the same position japan was in during the '80s. that's unacceptable to me. i'm from ohio. we have cities in my district that are 10, 15% unemployment, crime is going up, all the social problems because people are out of work. what else could we do hear from the legislative side that could help drive that number down quicker? >> it's very difficult. no easy answer where we are. one suggestion i have come and i've been trying to reiterate

this is that even as you're looking at budget cuts and balancing the budget, all which is a very important, it's also important to think about the composition, can you make the tax code more growth friendly? can you improve the way you -- you're spending is allocated? >> infrastructure like you mentioned, you know, $50 billion, $100 billion in the next year or two for infrastructure that needed to get done anyway, in education and job retraining that would put people correctly back to work. is that something that would help drive down this on deployment rate quicker? >> what i'd like to see is that combined -- if you do that i'd like to see a combined with the longer-term perspective that maintains budget discipline over the next few years. otherwise a risk might be that interest rates would go up and that would undo some of the benefits. >> i think we're all in

agreement that long-term demographics of health care costs, and that's what we try to do with with health care reform bill which cbo says we'll save us a trillion dollars in the second decade, and almost 200 billion in the first decade. that's what cbo is saying. and also some disincentives to work that were mentioned earlier. one of the disincentives to work it experience with folks in my district is they are better off being on medicaid because they have health care for their kids. health care reform is now an incentive to go back to work because you will be rewarded with health care. so i think those are two things that need to be addressed. so i think we need additional fiscal stimulus to drive unemployment down. we should be so worried about inflation in places outside of our country. and i think we've got to worry about jobs here at home. one final question on chinese currency. do you still believe that the chinese are manipulating their currency? and if they are, is that feeling the inflation in china?

and how is the manipulation of chinese currency affecting our ability to recover here in the united states? i will just wrapped into one. >> it is undervalued. it would be both in our interest and in chinese interest for them to raise the value of their currency. and it would help with her inflation problem. one of the things is happening which is a little surprising in a way is that they have an inflation problem and the way they are addressing is not violent raising their currency value which would reduce the demand for the exports, they are leaving it where it is and they are instead trying to reduce domestic demand through higher interest rates. and it would seem like a better strategy would be to let domestic demand be what it is and let people enjoy higher standards of living in china and reduce the exports via a higher exchange rate. so yes, it is a counterproductive policy both for them and us and it is

contributing to the still large global imbalances in terms of current accounts that we see around the world. >> mr. chairman, thank you. 's. we got get going. >> mr. mole many. >> thank you, mr. chairman. dr. bernanke, a privileged to bring here. thanks for doing the very quickly i'll try to bring us back to the budget process as we are starting to start that here right away. one of the things that we look at, i know you have look at is the cbo baseline projections. which are made of able to us i think last week. and i am comparing it to what i've seen happen in the bond market. we saw the 10 year treasury go through 3.5% on monday, 3.7 yesterday. it was still trading above 3.7. when you look at the cbo's projections for what the interest rates will be over the course of this year this in a 3.4% rate for the 10 year treasury for the balance of this

year. is it fair to tell you that cbo may have underestimated the environment, the interest rate environment we will see for the bows of 2011? >> -- the balance of 2011? >> i would say we're at 3.7 now, that reflects anticipation of higher growth. of course, as you know, the rates changed pretty radically. i don't happen to know what cbo expects for next year, and i think for the longer-term horizon it's the whole path that matters because the car -- you expect interest rates to go up. >> it is 3.8% for next year and roughly 3.5% over the next several years. my concern is something he referred to earlier which is that we are so exposed on our debt at roughly $14 trillion, they even admit, the cbo does come if they're off by just 1% on the estimate for interest rates, it translates into an additional $1.3 trillion worth of debt over the next decade.

that brings the to the next issue which ever discussed a couple times which is the debt ceiling. you said something that caught my attention which is you were concerned that some of the proposals that may have been offered including senator toomey's communism question about the workability, about trying to prioritize spending among debt repayment and interest repayment and various benefits programs. given our fiscal situation, if we were able to figure out a way to work through those workability problems come if we're able to pick out a way to prioritize, without assuage your concerns as using a debt ceiling as an environment of discussions about changing our fiscal policy? >> well, my concern since i'm sort of mostly involved in the financial side, my concern is about not defaulted on the debt. i think that jimmy is a very high priority. so that would help on that account very much. used it would be in a position of course where you would be not

paying contractors for example. you would not be putting up social security and medicare checks and those things. if you think that's something you're willing to do, that's up to congress to decide. >> fair enough. last question. we've talked about your plans to exit this expansionary policy when you see the need to do so and you've talked about raising rates, talked about regaining some of the securities that you hold. are you satisfied to be able to do that quickly enough to react to inflationary concern? >> yes. we can raise short-term interest rates which is the main tool we have, essentially as quickly as we like because we can raise the interest rate that we pay to banks. so yes, we don't have to sell off all our assets to tighten policy. we can do it via our control over short-term interest rates. >> had to give serious consideration to not completing the qe2 program? >> we review the program at every meeting. we have another meeting come up in the middle of march and we will as we always do, we will

look at the outlook for both employment and inflation. and it is certainly possible. i mean, we take very seriously that this is a program that needs to be looked at at every meeting, and in light of how ever the economic news comes in. >> given the fact qe2 is more of the unusual and extreme, extreme is not the right word, but the tool you're using during this period, would be fair to say that you would consider ending qe2 before raising short-term rates of? >> yes. i think they'll be the most likely outcome, just spent the last question, maybe a point. there is another $1.5 trillion gorilla in the room in the terms of the amount of money that gets dumped into the system, the policies were talking about which is our fiscal policy. you have no control over our fiscal policy and you can do everything to can't do restriction, to restrict expansion policy. and if we continue to spend a bunch of money we don't have, we

will be contributing to inflationary pressures, won't we? >> yes, but i think even more severe you'll be contributing to financial problems, the stress of the financial markets. >> thank you, sir. and say hello to my friends. >> thank you, mr. chairman. dr. bernanke, thank you for laying bare some of the myths for us on both sides of the aisle. about the financial situation that we face today and the financial situation we actually face a few years ago, and hope we will learn. i want to thank both of chairman ryan and ranking member van hollen because of his civil tone that the questions have taken. i think it struck me, maybe it's normal for all of you. so i will try to continue on that avenue. i will try my best.

for the past several months some folks have been promoting the myth of a europe with an overrun health care system, overbearing government, and economic stagnation. but not long ago some of these same people had nothing but praise for the same countries low taxes, low spending economies. so the problem of this theory is that it's incorrect, i think. ireland ranked near the top of the heritage foundation's so-called freedom index while sitting on a property bubble fueled by banks that had run wild. then the bubble burst and the revenue dropped, and the public debt exploded.

we need to remember, my good friend, the mayor of new york who said i didn't have ago when he was running that what we need to do, it will take is for five years before we return to where we were, 2006. the point is we don't want to return to what it was in 2006 because that's the problems that we did not address and we see the systemic and we see the result of not addressing them. so these countries are relying on the same theories of slash and burn budgeting that is being talked about here. not just today. the problem is it doesn't work. for instance, britain, it's a gross domestic product fell .5% in the last quarter of 2010.

widespread losses in construction, widespread losses in transportation, and in services rendered to the public. so i think we're all here to roll up our sleeves, with your direction and advice, address our long-term deficit, but we cannot pull the legs out from underneath the recovery. and i think this is your message, correct me if i'm wrong, by taking a slash and burn approach of government operations, our full faith credit of the country hostage, mr. chairman, doctor, what do you see as the result of the immediate and drastic cuts to the federal budget? what would be the result in your view of? >> well, i think if that's all that was done, the cost to the

recovery would outweigh the benefits in terms of fiscal discipline. i think we really need to take a long-term view. now, maybe a bit of a down payment is needed that we need to show not just -- we need to show that we have a plan that will carry us forward for the next decade at least, that will produce consistent reductions in the deficit over time, and it has the benefit of allowing us to think it through and to take the time needed to change programs, et cetera. so again, my message is, would be i think that the best approach is to take a longer-term perspective. that's my -- >> this is not just a one of you -- one or two years think? >> nothing we can do now will solve this problem. >> i think folks on both sides of their how to understand it that there has to be cuts to the budget. there's no two ways about it.

we cannot continue to have tax cuts that are not paid for where we have no offsets like we did in 2001, 2003. we were warned in 1999 before those things ever happen. and we did not heed them. my last question is is it your opinion that whatever deficit savings we would find in an immediate and drastic slashed approach to the budget would be lost to an economic downturn or stagnation. do you agree with that? >> i don't know quantitatively, but i do think there is a concern about only focusing on short-term cuts. because of the recovery which is still not complete, i think cuts combined with a long-term perspective would be both less painful for the current recovery and also more credible for the bond market. >> thank you. i appreciate it. thank you chairman spent our time is fleeting and the staff has suggested that minority has agreed that we go to three minutes if there's no objection

on the remaining questions. so without objection, will next go to mr. aiken. >> thank you, mr. chairman. over this way. the comment come it seems like when we talk about dealing with the budget deficit, it reminds me a little bit about these all kinds of imaginative weight loss programs, you know? it seems like when you get down to the bottom line, you can either eat less or you can exercise more. you are only given to alternative. it seems like we're in the same way. we can try to sugarcoat it, but the problem is either we're spending too much on we have a to an attack a lot more. a comment was made harder which i thought was an amazing quotation from ms. mccollum, that budget deficit is not a spending problem. i found that amazing because it seems like and it sure is a big spending problem. we're just on different planets i suppose. but let's just assume if you're

going to cut spending that you will try to increase taxes. my understanding is as i take a look at historic data, our tax revenues run somewhere in that 18% range. my understanding is if we were to double the tax rate on everything across the board, we couldn't assume we're going to get double in revenue, federal revenue. in fact, we may do what you're saying, crashed the economy and get even less. i do recall we did dividends, capital gains and death tax in may of '03. and the congressional budget office said now you have less revenue. but, in fact, there was more revenue because the economy kind of got going. so my question is, when i take a look at this overall problem that we are to have the in terms of, like a weight-loss thing, it's pretty spooky to me because you add all the entitlements, the main ones, medicaid, medicare, social security and the other kinds of entitlement

and and debt service to that, and when i look at the numbers looking about 2.3 roughly trillion. to reminisce about about the same thing. you discretionary nondefense and right now just at parity. so i don't understand, i guess my question to you is first of all, don't we have to essentially deal with the entitlements just by definition? or can you make it up by doubling taxes and hope there's going to be a ton more revenue and? >> well, i think that as you point out, i mean, in the long run the way we are going, entitlements plus entries with basically the entire government budget. so unless you raise taxes considerably. now, it's up to congress to find the right balance between taxes and cuts and so on, of course. but i just think you need to look seriously particularly of the health care costs, which is of course part of what's been going on the last couple of years in congress.

but i think focus on the cost side is important, and it would be difficult i think -- well, i am very loath to prescribe exactly out to address these issues i do think it would be very difficult to leave health care programs untouched and still achieve budgetary balance in the next 15 years. >> i think what i heard you sing is you really have to deal with that rate of spending, and particularly any entitlement, the health care pieces that is a big part of that, that has to be dealt with. and that raising taxes, just to finish the question, can you raise -- >> we are out of time. >> thank you, mr. chairman. >> thank you, and thank you, chairman bernanke, for your good work over the last few years in helping the economy began to grow and do your part you're not easy decisions on any of our part, so appreciate what you have done. and some of your comments at this point were really very important to us as we see this

beginning of a recovery. and some of your comments about your optimism may be too strong. your sense that we are going and going out of it. you've also made some comments i want to follow up on which is really about the debt ceiling. and the recklessness, they are being politics played with raising the debt ceiling. none of us want to raise the debt ceiling. we would much rather not have to be in this situation. but the two consequences of not raising the debt ceiling as you pointed out is to really help i want to confirm, the harm it would do to the united states and our ability to borrow in the future, interest rates. and really defaulting on our not paying is just a huge consequence to our economy. so you want to talk about that again if you would exactly as i think has been pointed out, and

senator from pennsylvania, our new senator, senator toomey, have proposed legislation that would make debt payment to our creditors, our foreign creditors that priority overpaying, instead of paying our social security beneficiaries, possibly not getting checks. our veterans not getting payments. u.s. contractors not getting payments. so we put the u.s. in a different position of no longer having space with american seniors, american veterans. and, of course, u.s. companies are creditors. so he could you comment on both of those? i think your comment very much on the first piece about how reckless it would be. the second one would put us in a position of losing faith with the american people who have counted on us to do that and leaving that prioritization, making statements very clearly that we would rather pay our foreign creditors than to

actually pay the american people. >> on the first, defaulting on the debt which we probably an immediate financial crisis. a very severe one. and would have very deep consequences for our economy. and even assuming we were able to get to that we would probably lead to much higher interest rates for the united states for many years to come here this was pointed out by a couple of folks that applying a higher interest rates are existing debt, that would be a very big step backwards in terms of trying to balance our budget. on the prioritization, that might help -- that might help address the default problem, which is very important. it's up to congress i suppose what do you it's worth doing what you say, which is stopping social security checks and those sorts of things. i just wanted to make the very narrow point but still important point that there are operational problems as well. even if we are instructed, the federal reserve is the agent of the treasure.

we make a lot of the payments on the half of the treasure and we would have to figure out how to tell that this check to mr. jones is a payment on his interest and this check is a social security check. there would be some practical operation problems that would like to bring up if we move in this direction. >> it's reckless and it is -- thank you very much. i appreciate your comments. >> mr. wood all is next. >> mr. chairman, i appreciate your willingness to spend his two and half hours with us as a junior member and as a party member. i'm grateful. i appreciate your comments about the economic impacts of simplifying the tax code, lowering rates, and limiting those distortions that are there. i want to talk specifically about those dollars better overseas and i think back to the wall street editorial, a trillion dollars overseas that want to come back home for whatever odd reason. i'm new to this body.

we will tax you if you try to invest in america but we will let you invested overseas for free. what do you think the economic impact would be of having that tax holiday to allow those american companies who want to bring and invest those dollars in america, to bring those back? >> we have done that before a few years ago and a lot of money did come back. some of it went to dividends and that sort of thing. some of it probably went to investment. it's hard to tell how much would go in each direction. i think if you're going to do that you might want to consider the more permanent alternative which is do what other countries do, most other countries, and put attacks on kerry told basis in the first place. you would get a lot of repatriation if you get a holiday, no question. >> you've talked a lot about low long-term bond rates. i think when we did it back in 2003, the rate was five and a quarter. what we see a substantial difference is that rate was zero

and without the limitations that we place on that repatriation back in 2003? i would've a substantial -- >> beta one is probably -- beta one is probably a good bit less than the current rate. i don't really have more to add on that spent there was a lot of discussion back at that time about how many of those dollars went to dividends. you've also talked a lot about the importance of consumer spending in terms of giving us out of our current situation. having those dollars go to dividends, is that a bad thing or is that just different from investment but it's still going to contribute? >> yes, dividends could be spent by consumers, that's right. >> you also talk about the importance of asking a question of how smart is this vinegar is there any spinning out there that you would say is sacrosanct and should not be examined or should we be looking at everything? >> i hope you look at everything.

>> thank you very much. >> ms. wasserman schultz is ne next. >> i got it to work on the first time. thank you chairman bernanke. it's good to be with you. testifying, when he testified before the senate budget committee last month, you observe that the recovery act fund will run out in 2011 and you acknowledged at the time that the exploration of those funds would worsen. and your words prevent ahead when for the overall economy. in addition with the announcement of chairman ryan spending cap for fiscal year 2011, our colleagues on the other side of the aisle are intending further cuts of discretion spending with such a critical component in the recovery act, and so essentially that's like an anti-recovery act. given this headwind, what would you say the impact would be coupled with the inevitable cut in state and local spending -- state and local budgets because

of the deficits that are not going to face because of the recovery act all? if combined with the draconian spending cuts proposed by our republican colleagues, is there any way that solely cutting discretionary funding, spending in 2011 which is mr. ryan's plan is going to create jobs on its own? what impact will that have? >> well, for state and local governments specifically, their tax revenues have improved somewhat as the economy has gotten better, which is a help. but they still are under considerable strain and that, reduction in employment and spending at that level is going to be a negative, it's going to be a negative for growth. i can only come back to the point i made a couple of times, which is that i think it's important to address the deficit. but i hope the rather than doing a one off kind of thing, that you look at a longer-term window, a longer-term horizon,

and in thinking about, keep in mind that we are still coming out of a very deep recession right now. but that doesn't in any way reduce the need to address the long-term structural budget problems and i hope that you will do that in a very serious way. >> acknowledging that we do need to address the deficit, but taking by themselves which is what is proposed draconian cuts from the chairman of the budget committee, combined with the impact of the recovery act fund being phased out and no longer being available, what is that likely to do to the jobs, our potential for creating jobs and the continued pace of the recovery? >> that would depend on the details but again, i would like to reiterate that you need -- it's better i think you think about this in the context of a longer-term plan, longer-term trajectory for fiscal spending. >> and just on health care, the

affordable care act included numerous provisions to contain costs by moving from a system that rewards quality and value and consistency. would you agree by giving providers incentives to coordinate care and reduce wasteful spending that we have potential to generate real savings? >> i'm not really able to make estimates. i know there are some measures in health care plan that are intended to reduce costs. i don't know how effective they are going to be. i think that's something that congress ought to monitor very closely and look for any additional ways to confront, to control wasteful spending which, of course, there is a great deal i think in the health care industry. so, since we're discussing under the health care spending is going to be an enormous part of the federal budget in coming decades, anything you can do to reduce unnecessary spending will be very, very helpful. >> thank you. i love washington, d.c., cutting

budget deficit is different i so appreciate your thoughts about long-term reform, because just the beginning. i can't wait to get to some long-term reforms. when you see will be vigilant about watching for inflation, can you name one time in your agency's history where you got it right next we've got on the brakes in time to correct runaway inflation? you have any track record at all? >> absolutely. ever since paul volcker conquered inflation in the early '80s, inflation has come down very steadily. and over the last -- >> i fear that you mention paul volcker. i don't think he got to it in time. >> after. he came -- >> 2% or less. by time chairman volcker left office can he came with a 13%

inflation rate. he left office with 4% inflation rate. >> after it went to -- >> 13% was the highest. then it came down over about eight years under his stewardship to about 4%. then from there under chairman greenspan and to the late '90s it came down gradually to about 2% and it's been there ever since. >> i do think the agency got to inflation on time. as you are proposing. >> it has come it has except in the '70s which, of course, can learn from. >> maybe we will beg to differ there. that banks, there's a lot of government products on the street to support this borrowing that we are doing. doesn't make sense, alisa destiny, that when banks have one of your products to invest in on their balance sheets versus a small business down the straight, they're going to go to your product. and so could you argue to mr. langford's point that my lord, if we just stop these products are being offered and let banks invest in the private

sector where you get a better return on your money, that could be a solution ?-que?-quex at least mr. langford's question. >> no, i don't think so. we pay 25 basis points, one-fourth of 1%. so if there's any attractive and opportunity out there, banks will prefer to do that and put money with us. secondly, the existence of those reserves is the counterpart to the purchases of securities that we're doing which in turn is lower the rates and making it easier for borrowers to get credit. so you can't look at one side and not look at the other side. so i think that's not cricket i think it does help credit extension spent okay. thank you. one last thing. over the last three years you indicate over 1 trillion in government spending. considering when government gets a dollar, we make 60 cents. i think the private sector record is for every dollar the private sector did they make one 20th or one 30th. casualties argue that taxing and borrowing and bigger government is not the most effective way to

grow the economy? >> it is certainly true that taxation in particular has what's called a dead weight loss. so the loss to the private sector is greater than the taxes actually paid because of the distortions that are caused. and as i said i think anything that can be done to make the tax code more efficient and fair, low rates and so on would be good for the economy. >> i agree with you there. thank you. >> thank you, mr. chairman. chairman bernanke, thank you very much for your test would i want to return to this issue of the possibly of not extending are raising the debt ceiling. and focus on the economic consequences. i think the american people i think would be repulsed by the idea that what we default on her debt to set the concept of you have called catastrophic. we call it reckless. on all not not a good idea. but the idea of privatizing payments is frightening to me because what this essentially have the effect that we would be

paying china before we would be paying our troops in afghanistan and? >> yes. >> it's a pretty scary concept. talking about against the impact on the economy, if we were to not raise the debt ceiling and we didn't do it for six months, in that period of time, absent that we would be spending about a trillion eight, a trillion nine, something like that during that six-month commitment that be about right? we would be spending close to $2 trillion. and we are now borrowing 40 to 50 cents of every dollar we spend. so essentially wouldn't we be taking somewhere close to a trillion dollars out of the economy during that six-month period? which essentially is more than the entire recovery and reinvestment act. >> i think personal i should point out some of that money will be going overseas and so on. but i think that affect would be

just dwarfed by the financial crisis that you would be engendered. >> all in all pretty draconian is the word has been thrown around, pretty draconian and negative impacts on them. i wanted to clarify one thing that mr. akin raised about my colleague ms. mccollum stated. i don't think she said that it was not a spending problem. she said it is not solely a spending problem. and since we just recently, there's a report out that we are at the lowest tax rate this country in 60 years. could you square the concept that we don't have at least somewhat of a revenue problem in terms of the budget deficit? >> we have a revenue problem right now in part because we haven't recovered, and so the share of gdp that we're getting revenues is way below the historical average. so that's a temporary situation, we hope. we hope it will go back more towards a 19% of gdp that's the

normal. but in the longer term basically economists would just have to decide where its values are, whether it wants to raise taxes, whether wants it has been on it wants to make accommodation. i hope you look at the whole set of options and try to think about what is best for the economy. >> one comment because you referenced taxes that are growth for the. my brother is in the barbecue business. he's done extremely well. paid a lot of taxes, and he said when we're talking about whether to extend the tax rate for the people making over a quarter of a million dollars with certain inclusion, he said i don't care what my tax rate is, i care that people can afford barbecue because if they can't afford barbecued it doesn't matter what my tax rate is. thank you very much. >> thank you, mr. chairman, and thank you dr. bernanke for being here. i want to see it a little on the subject matter of debt ceiling and then i want to move into state pension reform in state

debt and deficit and how that may impact decisions congress has to make. earlier during the hearing someone had referred to a debt ceiling vote as quote routine. i happened to be one of people who believe that's part of the promise that we having. this notion that we're going to continue as the federal government to borrow beyond our means i think as a direct impact to the global markets, to our marketeer and to consumers and employers and small business owners that are trying to have predictability are the ones are going to really help us emerge stronger as a nation and as an economy. i also is concerned about some of the comments you have made our phrases you have used. some i appreciated and agree with, and some of that concern me. one was unwind some of the semester i agree with it. i think what you're saying is that we should be stopping the

use of stimulus and returning to some of those dollars. he also said future spending must be quote smart spending. when you say future spending should be smart spending how would you categorize the spending up to this point in the last two years? >> i was only making a point. what i'm afraid of is that congress will look only at the total spending, the total revenue numbers and in tribe doing about how to make those people which is important. but it's also important to look at the programs, look at the tax code and make sure it is as effective as possible. i wasn't claiming i could identify waste, fraud, and abuse but clearly whatever it -- >> we have to reduce or spending. we've got to simplify the tax code which i think i heard you said earlier, and we've got to sort of, or i would argue reduce some of the radio toward environment that is going to get some of the private sector money that is on the sidelines back into the economy which i think would replace the federal

spending that is being suggested as required for this economy to move forward, that the second question i have a concern i have is according to census bureau data, this is fy08, we have 4% of interest on debt, a sheriff state and local expenditures and with fy08 that outstanding as a share of 18-point to present their can you come in briefly on those levels if they are appropriate, if they hire or no and compare it to our levels as low? >> they are clear lower than the federal. that's 18% versus 69%, and most of that debt is associate with capital projects as well. so in their respective states are not as bad off in some terms of the federal government on the other hand, they're very difficult short-term situation

doesn't give a balanced budget amendment and with a falling tax represent difficult cuts on spending and employment. it i would say also that 18% number doesn't take into account long-term issues. i think you referred to already, the pensions and health care unfunded liabilities which are potentially much more significant. >> thank you, sir. >> thank you, mr. chairman. and thank you, chairman bernanke, for your long-suffering today. i apologize i had to leave for another hearing. i have three simple questions that are probably just one word answers, and then a little bit longer would have you ever seen a recovery in modern history that has not been led forward by housing and construction? >> it's normal for housing and construction to be an important part of the recovery. >> thank you very much. its absence is deeply troubling to this member.

number two, with the instability in the middle east and rising gas prices, could i ask you at what level of gas prices in our nation would we trigger a deep recession began? i put the number of that $4 a gallon. where would you put it? >> i don't think there's a single number but it's true that as we move up above $4, that you're beginning to take a significant amount of disposable income away from people and that acts like a tax essentially and makes it more difficult for the economy to grow. >> thank you. i don't know if you have any ideas about helping to put to work the unemployed. useful applet identified in your opening statement those who have been out of work for more than six months, thank you for recognizing that, that lost productivity is up deep concern. what we be the most effective means to reemploy in the short term and to gain productivity in this economy? >> i don't have any good answers. as you know the fed is trying to do our best to help improve the

employment situation. i guess one day to look at would be the unemployment insurance system that maybe there might be ways to use some of the money to give training for example, rather than just simple income support. >> thank you very much for the. longus question, last december congress and the courts force the federal reserve to release its report on what to get done during the financial crisis, which financial institutions receive money through the federal reserve. you have opposed compiling and releasing that report, claiming that making federal reserve activitieactivities public would disturb the financial markets. what we have learned is the federal reserve really wanted to keep secret that it had bought back from german and swiss banks more than a half a trillion dollars of bad mortgage-backed securities that wall street megabanks have pulled off to those banks. clearly this is something the fed apparently didn't want the

congress and the public to know. we now also know that private gains provided to wall street and foreign banks were at the expense of massive social costs force on our public in the form of growing debt from historic levels of unemployment. why should congress and the public know what the fed is doing, especially when it puts on to the u.s. financial system and public system such burdens as buying back bad bonds from foreign banks? and my questions are, did you defend secrecy for the sake of secrecy, or did you defend secrecy to protect the fed from the public's view of mistakes made by the fed and its member institutions? >> there is a longer any secrecy. a discount when the there is some case to have secrecy during the period of the crisis, all the information is never good with a two year lag under the dodd-frank act so there is no aspect of the fed's now which is permanently secret. i had no idea what you're talking about with this was --

would not purchase mortgage bonds from anybody other than fannie and freddie. and we sent money only banks that have through their u.s. operations which is required by law that we could automatically operating banks the same time and we lent against collateral. we were repaid in every single case. >> mr. kempe could i ask -- >> is never going to get a chance. >> i ask that all members questions be submitted in writing and the chairman respond. >> thank you for visiting with us. it's my privilege to be with you on the you on the half of my southern indiana constituents. as you know japan recent had its credit rating downgraded in light of its fiscal situation. part of the justification for standard and poor's downgrade was the fact that japan has no coherent plan to deal with is unsustainable fiscal situation.

here in this country like japan we have very low interest rates, as compared to recent history. our own deficits are adding to our national debt at a remarkable rate. and we, too, have no coherent plan to deal with this. at least in the long term. you have indicated there is no magic number. i think that's fair. i think history proves it out. there is no magic debt to gdp never. that said, you know doubt have some sense of when we're getting close to unsustainable debt dynamics. when are we getting close to ask and what are the main indicators that we need to monitor? we as members of congress, you as a federal reserve to avoid a crisis. >> we already have considerable increase in a debt-to-gdp ratio and we are heading towards 90% by, i think it was 2020 i believe, i'm not sure. so as we move out beyond 90, 200

we are approaching the level to where some of the countries in europe are what you have a very serious problems. again, i don't know, there's not a magic number and the problem is that you can't tell in advance when the bond markets might begin to become worried. i think the bond markets are looking not only anyway at the debt to gdp never come they're looking at the plan. does the country have a plan? does have the political will and so on? i think if we demonstrate we have the political will i think the markets will be quite forgiving spirit i suspected you would say that. so the very fact that this congress doesn't have come has not implement a bipartisan coherent plan to deal with that situation, to the and one of the things is no doubt drive our debt to gdp is our federal spending. things like medicare, and i was encouraged to hear my friend on the other side of the aisle indicate earlier she wants to put everything on the table as we deal with this. medicare, why do we take the and put that on the table as one example because you have indicated we have a choice,

international press club, she said we'd even make adjustments are careful and deliberative process, when this crisis hits we are going to have to do things very quickly in a hasty way that maybe most of our country is uncomfortable with. do you agree that medicare is in on a sustainable path and that it must be quickly? >> it's going to be a very, very big share of medicare, medicaid all health has been programs will be a very big share of government spending and a gdp over the next 10, 15, 20 years. and i think long-term budgetary stability and economic health and the united states in general requires us to look very, very hard in ways to save costs on health care spent thank you so much. >> ms. matz. >> thank you, mr. chairman. i'd like to ask you questions about the consequences of not thinking of that scene. and i really wanted to know if you could paint a picture of the consequences?

coming from the state of california and in the state legislature we are having to manage our budget crisis when i was first there a couple of years ago. our budget was $110 million. we cut it to 83 billion. and now my colleagues who aren't still there are left with a $23 billion deficit. and so if we didn't let the debt ceiling what would that do to the state's? with they be able to refinance their debt? >> i see what you're saying. well, i think it's important to know that california always pays its interest. it uses a script and so on for some employees. up for some payments but it has paid interest. even so i think it was green on california debt when up for a while or at least following that. it's clear that the value to pay interest on a u.s. the debt

would have and would create enormous crisis of confidence in financial markets and into the bond market. it would as a practical matter cascaded through system because banks and other institutions are counting on receiving interest in or to make their payments would not be able to make their payments. so you would have a seizing up of the financial system that could be quite detrimental to our economy. even if that was worked through some out and say, for example, the debt was raised within a few hours, the long-term consequences in terms of the interest rate that united states government would have to pay could be quite serious, which in turn would make our debt payments, interest payments much higher, to make the deficit all that much worse. on the states, i think it would be some indirect effects because after all, the federal government does provide a bit of income to the revenue-sharing to the states, make the situation worse as well.

>> would have access to alternative funding sources if it wasn't raised? >> no doubt the bond markets would be very disruptive. if they're able to borrow, very possible it would be much higher rates than their borrowing today. but whether they would have access i don't know. >> what about intergovernmental transfers from the federal to the state government? you might have -- you are addreg that if you seconds ago but can you elaborate? >> it depends on the prioritization. if all payments are shut down, other than payments on the debt which again, i think has some serious technical concerns associated with it, but then that would mean presumably that payments to social security, medicare recipients, contractors and to the states would all be interrupted until such time as the limit was raised. >> thank you. in the interest of the chairman start and we we have two more.

>> thank you, mr. bernanke for being here. i have enjoyed the discussion and the dialogue today and the small business owner from back in northern in indiana, for the last 15 years i've seen a lot of fluctuations in several different sectors we've been involved in. and i guess what to touch him with a real quick because as a business owner going back to what ms. bass was talk about what the debt, currently we do not prioritize the debt come is that correct? why can't we change that? why can't we focus on making sure that our current debt, our primary obligations be taken care of and then start basically by process of elimination moving down that ladder and say we're going to make sure that we don't default? i don't believe we should default to do. even though i'm a freshman congressman, i think that we do have an obligation to doing th

that. >> the only point i would make there is that there are some technical difficulties. i mean, the federal reserve as the agent, the federal government makes many of these payments including interesting than other kinds of payments as well. we would have to find ways to make sure that we're making interest payments and not other kinds of payments. so i think it would be be some serious operational concerns. i'm -- particularly if this came with very short notice why do raise that point for your attention. beyond that, congress again has to make that determination whether you are willing to stop social security payment and the like as a temporary measure. >> i think if we make that one of our priorities because people have paid into that for years, making sure that the prodi, making sure our military is a priority, making sure interest as a priority, can't we then say to our, those who carry our debt that we will make sure that they're taking care of, and

moving down the ladder and making sure our priorities are first and foremost at the top of the list so that let way we don't have to worry about -- it just seemed like coming to washington so far, issues a for conclusion that we have to raise the debt ceiling. are we taking measured steps to save the long-term, not just with a short-term notification that you all would have to change operational infrastructure and things, but long-term would we be better off having some flexibility like that? >> well, the amount of bars the government has to do is already determined when you agreed how much we spend and how much you will tax. so it's like this debt was incurred are eager to question are we going to make the payment we all are not. that's what this is about. on terms of the prioritization, given enough time i'm sure that could be worked out but i do want to make sure people understand if this is a short-term thing that there could be -- it might not be technically possible to carry it out. >> but long-term you think it

will be a good thing? >> i would just be for instead that again, i'm sorry, i think this whole issue is very, very import but i think the best way to do it is to just sit down and look at the long-term situation, look at each part of the budget i tried to come to decisions about how you're going to address these imbalances. >> ms. black. >> not working. there we go. thank you. mr. bernanke, i apologize for not being here during the entire hearing but i had another meeting. so it seems to me that i continue to hear over and over since i've come in that you do agree that it needs to be a long-term plan. and certainly looking at more than half of our budget is not subject to the annual approval by congress, and it's on automatic pilot. as you talk about the needs to be an overall plan, do you have an idea about how we might reform the budget process to

help us to consider all of the expenses in a yearly basis of? >> well, i think it's sensible, particularly of a long-term plan to drop the somewhat artificial distinctions between discretionary and mandatory spending. you want to look at everything on the budget over a longer term. in a speech i gave a few months ago i talked about fiscal rules, and a lot of countries around the world have set up fiscal rules which described -- this goes back to mr. stutzman's question a bit, that these rules, some of them, for example, within down or sequester part of the government spending is the deficit exceeds a certain level, for example. so there are ways to set up rules that would enforce congress essentially to meet certain targets. something similar to that was with an approach that was used

sometime ago. so i don't have real specific suggestions here, but i do think that thinking hard about your framework and recognizing the current approach when you try to find an offset, that's basically say we're satisfied with the deficit where it is. you need to have something that is better than offset the qt does something that will allow the deficit to shrink over time relative to where the current projections are. so it's very challenging to do that, i understand. but again, creating some kind of long-term overall plan and within the context of that plan getting in various programs. that's essentially what has to be done in order to get us back on a stable path. >> i know there have been a lot of talk about us having a balanced budget and then it. of course, that takes a very long time to get there. what would you think in the meantime about having a spending cap that we could only stand to a certain level of? >> well, that's up to congress

to do that if you want. i assume that would be just a legislative action as opposed to a constitutional action. you could do that but then you have to have a mechanism -- this is similar to a fiscal rule. basically it says you have to not be allowed to appropriate more than a certain level. if more was spent because, say, medicare payments were higher than anticipated he would have to find a way to deal with that. but that is a former -- a form of rule that you could apply and along with consideration of how revenues are going to be involved that could help you structure the plan for reducing deficit over time. >> thank you. thank you, mr. chairman. i yield back mike dodd. >> chairman, you've been very generous to quit gone over your time. we appreciate your indulgence. this hearing is adjourned. >> thank you, mr. chairman. >> that was fed chairman ben bernanke at the budget committee yesterday.

today, the house is releasing some of its proposed budget cuts. president obama will release his budget next week. some republicans have said they want to cut off $100 billion from the present cost 2011 budget request. the couple appeared to tell you about on capitol hill this morning -- cia director leon panetta, fbi director robert miller, and a director of national intelligence will testify about global security threats. live coverage from the house intelligence committee at 10:00 eastern on c-span 2. at 10:30 on c-span 3, deputy secretary of state james steinberg will take questions about the political unrest in egypt and lebanon. that is live from the house foreign affairs committee. >> the cspan network's, we provide coverage of politics, public affairs, nonfiction books, and american history, available on television, radio,

online, and social media networking site and find our content any time through this cspan video library and retakes he's been on the road with local content of vehicle, bringing our resources to your community. it is washington your way, the speaker -- the cspan networks available in more than 1 million homes, provided by >> "washington journal" is next. the house dabbles in this morning and will start by general speeches. legislative work begins at noon. today, the house will try for a second time this week to extend the expiring sections of the patriot act. this time it will only need a simple majority to pass. live house coverage here on the c-span. coming up this hour, more discussion on the federal budget -- budget. house bud