weeks ago but is not being considered by the senate. mr. bernanke testified on the economic outlook and monetary policy for three hours before the house financial services committee. . . chairman ben bernanke on the conduct of monetary policy and the economy. without objection, they will be made part of the record. i am recognize the gentleman from texas. we want to welcome your to the committee. i want to commend you for the

stand that we need to address the national debt. and make sure job much harder. it prevents -- it presents challenges plant should -- it presents challenges. the treatment has been to keep them low for a longer time. we were told that we should not expect that any permanent increase in price inflation will be temporary as we see it under control.

if you but get the free market economy, the measurements is going at 9%. it is going up at 24%. i would suggest we still have a lot of inflation that will get much worse. the prices going up right now. we have growth. the answer will be to destroy a growth. we have growth. there is an excuse to diminish it.

rarely if ever would we see an admission that the real cause of price inflation is the federal reserve system. >> thank you. welcome. i appreciate this chance. one of the phenomenon we have is that people are able to make negative predictions that nothing comes true they are ignored. there are efforts you have engaged in. there have been a series of things, credited easing. there are extraordinary

interventions. they can no longer be done in those terms. be redrafted the legislation. it is no longer possible. there is a consensus on both sides. i want to go back over this whole intervention.

it is important for us to know this. we were told that it would be inflationary. we do not see it caused by any of what is done going forward. we were told it would be extraordinary expensive and that jury -- and that it would cost a lot of money. it was one of which we forgot. it was unfair to the rest of the world. it was a former currency manipulation.

i was especially shocked by the chinese complaining. he tried to stimulate the american economy. some being accused by the chinese government of currency manipulation struck me as being lectured by birth control from the fauquier mom -- from the octomom. it provoked retaliation. it proved to be correct. this was the suggestion that the federal reserve was encased in a whole variety of the inner purpose it transactions.

there is a transparent say my recollection is that it was being made public with virtually no specific revelation. good news is no news. i want to say i was pleased to see you reserving judgment. we have had this situation. people are looking good the first quarter of 2010. we are moving well. they have been forced to cut back.

it is entirely appropriate that you are reserving judgment. it is important that people who are so negative say what effect they think have happened. >> thank you. >> we are going to recognize six freshmen. >> thank you. for your focus on jobs and unemployment, i consider our primary cats -- our primary task was a welcome voice of reason.

particularly your assertion that we were leaving them. i am among many here with content that we need the sustain spending cuts. i am a physician by profession. the actions you have to take them -- taken have their maximum effect. it too is held by the most recent session. here is how we go forward.

>> thank you for appearing today. the exceed 20%. with $14 trillion in debt, my constituents are extremely concerned about the economic outlook. they tackle the unsustainable debt. without such action, they will continue to make up circumstances. i'm very interested in your perspective. i welcome your assessment to put our pension on a more

sustainable fiscal track. we appreciate your appearance today. i yield back. >> thank you. thank you for being here today. we are facing many economic challenges. even if the federal reserve panel's monetary policy, it is hard to see our economy and future generations prospering over the long term if they refuse to make the difficult but necessary fiscal choices now about excessive borrowing and spending. we are seeing disturbing weakness in the labor market. congress must focus on treating the best conditions for the private sector job growth while considering the effectiveness of the efforts. despite continuing prices, these

sectors can shaker larger inflationary consequences which would require the federal reserve to correctly identify and address those inflationary consequences. the federal reserve has significant new role making in supervisory authority that present many new challenges. i look forward to hearing from you on all of these topics. >> thank you. >> thank you. welcome back. it is great to have the back.

the primary task is job creation. -- as they were put into affect. when you get economists of all "political" types.

our political slant is always to be preoccupied with whatever is negative. if things are going in the right direction in moving in the right to election, then we worry about whether that will cause inflation. when they are moving in the wrong direction, we worry about whether it will cause deflationary. we worry about what they are predict about whether we ought to be doing deficit -- we worry about whether we ought to be doing deficit reduction. when we destroy jobs, we worry about how we can build them back

up. in that context, that it is refreshing to know that we have had the good judgment to create an independent federal reserve. we are talking about those things. it is the way they are impacting the economy. i look forward to your testimony. >> thank you.

this is the long-term priority. it does not move unless there is an impending crisis. the pending vote should not be tied to fiscal policy reform. what is leverage? it makes it clear that our priority -- we operate without raising the debt ceiling. >> good morning. i do applaud your recognition.

when i look at the current state of our economy, it does cause me some concern. will prices have gone from $84 a barrel to $100 a barrel. i understand there is turmoil in the middle east. when you look at alternative measures, you see unemployment has been increasing 10%. it is simply not sustainable.

i yield back the rest of my time. >> there are many concerns on the minds of the american people. there is an intent to buy and emmett recovery and some of creating one. you cannot buy economic recovery. despite spending hundreds of billions of taxpayer money, all taxpayers have to show is nearly one out of 10 americans are unemployed. there sherman to pay their health care premiums and built up their car. i spent several days visiting

with my constituents across 700 miles of the texas districts. what i heard is that they believe we can create jobs by getting government out of the way and removing the uncertainty from the economy. >> thank you. now you are recognized for a summary of your testimony. there will not be a time limit. >> i will talk about the economic situation.

the unemployment rate is still high. it is attributed to a number of factors including the stabilization of the financial system, monetary policy end inventory rebuilding. economic growth slowed in the spring and summer of last year including european debt issues. we have seen increases evidence that a self sustaining recovery may be taking hold. i make special note of consumer spending. we also had good gains in the u.s. manufacturing output.

my projection is that we will see stronger economic growth. the federal report says rejection speed -- projections. it is higher than projections made in november. despite the improvement in the growth of output, it is only improving slowly. we do see some grounds for optimism. there are declines in the new unemployment claims.

the signal wall for unemployment to come down to desired levels -- it has still taken a while for unemployment to come down to desired levels. until we see a sustained job creation, we do not see the recovery as being truly established. the housing sector remains weak. inflation has been declining over all. it weighs 1.2% as of january, down from 2.5% of the year. associated with that is slow wage growth.

. there is a range of 1% to 2%. we get similar forecast from private sectors. expectations are to stay low. some of these come from the middle east. aids isn't strong growth and market. i in no way of one to understate the hardstand did understate the

hardships. the-i in no way want to understate the hardships. the rate of pass through tends to be quite low. material imports are only a small part of production. expectations have been well anchored. they would represent a threat. it is to best support the ongoing recovery of price

stability. i talked about monetary policy. i talked earlier about the slowdown we saw last spring. over the spring and summer, we saw slowing growth to the level which was not sufficient to produce -- to reduce unemployment. at the same time, we saw inflation falling to very low levels. markets were expressing concerns about deflationary. what we did is to provide monetary policy of accommodation by buying longer-term security

in the open market. we had a program that lasted from december 2008 through march 2010. it appears to have a lot of success. without inflation, we would decide to return to a more accommodating strategy. we began to reinvest the securities that were running up so we would keep our balance sheet constant in size. we began to indicate the weeper looking to possibly expand our balance sheet to additional ones.

we announced our positions. a lot has been said about qe2. it works very much the same way ordinary might trade policy works. the lower interest rates helped increase demand and production. we get a very similar applied to me by treasuries directly. i think the first round was very

successful. in august, we have seen considerable improvement in financial markets. there were significant gains in the equity market. there were spread in the corporate bond market. inflation expectations have normalized. we have seen less volatility. they have upgraded their expectations of growth in 2011.

we are reviewing the assets program meeting by looking. the bourke-white a willa -- we were quite aware of the need to accommodate. we have all the tools we need to do that even if the researchers remain high. it allows us to make decisions

longer term. the ft said is that we need to be transparent. it is becoming increasingly selo. i am submitting the report. after five years, we are the only central bank that provides that time frame. we have also been very transparent about our balance sheet and operations. we provided the special settings.

most of it is largely closed down. in addition, we provided 21,000 transactions. these have been reviewed. the evidence seems to be the programs are not only will brunn they were helpful and stabilizing at -- only well run, but they were helpful and stabilizing it. we continue to work closely with the congressional oversight panel. all of them are looking at our books to make sure everything is as it should be. we are cooperating with that effort. we will seek ways to increase their transparency. we believe it is the side of

this to make good long-term policy decisions. thank you for allowing me to speak. >> thank you. before we start with our questions, the federal reserve chairman has informed us that people need to leave at 1:00 p.m. today to accommodate other appointments. >> where uighur is where people start when he returns.

we will go through seniority. -- where he starts is where people will start when he returns. we will go through seniority. >> at this time, i yield myself five minutes for questions. the chairman has consistently told members of congress that reducing the deficit will have both long-term and short-term benefits for the economy. a credible deficit reduction plan will require difficult choices. chairman ben bernanke has stated that congress must act. a year ago, in his testimony, he said it is very important for

congress and the administration to come to some kind of plan that will show how the united states is going to bring itself back to a sustainable position. it would be very helpful to mark his confidence. we have more flexibility in the short term. that is in response to a question i have. featured deficits would not only enhance economic growth in the long run, it would yield substantial and near-term

benefits in terms of long-term interest rates and business confidence. it will lead to more jobs. by definition, the deficits and debts that they outlined cannot actually have been. creditors will never be able to bring to the government debt relative to national income that is rising. normally, i would ask what we do. he has said that we need to get our physical house in order. the federal reserve is in charge of monetary policy. i think that is appropriate. the exhibit the -- the executive

branch is in charge of physical policy. our failure to address fiscal policy in a responsible manner, how does that make your job -- they are charged to manage monetary policy. i stand by this statement. if the federal deficit remains on an unsustainable path, we could see a sharp increase in interest rates which would be both bad for recovery and bad

for financial stability. while i understand these are difficult decisions, i do think we need to look forward. others will be setting up the proposal. it will be constructive for congress to lay out a plan. one rule of thumb is cutting enough that the right ratio of debt to gdp is rising. it is rising quickly.

i think the federal reserve would be applied or criticized. it gives us a chance to act. we are not taken advantage of that. it limits the options. we need to point the finger back at yourself. >> thank you for that thoughtful statement. i appreciate this. we have to appreciate the federal reserve. we need a long-term one.

if we are able to do immediate and long term, you do it in the short term. that is what he said. the private sector has been growing jobs. a medium and long-term plan is very important. we will not achieve a credible and long term grant for reducing deficits if we continue to extend the military from any significant reductions. it is now over $700 billion. i share the need to reduce the deficit. it is enormously costly.

it continues to cost us tens of billions of dollars. i am not impressed. i been struck by my colleague who have talked about how military spending create jobs. only the military does job creation. i was also stress that the house recently boasted to do this from car and bombers. >> this could have been doubled.

we could have saved 300. there are inconsistencies in the spending cuts. we have heard people speculate that the problem -- that it is the different than it was in 2008. there is a very limited set of choices. what was the reaction to the notion? >> be at is not fully implemented. it has suffered back capital

liquidity. there is tougher supervision. there are living wills and the ability to break it. it is something that you and i talked about. wouldn't it be nice if we had an alternative mechanism that would allow the government to wind down a financial firm without costing the taxpayers. those things are in the process of development. we may come back to congress. it does give you the basics for doing that. we talked about the winding down

most of those things. what has been the net cost to the united states taxpayer? the financial stabilization policy included interventions with aig. assuming that the treasury can sell the shares is something close to the current market price. the entire program will be a net profit positive. the monetary policy in has also been profitable. we have turned over $125 billion

of profits. that was not the purpose. we have managed it well enough that the taxpayer can feel that they've gotten their money back. >> thank you. >> thank you. let me say a word about the deficit. it was a concern of mine in the early 70's. after the breakdown, we would have been less spending and deficits. we have had that. i reject the monetary economics things. i'm sure we will continue with these problems. the reason why -- congress is at

fault. they spend too much money. the congress in fetters some biotic. it has to accommodate. it facilitates this spending until we realize this. i think the fed is involved with our deficit. it is true. congress's irresponsibility ought to cut the spending. inflation is exploding. we are going to have one heck of the problem in the future. monetary policy used to be the key to economic management.

monetary policy stated that the job but the fed is to get a stable price. there is nothing stable of about it. unemployment stays. if we were honest with ourselves, it is over 20%. we are deceiving ourselves. i think it is a total failure. how can you manage monetary policy? if we do not have a definition of a dollar. everyone knows the federal reserve is a dollar. you create a note. i would like to know if you know when it became known that

-- i want a definition. that tends to be the real job. we won a measurement of value. we have made a mistake. there is no way to maintain this. the stock market,at' it would have taken 44 ounces of gold. in 1980, it would have taken 1.5 ounces of gold. today is back down to 8 ounces. the stock market is going to crash. you and i will have a disagreement on this. central banks hold gold. treasury hold gold.

it is history. it is the market place. gold is the long term that you. how can new printer this? what is your definition of a dollar? >> to raise an important point. our mandate is price stability. my definition is what it can buy. they want to buy food and gasoline. it is the buying power of the dollar that is important. after the 1970's, there is a lot of instability. inflation was high. i know you have talked about your relationship. inflation in the united states

has been low and stable. in terms of the unemployment, unemployment is unsatisfactory now. my view is that it is due to the financial crisis. it had a lot to do with problems in the private market and the supervisor regulatory. putting that aside, it has been much greater. >> mrs. waters is recognized for five minutes. >> of the light to thank you. thank you for coming in to testify to help us understand exactly what you are doing.

there was some discussion about whether and not the budget cuts would be a major drain on the economy. we basically said it was not major. it had a negative impact. i think the study show that the government jobs would be lost. overall, 700,000 jobs would be lost. could you explain to us what you meant. what are you talking about in real numbers? >> we are trying to analyze this. this issue was raised by some other analysis. i am not familiar with those i'm

not sure we are making the same assumptions. our sense is that $60 billion of cuts spread out in the normal way is the reduction. does not mean a an immediate reduction in the spending. it would reduce growth. given the size, this would translate into a couple hundred thousand jobs. i think the numbers are a little high. >> there are a couple hundred thousand jobs. and a sluggish economy, that is important. let me get to an interview.

with 60 minutes, he noticed that it does created into societies. this is extremely important. i have been focused on a recent study. it demonstrated that it increased more than four times since 1984. the study pointed to our nation's tax policy as the main culprit. i talk to you many times about the capital. there is a lot about access to capital. i am really concerned that it

seems to be flushed with cash. i am concerned that minorities were targeted. our home was the most that many of us had. can you elaborate on why inequality is bad for america? it exacerbated and equality. >> it is part of the american ideal that everyone has opportunities to advance themselves economically. i take it as self evident that it will be one that it is not as broadly spread as it should be.

from people will suffer deprivation. i hope we could move toward a more equal society. my own view is that education has a lot to do with it. public and private schools has a great deal of variation and equality. there is the amount of time the students spend in school. given the globalize society, it will lead to increasing differences in wealth. tax policy can help. it is progressive taxes. taken help close the gaps. fundamentally, i need to have opportunity. it requires them to have the

education and skills. >> thank you. i want to follow up on a line of questioning. when i talk to ceos, this is a great concern, when i believe has economic growth. i will cut today while i was putting on my tie. he stated his number one concern was the national debt. a year ago, they said it could be helpful to put the nation on an exit. most recently, you would use it as critical threat. with the passage, at the you have a greater concern about the

nation's trajectory? do you hear what i hear from job creators? this is becoming a greater impediment to economic growth today. >> it remains a very big risk for the same reasons i described before. it affects confidence and expectations. it remains a very serious problem in terms of progress. it has become a more central issue. we have seen results of the commissions. so far, we have not seen any concrete measures. there are concerns that it will leave us on an unsustainable path.

hyundai have the opportunity to discuss qe2. -- you and i had a different opportunity qe discussed2. folks i talk to have a greater concern about the trajectory and uncertainty of the regulatory burden. that is what i'm hearing. i think there are limits to what monetary policy can achieve. there is a big on roughly $2 trillion of excess capital. we appear to be a wash and liquidity. a number of respective economists have indicated

concern as well. i look in your testimony. today, to any conditions you see anticipate a q e three? >> that has to be a decision on our mandate. what we would like to see is a sustainable recovery. we do not want to see the economy falling back. we are looking very closely at inflation. i want to be sure you understand that i am very attentive to inflation. that will be a major consideration.

it will determine how to manage this policy. >> a number of people and economists are concerned that the fed is monetizing the debt. we have an opportunity to discuss this. i understand the arguments. let's talk about perception. there is movement with the world reserve currency when no longer be the dollar. dg has been to see that piece this morning? -- did he have been to see that

piece this morning? >> there is the perception that the u.s. is monetizing debt. he believes the dollar will follow -- will fall roughly 20%. regardless of the reality of your actions, if the perception causes the dollar to no longer be the world's reserve currency, what are the implications of it? >> first, i do not see any evidence that that is happening. let's be clear about that. if the dollar was no longer the reserve currency, it would probably mean that we would have to pay higher interest rates to finance the federal debt. that would be a negative, obviously. on the other hand, we might not suffer some of the capital inflows that contributed to the boom and bust in the recent crisis.

again, there was also a countervailing argument in the journal this morning as well. i just do not see at this point that there is a major shift away from the dollar. i would also add, on the commodities prices come first, the fears of some foreign governments that but we were reducing the value of the dollar, it is not true. the dollar has not moved much at all. and the commodities have moved just as much and other currencies as in the dollar. i take those commodity price increases seriously. it is not a dollar phenomenon. >> thank you for being here. under the full employment act, the federal reserve has four benchmarks for the economy.

one is price stability. currently, in economics statistics show an increase in energy prices. what can or will the fed do to try to stabilize the price in the energy sector? is there anything that can be done? >> you have to distinguish between the prices of individual goods and services, like gasoline, for example, and the overall price level, what people pay for all the goods and services that they buy. again, i recognize that the increases in gas prices are troubling for a lot of people. but they are not inflation per se. the inflation rate right now is

1.2% for all goods and services. the main risk from a price stability point of view would be if higher gas prices, for example, would get -- would start feeding into the broader grasp -- because people became to expect higher inflation, they can demand higher wage increases or those costs that are regularly pass on price -- -- by producers and overall inflation would begin to rise. that is the point where we would begin to become concerned. that is when we would take monetary policy actions to avoid any significant increase in overall inflation. the relative price of oil, again, is primarily due to global supply and demand. it is important to note that the united states is consuming less oil today, importing less oil and producing more oil. the demand is coming from the outset of the united states,

particularly the emerging markets. there is a limited amount of what the fed can do about oil prices alone. we have to make sure that this does not feed into overall inflation. we will make sure that doesn't happen. >> one of the other benchmarks is full employment. carla, unemployment is high, even though the economy is growing. currently, congress is proposing additional cuts in the federal budget. are you concerned that these cuts might undermine the fed's efforts to ensure a reduction in the employment rate? do you see any correlation? >> taken on their own, the short term cuts would probably lead to

some reduced growth in employment in the short run. my preference is to see whatever changes are made to the budget in the short run, coupled with a long-term credible plan, that will persuade markets that there will be real progress made against the deficit over the next five years to 10 years. i think that gives a lot of benefits to the current recovery without the short run job affecting impact of near- term changes in spending. i do not object to beginning the process of reducing the deficit now. but it would be much more effective if there is a longer term plan underlying those cuts. >> longer term, you mean a more comprehensive approach to

reducing the deficit through possibly increase revenues coming into the treasury as well as reductions in the budgets throughout the federal government. >> is a to congress exactly how to do it. it is hard in any case. but we have to make sure that the deficit does not continue to spiral upward. it is very destabilizing a that is -- as it is. >> thank you. i yield back. >> thank you. mr. chairman, are you familiar with the term "debt saturation >> -- debt saturation?"

>> no, but i can figure out what it means. [laughter] >> back in 1960, a dollar in debt equated to a dollar in increased productivity or gdp in this country. from 1960 until the present, this economy at every level, both governments, individuals, and companies have been leveraging themselves. where we are today is that we're to the point where we have reached that saturation. for basically every new dollar in debt, in some cases, there is a-increase in gdp. a lot of companies, even though they would like to borrow money, they do not have the capacity to borrow because new borrowing breeds of new debt service and a lot of them do not have the income to service that debt. if you look at our revenues,

they are a little over $2 trillion. our debt services rising to about half a trillion dollars and headed up. when you look at our monetary policy and our fiscal policy in this country right now, it is all about borrowing and spending. we're wondering why this is not working. one of the reasons is that there's not the capacity to service new debt. we look at companies that i talked to, they're building up cash on their balance sheets. when you look at quantitative easing, that you have done, that many did not go out to the economy. a lot of folks are hoping for those moneys in reserves in your bank. you're beginning to see families and businesses the leverage. they understand that they have reached -- families and businesses deleverage.

they now stand they have reached the point of saturation. but the government has not. i was troubled by that last unemployment number. but when you look at what i think is the real unemployment number, that number went up. if the money is not going out, why would we continue policy of the fed borrowing more money and try to put more money in the system when the system seems to be pretty leveraged up. i do not see the benefits of the. >> congressman, you are right. the economy got over leveraged during the crisis. household borrowed too much. some firms borrowed too much. one of the reasons that the recovery is slow is that the deleveraging process

is going on. with respect to the federal reserve, what the fed is doing, for so, we're by securities in the open market, which we will subsequently sell back into the market. we are not making a permanent change in our balance sheet. aid to the, the effectiveness is not felt primarily through the reserves in the banking sector. as we buy securities in the open market, we both lower term premiums in the open market and push investors into other kinds of investments, like stock market, or corporate bonds and the like. the results to show that bond yields have lowered relative to the treasuries. it does affect people's behavior and contributes to a growing economy. with the fed is doing is not the same as government spending.

we're buying securities, which are assets that pay interest. at the proper time, we will sell those back into the marketplace and return to work previous balance sheet. >> i would disagree a little bit. the monetary policy you have right now is basically at zero. you cannot go lower than that. we are really trying to encourage people to borrow because we have interest rates at a very low rate. it is not working. even in your own testimony, you said that we are not quite sure willwhat we're doing contribute to the little bump in the economy. i am worried that the bump we're getting is that some portions of the economy do understand what is going on and they're taking actions to correct their balance sheets. families are lowering their credit card debt.

but the policies that we have, both at the fed and in this congress of borrowing and spending do not work. they have a negative impact. the more that we borrow from this point on in this economy, particularly in the government level, will begin to diminish our gdp and not increase it. >> thank you. >> mr. bernanke, which to prepare -- compare and contrast the recovery that is under way in germany with ours? are there any lessons there? are there any deficits we should be taking to achieve journey's results? -- to achieve germany's results? >> that is a tough question. germany did not have quite as

-- they did not have as much job losses we did. that is because of the policies they had to subsidize firms to keep workers on, even when they were not fully utilized. i think the recovery in germany has brought them about back to where they were before the crisis, which is comparable to what happened in the united states. germany has benefited, unlike the u.s., substantially from the rebound in global economic activity because they are very much a trade-oriented/export- oriented economy. they worked long time to develop those markets. if i were draw -- if i were to draw a lesson, the lesson would be that we need to do what we can to increase our competitiveness, to increase our efficiency, and to improve our ability to compete in global markets.

i think the be good for jobs and growth in the longer term. but i do not want to overstate the difference. i do not think that germany overall has had a stronger recovery than the united states from this cycle. >> speaking about the international economy, it does appear that the eu will not rule. the volcker rol it is unclear whether or not they will adopt the standard of transparency for derivatives are . are you concerned about the regulatory arbitrage in the united states in terms of competitiveness? to your about making standards as close as possible for derivatives. you're right.

i do not think that europe is planning to adopt the volcker rule. that will create some competitiveness disadvantage. congressman that once because you believe -- and congress made that choice because it would increase the safety of the banks and the trade-off that congress decided to make. in the past, there have been other differences. for example, our banking system operated on a leverage ratio for a long time whereas europeans did not have one. under basel 3, a leverage ratio would be extended to foreign banks as well as u.s. banks. but you're right, there will be a difference in capacity. >> there is the possibility that

capital requirements may be tougher in the u.s. under our regulatory dodd-franc requirements -- dodd-frank requirements. will that give as it did -- will let it is a disadvantage? >> the mentally requires the capital be greater than it was as of last summer. >> that is good news. in your most sobering comment, "until we see a sustained period of job creation, we can consider the recovery to be truly established." i would like you to comment on how we reconcile the reality of a jobless recovery. with persistent stagnant wages, 90% of workers over the past 20 years with the statement that the recession is over in a

sense, with such high employment and sustained stagnant wages, it appears, for 90% of our population. >> the recession is only in men -- is only over in a technical sense. it does not mean that we are back to normal by any means. growth has been about enough to accommodate the new entrants to the labor force. therefore, the effects on the unemployment rate have been very moderate. says demand for labor is weak, then it is weak as well. >> mr. chairman, it was reported yesterday that the fed has worked to broker a deal with regard to dog-franc -- with dodd-frank and the issue of servicing agreements.

>> we have been working -- i do not know the exact status. but we have been working with the fdic to come up with some kind of agreement. >> the rubble on that, i guess, they got together at -- the rub on that, i guess, the get together. you know what the legal requirement is to service them within the cure and -- during the q r m? >> the banking agencies' ability to qualify a residential mortgage, according to the definition of a more rigid a certain quality, to avoid the need for retained risk. >> is there anything in there really that goes to the language of servicing? i do not think that was in dog- -frank.- in dodd =

>> i will have to give back to on that. the servicing is part of the mortgage contract. >> what rights does the bar have? in particular, a mortgage which can be restructured efficiently is a better quality mortgage than one that cannot be altered. >> if you can get back to us on that point, that would be great. back on this whole issue of the market, back in october, you should the report with risk retention issues. risk retention is not a panacea as far as dealing with this. reforms should be tailored by as class is. retention could impact on credit availability. as i understand it, there will be a phase-in of this while it goes through. does it make sense, if we

realize we are dealing with this and different as a class as and you will say that it could impact credit availability. really, the regulators go-slow and maybe see how the different asses-pack cigarette markets evolve before they precipitously makes the rules before hand on these things. >> we certainly want to get it right. but our study took into account the current practices, how these markets have operated. there is usually good reasons for why markets have evolved a certain way. our proposals try not to radically change the current practices in those markets. >> right. but there is a phase-in for one year for the rts, two years for the serious and so on. does that not give you or us the regulators an opportunity to examine how they evolved during that period.

one-size-fits-all are now for all lasted class's regardless of how it phases in later ron. >> yes. we end up being very sensitive. >> going back to the other issue of the day, qeii and monetary policy, some intimated that qe2, $600 billion, is pull the thin air. but the reason the fed has done this is because inflation is running under 1% right now. should the market be confident these the inflation starts to rise and the fed will be ready to sell off or on one the $600 billion of qeii? >> in the short run -- up to 5% of 2008, we had a time of-

inflation for awhile and commodities prices went up and went down. >> so it is a short time that you see before the unwinding occurs. >> right. during the summer of 2008, we had a spike in oil prices. later in the year, we saw a negative inflation as commodities prices collapsed. our objective is to hit low and stable inflation in the medium term to the extent that we have entirely flexure wary territories -- and fluctuate -- influctuary territories. we have learned the senate -- we have learned the lesson of the 1970's. we will not allow inflation to get above low and stable levels.

>> i guess my question is how long it takes before you intact -- enacted the unwinding. >> it depends a lot on whether inflation expectations remain anchored and what happened to the broader basket. oil prices alone and nothing much else moving would not require a response. >> chairman bernanke, the federal reserve has stated that low inflation and goes around 1.7% to 2% will be helpful to assess monetary policy in the comic recovery. tot role should they play maintain inflation at these levels? >> the inflation rate is mostly

the responsibility of the federal reserve and take responsibility for that. monetary policy determines inflation in the medium to long term. i think that the congress, at looking at the fiscal policy, and it's a look at two issues. one is the short term, making sure that there will not do anything that will derail the current recovery. at the same time, digging over a medium-to-long-term. , taking the necessary steps to cut the deficit and restore stability and restore confidence in the markets that our fiscal policy will be sound. i would focus not on inflation. i would focus on the medium term prospects for the fiscal trajectory with attention to the current recovery as well. >> thank you. >> mr. chairman, a common refrain among critics of the

frank is that it has contributed to the crunch among small businesses. your testimony of for this committee took note of the growing credit crisis. especially for small businesses. do you believe that financial regulatory reforms from the dodd-frank act is inhibiting loan availability for small businesses. would you say that? >> we have had credit instability for a couple of years now. another of many community bankers have concerns, legitimate or not, about the regulatory impact of dodd-frank. so far, nothing has really happened.

that is a very difficult problem, the availability of credit. the fed has been working very hard with the banks and our examiners to make sure that good loans it made. but the main problem at this point is caution on the part of the banks and on the part of the bar wars in many cases with financial problems that make them less qualify for credit. >> but we do know that the federal reserve survey of senior loan officers, the latest one that was released right after the dot-franc -- dodd-frank is affecting small businesses. >> the federal reserve stated that it will continue with the status quo of the neared 0% on

the federal fed funds rate for the foreseeable future. beginning to communicate on an exhortation that the federal real it will remain an exceptionally low level for a spare and a -- four expended. time could be increased. >> the language of the communication is one way that we used to provide additional policy support to the economy, which, in our judgment, it still needs. the economy's recovery it has not firmly established. with bank monetary policies to be supportive -- we think monetary policy needs to be supportive. if it waits too long, that could lead to inflation. then we would have to unwind the language, the asset purchases, the interest-rate policy, all of those things will have to be unwound at the corporate time. at this point, it is not creating inflation.

but it would if we did not unwind it at the appropriate time. >> thank you. >> i appreciate you being here today. i would make a comment that roswell, new mexico is in my district and there are more people that believe that aliens landed in roswell than those who believe that inflation is at 1.6%. they do not buy this non inflating. earlier this week, we got a report that drill pipe and heavy construction medal for the boyle is not ready because many people are concerned about what the future price will be. there are people out there who are being affected. i am interested in your comment

on page 3. mortgages are difficult to obtain. you have any speculation? to know why that might be? >> partly because fannie and freddie have tightened up their standards and more generally because lenders are quite uncertain about where house prices -- about where where house prices will go. debacle, theket's crisis, what we're seeing is that lenders are requiring unusually high down payments, high iq scores, and so people without those qualifications are just not able to get mortgages. >> just recently, i talked with a young couple. they've just graduated from college. they both have good jobs but they can get financing grid we had a conference call with the

new mexico bankers and they said that the safety and soundness reviews were not problematic. it is the compliance reviews and things that used to simply get written up other exceptions. now they have a $50,000 potential file. why would we loan money on houses on a typographical error or the failure to convict -- to track the flood plain since knows time in some of these- areas that we have had flood insurance claims. we're pay for people on the coastlines. new mexico flood insurance is not a big deal. but if you make one little mistake, you will get a $50,000 fine. why would you loan money? if you're getting a chance to talk to those people on the other side of the aisle, the regulators, you might hit to them that the compliance reviews are scaring the daylights out of people when the suggested it -- you suggested written nothing to

report. i am looking forward to evaluate the it our ability to respond to crises. i the way have responded to the crisis. who was the pilots' seat in this? was that the treasurer or the fed? >> we cooperated. >> who made the decision? we bail that fannie and freddie. we bailed out stearns. who with the decision to let lehman fail? >> i was not personally in that meeting. i was in washington were these discussions are taking place in new york. but my belief and understanding is that it was not a decision, but inevitability. but could not find any way to avoid failure.

if we could have, we would have. >> it was inevitable for bear stearns to disappear as well. there was the indication that fannie and freddie or really sound. in fact, it was the ad hoc nature of the implementation that created great instability in the markets and the price of stocks began to fall as people said that we cannot trust it. we need to be predictable in this and we bet to be -- we better be practical about this and we need it. i believe that is severely impacted the lot -- the length and the death of what was going on. we did everything we could given the limited tools we have. we did find new ways it solves

the bear stearns problem. what i think leave and just treated was that five we have allowed the firms that brought as -- to figure out as well, we could've seen a far worse recession than the one we had. >> thank you. >> the time of the gentleman has expired. we'll start with the gentlewoman from north carolina. >> thank you for being here. chairman bernanke, you know and i am sure that the folks at the fed know that, as chair of the monetary policy subcommittee for the last couple of years, i gained a healthy respect for the work that you all were doing. i think unlv -- i think you will

all to way get this job at getting us together at one. and i want to applaud the work of your staff on that front. i really want to go outside the box in the bed. i have some concerns about things that are further down the road that i think would really be difficult, economic, fiscal, social impacts to how the economy -- to the economy. to what extent are you all doing things in these areas, studying or looking down the road to anticipate some of these issues? there are to them that i want to talk about.

-- there are two of them that i want to talk about. one is climate change. this will result in dramatic weather swings at the extremes that will have a devastating impacts, economically, that make new orleans look like small potatoes. in the west, in the gulf, in florida, in places where just the two points or three points of temperature change have dramatic impacts on whether conditions.

the second is on the growing gap between well off in this country and people who are not well off in this country. the gap is growing. i think we are about to experience a greater growth because this whole fannie and freddie discussion and the way it is being shipped now will result in fewer and fewer people of modest wealth and incomes being able to be home owners. the great bulk of low-income and moderate-income people 12th is in home-equity, not in stocks, not -- low-income and moderate income people's wealth is in

home-equity, not in stocks. the gap is specifically in their rubric of monetary control. what work or research, if any, is the fed doing to anticipate the impacts of either one of those things? >> congressman, on the climate change, there has been good economic work done on this by people like bill norcal and others. i am sure that we have staff who are familiar with that work. we usually do not have the capacity to do a great deal of work on this, as far as i am aware at the federal reserve. the story is somewhat different

with the inequality issued. within the sphere of our duties, we're looking at things like access to banks and access to wealth creation, education and labor skills, all of which fall within our financial, real sorry, and labor market responsibilities. -- financial, regulatory, and labor market responsibilities. looking at the long-term consequences of inequality, the components to liver markets and financial markets, we have people looking at those issues. >> the time of the gentleman has expired. w>> thank you for your service o the country. we appreciate that.

it is the challenge. i wanted to ask you today about the municipal bond market. it has been a concern of a number of us here and in number of policy proposals have been put forward to bring transparency to that market place in terms of state indebtedness and municipal indebtedness, especially with their pension programs. i am not asking you to comment about wisconsin or any of that going on, but do you believe the municipal bond market could pose a systemic risk to our nation's recovery? >> it could in principle. i understand that municipalities are facing difficult budgetary situations. recently, tax revenues have been

coming up in some sectors of the economy. and the painful cuts of our been made in many states and municipalities. i think that the states and localities are making progress to address those issues. that being said, i would applaud any efforts to improve transparency and clarity. it would help investors, certainly, and it would force the states and municipalities themselves to address these problems more head-on, i think. >> of. such as bessie would be helpful. in terms of the municipal bond market, is this something that the fed actively seized or reviews what is happening and the impact it could have on treasurys? >> we review essentially every major market and this is one of them. we have people who are paying attention to the developments there. recently, things have improved a bit.

my sense is that it has improved a bit lately because of a better economy and progress being made on the budget. >> i want to shift a little bit. this is something that our last hearing on the implementation of derivatives regulation, international harmonization, when we look at the derivatives peace and the implementation of derivatives legislation, the regulators implementing the derivatives piece of the dodd- frank act, we see major markets around the world are not coming along as fast as we are. you can see that europe is maybe a year behind us. is that a concern? is that something that you are trying to bring other central banks around to this? >> in many of these cases, the

commodities futures trading commission is taking the lead in terms of trying to harmonize transparency rules, record- keeping rules, operational rules for clearing houses and exchanges and the like. there are some differences, which i do not think will be reconciled. europe is not following the link an amendment approach, but the pushout of derivatives. that will create some differences in the competitive position of american and other banks. it is difficult to assess at this point has significant that will be. >> in terms of ensuring that there is some harmonization where our market regulation is moving, are these conversations that you have actively had with other central banks? >> yes. we are having those.

there are international committees, for example, the bezel committees, which look at these issues and try to establish global standards. as we set rules for financial market utilities, we take into account these global standards. so there is an attempt there to try to create harmonization. >> thank you. i yield back. >> thank you. >> the chair recognizes the gentleman from california. >> i want to commend you on your monetary easing policy. i know not all of my colleagues agree. but the economy is a patient in critical condition but the traditional medicines are not available. you can lower short-term interest rates. the fact is that you have come up with a new and inventing of medicine at a time when the easy thing to do for you would have

been to walk away from the patient and say, oh well, everything that can be done has been done at least by the fed. so you have shown courage. you have shown innovation. i hope this new experimental medicine of yours works. on to focus on stay barring. people invest in state funds. some politicians are talking about allow us to go bankrupt and these politicians do not even want the bondholders to lose money. they just hate the public employee unions so much that they have lost sight of the reason that we do not lets this go bankrupt, which is to encourage people to lend money to states. what affect would have if there was real serious discussion and we were close to passing a bill

allowing states to go bankrupt? what affect would have if a state actually went bankrupt on the ability of all 50 states to borrow at their present time and in coming years? >> that is really hard to judge. even the states cannot go bankrupt, they can be called. that has happened, 150 years ago, so municipal bondholders tried to assess the risks that there will be a default. the bankruptcy idea is a very complex one because of states' rights issues. you have to raise the question of whether a bankruptcy judge can tell lacy to raise taxes. there are legal questions at the beginning of that debate. again, i am sorry. i cannot really judge what the

bankruptcy judge would have on that condition. it would depend on the condition of the states and the rules and the interest payments. >> i would point out that the strictures around this country do not want us to give them the ability to go bankrupt. right now, fannie and freddie are paying 10% dividend. the tarp banks paid a 5% dividend or an annual payment. i am not sure that, on a net basis, you'll actually collect anything from any and freddie. why should we have -- from frannie and freddie -- from fannie and freddie. >> as with the capital injection programs and the like, it was set up to be paid back. given the government preferred

stock and by having a dividend, of course, as you know, fannie and freddie had is still required injections of money. they have not made any significant progress at paid it back. as -- at paying it back. >> if you go to the market, if and is our 30 cents a pound, nobody winces. everybody buys more onions print everybody thinks the prices are going up. your predecessor testified that the cpi overstates the inflation rate by three-quarters of one point, perhaps a point, or even more. do you think that is a growth analysis or does the cpi best reflect inflation given quality improvements in other products? >> you are correct.

the professional economists, including the ones at the bureau of labor statistics, conclude that the cpi probably does overstate actual inflation, although they have made progress in addressing some of the issues that were identified a year ago. that being said, we understand the visibility of gas prices and food prices and we want to be sure that people's expectations are not adversely affected. it is important to note that, according to the michigan survey of consumers, long-term inflation expectations have been basically flat. they have not moved, not withstanding a plot -- notwithstanding ups and downs in gas prices. >> flat screen tvs or any other direction. i yield back. >> mr. campbell from california. >> thank you.

rather than ask you about the consequences of the actions that you and the federal reserve are taking, i will ask you about the consequences of the inaction that we, congress, are doing relative to our fiscal problem. they all alluded to some of your prior comments relative to our fiscal trajectory. what if we don't act? what if you do not set any long- term sustainable policy or production? what if we run up a $1.50 trillion this year and $1.60 trillion next year and north of one trillion dollars. it would be close to $5 trillion in deficit over the next six months. what impact does that have on jobs, the economy, on interest- rate, on everything? >> it is hard to know exactly

what the timing would be. we do know that eventually lenders would decide that the united states was not a good credit risk and interest-rate would spike. that would slow the recovery or slow the economy. it would great financial stress for not only holders of treasuries, but holders of other fixed-income assets. it would have effects on confidence. it would cause people to expect higher taxes in the future. it is hard to say exactly when the conference gets lost. we have seen in other countries -- just recently, we have seen examples where, on tuesday everything was ok, but on wednesday there was the fear that maybe the process was breaking down and there would not be sufficient progress and you saw sharp increases in interest rates and loss of confidence in that country's economy and fiscal policy.

>> over the next three years, it could happen, right? if we are running up that's sort of towards $5 trillion, no one knows exactly when the markets might react that way, but it is not necessarily something that is 10 years away, isn't it? >> no. the way i think about it is that the markets are less looking at our economy because we have the capacity to address these problems. they're looking more the political will and decision making and an extended period of congress -- i hate to put this on you because i know these are hard problems -- but an extended period congress these issues whiche would cause uncertainty in the market. >> we get into a spiral, do we

not? the interest rates go up and increases the interest on our debt which increases the deficit which increases the interest rates which reduces -- i mean, we have potentially got into a spiral that makes it difficult to recover without significant economic damage. is that right? >> congress has a sterile term called that dynamics, which is exactly what you have described. things spiral out of control. that is right. >> if we continue to not to do with the problem, as we have been, at all in any long term or sustainable manner, then it could have a very bad fiscal results in not a too long a time. >> i have said that a number of times. i agree with that. but, as you point out, we do not know exactly when. >> right. mr. chairman, i appreciate your

comments. and i appreciate your candor on this. it seems to me that members of congress, politicians in general, are generally risk averse. in 2008, when we were in the midst of that crisis, we seemed to not be willing to act to solve the problem until the consequences of that problem exceeded what we perceive to be the political consequences of inaction. right now, unfortunately, it seems to me that, in this town, the political consequences of action seem to be greater than those of inaction. as we did back in 2008, eventually, we made people aware that the spot -- that the prospects for the problem were very strong and minutes and we increased the level of rhetoric

we used in order to emphasize the problem, that we will need to do that to get this place to act. i yield back. >> the time of the gentleman has expired. the chair recognizes the gentleman from new york for five minutes. >> thank you. i have a number of questions on different topics that i want to ask. before i get there, my concern is that, as we look at this and a talk about being in deficit and we have to fix it, it seems to me that we talk about cutting and we have to make sure that everybody feels some of the pain. as we deal with the current str, etc., because of some of the deals we have made prior, the only way we're talking about balancing this budget right now is on the cutting side. generally, you also have cutting and revenue. some kind of way, when you have

both, it helps eliminate the deficit because you're cutting and you have more money coming in also and that kind of levels out the playing field so that everybody feels some pain. if we are going to create a situation where all americans are feeling better about the current situation, it seems to me that everybody has to feel some pain. part of the problem that we have is that some people feel pain and others will say, as for my city in new york, the others are getting huge bonuses. yet, nobody is lending money, but somebody else is making money. we are not really having the kind of balance needed so that there is pain felt on all sides so that we can move and have the kind of agreement that we need to have so that we can move forward. we still have individuals who are losing their homes.

it is hard to talk to those individuals about them losing more when they have lost everything they already have. and it appears to them that others on the other side are not losing anything. in fact, they're back to where they were. they're still making money. they're making more money than they ever made. that causes politics to take place so that we're not doing what we should be doing for the benefit of the country as a whole. i am not saying that this is left of their right. we're not pulling this thing together so that we have something that is down the middle that moves us forward. this brings me to my first question to you. i want to get something clarified. yesterday, in your statement on cr on thet of the sea ar economy, was it based on your emphasis on the cuts in the

economy. because of a discrepancy, goldman sacks he met with an opinion of what you would do to the economy. i was just wondering what was your statement based upon? >> it was based on a rough and ready economic -- econometric model. without any real attention to the composition of that, we did not really get into the break down. >> bright. that is what i kind of figured. let me ask another question. let me go off on something that i think hopefully we can work in a bipartisan manner in this committee to deal with in a statement that you may also recently. it deals with interchange.

two weeks ago, you told the senate committee that you thought the smaller changes in the fee regulations may not in fact work. i believe that is what to city. what will the impact on community banks and credit unions be if that exemption fails? >> we do not know whether it will work or not, as i said. if it does not work and the reduction in interchange fees and up applying or partially apply to smaller banks and credit unions, of this, it will cut their earnings from that program. unless they can recoup through other fees or charges to their depositors. >> your opinion in this area becomes very critical. this is something that i think we can work on. going back and forth and dealing

with the fed pause recent rulings with the interest for change -- the interest rates and some of the banks. we look at the merchant side. as we move forward on this committee, we're having some dialogue, i hope, across the aisles so we can or together to solve the problem. i am out of time already. >> the time of the gentleman has expired. the chair recognizes the gentleman from florida, mr. posey. >> thank you. chairman bernanke, on to compliment you on your forthrightness. it is something that, unfortunately, we do not see very much of on the side of the table. thank you for being so frank with us when you appear before us. >> in your statement, you indicated that, until we see a

sustained period of terror procreation, which cannot consider this recovery to be truly established. is that this says that despite the claims from the academics to the contrary, this indicates that the recession has not yet bottomed out? >> again, the recession is a technical term. it means that the claim -- that the decline has stopped. we have been this risk would be consumers would see unemployment going back up. today with this confidence. he would have decreasing grass that it would stall out. if that is the risk. >> i assume part of the goal is to provide an influx of capital in the economy to ensure that

have adequate capital to lynn for commercial purposes and a staff. i learned to call your attention to a proposed regulation that could have a devastating impact. the irs r ule would force banks to hand over information on foreign deposits. the irs would turn it over to the home country. it could be between 200 and $400 billion. that could in the very harmful to our economy. i'm wondering if you agree that

it is a bad idea. it was bad in 2001. i wonder if you think it is a bad idea right now. >> a hesitate to make a judgment. it is the case that the united states has a negotiated with switzerland to get more information about americans bank accounts. that is being used for tax evasion. aegis said i was forthright. i have no comments. >> it is a proposed roll at this point. what switzerland does this have the business.

i will leave it at that. i will touch on the second issue. i have had personal story is about it happening in my district. i know it is not a bad dream. i discussed it was secretary geithner yesterday. there is over regulation. in their opinion, a performing loan option not be a performing loan. it causes the bank to take it off the books and make you earn interest on it. he knows the consequences is very damaging. i am told they have been dreaded -- have been told not to micromanage the services. i am wondering what we can do about it.

we have made enormous efforts to train them and issue guidances. we tried real hard. i know it does not always work. we are trying. i would recommend to call the federal reserve's examiner. we do have one that will follow through. they do not have to worry about any kind of retaliation. we will try to follow through if there are specific concerns. please, let us hear from them. >> de realize how serious a problem it is? i am grateful that you do. >> of the time has inspired. i have to make sure i heard you right.

did i hear you correctly that all the windows you opened earned a positive $125 billion estimate that if you look at all of the financial investments, and all the fed special programs, all of those will be profitable. that is the first statement. it the second is that the fed has committed $125 billion to the treasury. it comes from the programs. it also comes from our securities. >> after all the wailing and

gnashing of teeth, you just earned the american taxpayers 20 $500 billion? >> that is correct. >> i was stunned. apparently, we were just borrowing money away. that turned out not to be true. i know there is a little back- and-forth plastic as to what you said. on the basis of the $60 billion in cuts to the federal government, did i hear you correctly that the real disagreement was not of whether we cost jobs but how many? you are in the 200,000 trained in? >> yes. the debate is whether they will cut 200,000 jobs vs 700,000

jobs. we do not think cutting jobs is a real smart thing? >> i would like to see job creation. we have to keep our eye on deficit reduction. >> i agree with that statement. those were the two most interesting statements that have been made all day. i have lots of other questions. i want to talk about the growing gap in this country. i want to talk at some point about the role definition of how many people are really unemployed. it bothers me we do not count discouraged workers. we do not take any account for the participation rates.

stop the corporations are holding on the books. hmm $2 trillion. that is cash. a lot of that is overseas. >> their holding at? >> yes. >> who do you think no the good -- you think it would be good if it was meant to hiring people? it would be better if it was invested.

they make their own determination. >> do you think it would be a reasonable thing to do to look at ways to encourage them to move that money around and get it back? >> that is one of the ways qe2 works. it makes it more expensive. think of a good thing for the government to do. >> as you know, i have suggested at looking at the corporate tax code. if you or allow them to bring it back, without additional taxation, there might be more incentives for them to bring it home. >> excellent. he had answered all my questions appropriately. i want to thank you for being

honest. >> good afternoon. one question has to do with trade. in connection with the trade gap with china, and in despite the fact that the currency depreciated, what share can be given to exchange rates as opposed to more structural issues like high corporate taxes, which will soon have the highest corporate tax in the world. >> exchange rates are certainly playing a role. most have to do with the saving and investment patterns. in china, the savings rates are extraordinarily high.

the investment is also high. they have a lot of extra savings to send abroad. a savings rate is much lower at the government level. we need to borrow abroad. i think those factors by the most important. there are other issues related to the goods that we produce. there are components they used to assemble. >> we still have a lot in manufacturing. my district -- housing and financial services are key. both have been hit hard.

until 2008, and they were making loans. what can we do where we are right now in this economy to incentivize of banks to start making loans again? >> as referring to some of our efforts earlier. we have to strike the balance. i think banks are increasingly willing to do that. they are a little less shellshocked.

they talk to the banks and businesses. i think we are making some progress. the think there may be some situation where the loans are not being made. i'm hopeful we will see some improvement. >> it is becoming more neutral? >> we are only one of several regulators. as we are working hard. >> may i yelled 30 seconds? >> i like to thank the gentleman

from pennsylvania. sometimes i do not get to ask questions. why would lead to a fall of on your answer. allen led to a year your thoughts on things that are there. i hear from a lot of consumers about prices. gas prices just went up 10%. miti prices are up. food prices are up. how often do you look at the baskets of goods?

>> they are weighted. prices are weighted according to how many people saucepan. housing gets a heavy weight. >> how often do your beof look t it? the updated every few years. >> thank you. >> thank you. get back to me. >> thank you. i want to ask you. there is been a lot of discussion about qe2 and decision to go ahead and purchase long-term treasuries and the impact it has on interest rates going forward. i realize the funds rate is so low that you cannot do more on

that side. is there any way to quantify the benefit of that? would you be able to make an assessment of what would have been without it? >> the question as what has happened? you can never know that was certainty. we have done extensive analysis. there is a paper published that estimated that the six and a billion dollars would provide an additional 700,000 jobs. if you get all of the efforts, there would be several million jobs. there also be efforts together

that would add a percentage point to inflation. i was agnostic in my testimony. perhaps the banks are saying that they are lending less. arhat there is the willingness. if that were true, it provides liquidity to businesses that do not care that confidence. it is not necessarily create 700,000 of. of their issues related to regulation.

it works by changing assets. there are corporate bond yields. of the is the lack of demand. how we have seen is the is in the began to pick up. there are lower interest rates and factors that make it more attractive for the consumers to go out and spend.

it appears so that it is affecting that. >> assisted in by the members. then there is the ci that i voted in. i asked about other measures. you are thinking about cutting $60 billion -- do you think getting $60 billion would translate? >> the proposal gives a couple

of growth. i do not know why we get smaller numbers. we have to do n.l. with of what the cuts would do. >> we are borrowing the money from the chinese and from the saudis. i'm not assuming if we are borrowing it. >> thank you. i had to slip up for a little bit. this kind of implementing --

there is kind of conflicting information. member's question as, is this phenomenon of companies investors holding their assets -- isn't large by historical prospectus? is it lowered? >> it is have the overall existing wells is. burns said taken advantage of this. there is an awful lot of cash to relatives to longer-term norms. >> in terms of job creation, it

is going to create more jobs and more expansion of our economy. i am from west virginia. a lot of our investors are hunkered down because of the regulations. there is the uncertainty of where we are going to go with that. the dc this as a problem in terms of the rule maker? -- do you see this as a problem in terms of the rulemaking? will they hundred down on their cash and not breaded out? >> they will get further information. the act has some pretty tough deadlines.

we are looking at the better reserved. we would like to get them done by -- get them done right. >> i ask if you can ask a question to your members of congress, what would it be? normally of a lot of different issues. it is a very simple question. what do you doing up there? and is not understanding the process. the federal debt has risen.

we look at you is doing the debt. china is holding a lot of our debt. we are creating debt. what would you tell somebody in a simplistic way how it is going to affect our national security and our trade it? >> as you say, we are borrowing and giving ious. at this point, they seem pretty content to hold that. this shows that there is still

in willingness to hold treasury security. we deado need to provide confide that will control the deficit over time so that the needs will not explode. if we can, the risk caretaking is that they will spike up. then we will be in a bad said jubilation. it'll add further to the deficit. it is just like borrowing. >> thank you.

they said the federal government has great urgency. a decade ago, the government was running a surplus. alan greenspan was worried. it did not seem to be an urgent concern. if there is one thing they saw it, it was paying off the national debt to quickly. my party can claim no credit for that. it was the republican congress the solve that problem so dearly. the tax cuts did seem to skewed dramatically.

65.5% of the tax cuts went to the top that. 14.7% of the top 1/10 of 1%. it just the hint of $40,000. we saw in december how important it was that republicans protect the tax cut. the people with the riches will spend the least. to pay for that, we are setting funding for education.

it allows middle-class kids to go to college. there are head start programs. he said he wanted to solve the deficit problem. this does seem to be the long- term framework. the question i wanted to ask about what about housing. he said the sector was weak. that seems to be a fair statement. overhang of existing homes on the market have 10 to 11 million units. the home values continue to go down. he has said the biggest problem sees demand more than anything else.

businesses are sitting on $2 trillion of cash but not increasing their operations. declining home values seems to be affecting people. what affect is that having on our demand? >> you just said it. first, it is probably that people are buying housing and there is no demand. did the construction industry is quite reduced. the other at that is -- the other if that is that people are thinking about their retirement and savings. we will take into account their

equity and home. if a significant number of people are under water. did they do not have any equity. they have to save rather than spend. that has an effect. >> it appears to be foreclosed. they cannot get out. they cannot sell their house and refinance. they end up losing their homes. neighborhoods are pulling down the home ballets for everyone else.

there is a price to sell. how urgent it would you put it dealing with foreclosures? >> you are right. it is a major problem. it is a very high priority. we have had some success. it is a tough problem. it is hard to figure al hunt to keep them in the home. it to be terrific if we could reduce foreclosures. it is a difficult problem. >> thank you. thank you for being here today. a quick question with regard to interchange fees. they were speaking to us. you are on the other side of the building.

we were led to believe that you were considering extending the date for the ruling of pricing and interchange fees. have we thought about that more? are you still thinking about extending the date? >> we have just the gun on the comments. there is some of the issues were make the proposal. we work as quickly as we can. we are moving forward as quickly as we can.

>> are still considered fixing the time? >> we are not extending the time. today to get more comments. who have to take a such time as many. what you say to them and their income has bar at? >> -- what d.c. to them when their income has been cut? >> we are looking at the lack of income. water you going to say? -- what are you going to say?

some of it could be made up by other fees or charges. >> the services have to go away. you have to keep your door open. >> we are filing the statute. >> with regard for what is going in europe?

>> there is a lot faculty with the economy over there. of our banks have 1.2 trillion sellers worth of loans. -- $1.20 trillion worth of loans. >> they have limited this to the government. >> we are watching this very carefully. at the moment, my expectation is that europe will solve their problems. elena put that in the top.

>> do not have that as a ball that? it is right in the meadow. >> one quick concern is with regard to the qe2. was a lack of the extension of an income tax rates. i would talk to manufacturers. orders started to pick up. there is concern about inflation. how would you address trying to

talk to some of the business folks? how do you address that? >> i would say consumers have come back to spending. we see some pretty strong purchases. i think you'll overcome uncertainty. >> thank you. let me ask very quickly to follow up on the previous question concerning interchanges. i would urge an extension of time to make sure we have on hand this complete issue. their love of conflicting reports coming in. there is still the issue of

fraud. there is some dispute over what impact did the -- impact it has. they are actually getting the check to clear. there are a lot of issues here. i would urge that the fed take a little more time on this to make sure. i want to ask about the corporate tax rate and what implications and how impact will this is in terms of our companies to compete on the world stage. ours is the highest with about 38%. i think only japan is higher. it is all put this on an impact. will you comment on that?

>> you are correct. our tax rate look soon to be the highest. ia good tax code would have a broad base. this speciallot deductions and extensions. by getting a broad base coming you can lower the rate. that provides greater incentives for firms to locate.

do you tax based only on profits earned in the united states are blow for profit? but at what rate to you think we should aim for that would put this in the best position in terms of competition on the global stage? >> i did not have a single number in mind. there are is the number of deductions. we will certainly get it down if we can.

>> part of the charges to keep prices stable. on the one hand, we have to pay down the debt. to what is this a faulted the economy? it is still volatile or week. athere is a $1 billion cut we passed around. why is the discrepancy in the figure of around 6005000 to 700? that is a huge difference.

who do you believe here? we have a number of questions. we are trying to understand the reasons. >> would you say that you estimates at really? do you feel that is worth it? do you feel that is collateral damage? we need to address the deficit. that is very important. it to be more effective if we get over a time frame. >> thank you.

>> thank you for your appearance today. as i said, i represent a very rural part of virginia. of -- we have dozens of small businesses and banks that provide capital. we all would agree that their success will drive our future economic recovery. i wanted you to comment on your view of the atmosphere for lending by small banks. i was wondering if you could talk about that in the context of the regulatory structure that they have to deal with. i agree with you that small

businesses are very important. they create a lot of jobs. we do not have really get data. the avp numbers showed a lot to the situation is smaller. confidence is still pretty low. the need for credits for small businesses is obvious. we know that small banks are often the ones that are situated. they know the community. we use that very much. we cannot solve all the problems.

we can ensure that all the banks have enough capital to make more loans. it is not unfairly penalize lending or discriminate against firms that are potentially profitable but temporarily week. >> are there specific things that you can speak about that address the proceeds micromanagement by regulators? are there steps such being taken to avoid micromanagement and allowing the smaller banks? >> absolutely. we provided guidance to the banks. we have provided extensive training to try to get them to understand and create a

detailed what should be taken into account. we have had meetings all over the country. we have been in line. we take this very seriously. we have at it a new community banks council that will have a member from each district. we will meet with the fourth three times a year. we understand this is a serious problem. we are doing all we can to eliminate artificial beria's.

>> do you think that the costs that will accrue will make it more difficult for them to survive? and thereby be subject to mergers and thereby create the to big to fail problem that i think that they were reported being designed to avoid? >> their focus on the larger banks. very few of the rules are aimed at this. there is the regulatory burden on small banks.

to the extent we can tighten up the supervision, they may see that they have a more level playing field. >> thank you. >> thank you. thank you for appearing. i heal from wisconsin. i am very concerned about that economic development conditions. i realize he did not have the budgets that you submitted. i have some sketches from the administration. i will not expect you to respond in detail. as a backdrop, i do want to ask you some questions about your

role in monetary policy and what makes it there. a notice from your comments that you started out immediately talking about the importance of consumer confidence and spending. and about the importance of bringing down the unemployment rate. i want you to start out by giving me a brief overview of their dual role for maintaining prices for monetary policy and how reducing unemployment fits into that equation. >> as you noted, we have a dual mandate from congress. it includes a maximum employment

and price stability. we try to help the economy return to improve employment situation. to the level of unemployment, in the current situation, we are trying to help the recovery. >> thank you. i am from wisconsin. the strategy that our state currently has is to do try to attract investors to create 250,000 jobs. we are establishing an exclusion for capital gains. we are spending $5.7 billion. we are reducing burdens on our local governments.

we are ending our recycling program. we are going to increase our unemployment rate. we are going to fire 21,000 state workers. then we will lower wages for other state workers. we will and collective bargaining help benefits by $725 million. even those who receive recipients, we will reduce the welfare check by $20 and make them pay copayments to medicaid.

we are going to reduce spool age a total of $20 billion. it is a tune of $636.9 billion. this is going to increase unemployment and reduce the ability for these folks to consume. this is all over the course of a two-year time. this will make our bond market's strong grip. do you think that the the investments will override the

damages that we are doing? wisconsin had a requirement. note the last couple of years, would have them laid off. there are tough decisions being made. >> does that help but come purchases? >> there is a lot more information. we have known whether the private sector job gains are offset. >> thank you.

>> you will be prompted up in six months when chairman bernanke comes back before the camera a. by that time, we will have a balanced budget. there will be a different group of questions. other members are free. >> thank you so much for your time. very last one as well. on the rulemaking and supervision, one is a defined

these systematically significant non-bank institutions to work better regulations. kenya updated on that process? can you give us some assurances that this process and will not be arbitrary? we talked to many insurance companies that are in the casualty business. they feel they will get lumped into this progress. aig was involved with this. we know it was really not a problem. it is more of a derivative shot. can you comment on that? a @ >> it is the responsibility to set rules. we have put in public, a proposed rulemaking that would put them back for what criteria should be used. we are looking forward to those

comments. we will begin to make designations by the end of the year. the process is moving forward. there are different views about how broad this should be. i think c-span.org the agencies will need to discuss it. the federal reserve indicated that we will have our hands full. we do not want to over extend our this definition. we want to include every firm. i do not know the exact answer. we should have some authority for the next few months.

>> are they going to wait? i net -- i now fosc has not been appointed yet. will we wait until after? >> that is a good question. it would be desirable to have the insurance recommended. i think we will have another position as well. you are correct. >> with regard to the method ology, what methodology to the federal used to determine that it is the correct amount of money to deploy it for the open market treasury? >> we have been able to get the impact of purchases to divide the rough the equivalent between purchases and points on the federal funds rate. our rough equivalent of something like it is roughly the

same as the cat in the federal funds rate. it is roughly a 75 basis point cut. it took a significant but not unprecedented. additional stimulus was needed. we seem to be seeing the kind of response we've would get. that is roughly the analogy. >> what would you consider the standards for determining success or failure of open market purchases? >> the first question is efficacy. it looks like it is. it has the effect on markets that we would anticipate. i think there are two criteria. we've would like to see the

recovery and a self sustaining peace. we live like to see the private sector leading. i think we have succeeded in moving the economy away from deflationary. we want to make sure we do not allow patients to go above what is consistent with our mandate. be >> thank you. we have a $14 trillion debt. we talked about a lack of confidence. there is a fear of tax increases. are you able to quantify the effect. >> it is not so