they have a personal stake in their country's direction. this comes at a high risk especially in the short term. we know the long-term prospects for stability, prosperity, and moderation are better in the middle east in which the population's actively participate in their own governance. these conditions at home and abroad insist that all government agencies, including the state department, prioritize initiatives that in bigarade and protect the american economy and fundamental u.s. security. .

to end this dangerous over reliance on oil imports and improve our efficiency and improve international cooperation, i believe the administration should reverse its prohibition on new offshore oil drilling, develop new forms

of liquid fuels from domestic feed stocks and dramatically increase the fuel efficiency of our vehicles. as this occurs, the state department must boost our energy trade with reliable and transparent allies such as canada. although the situation in libya is extremely dangerous, we can be thankful that the of people is occurring without a nuclear weapons dimension. the bush administration was successful in coaxing libya to give up its nuclear weapons program eight years ago. the importance of that this that has been magnified by the current prices -- current crisis. there have been average, including the -- programs, the state department plays a key

role to overcome the proliferation threat. as we discussed yesterday in the context of north korea, regime instability heightens the chance that governments and individuals will seek leverage our profits that will come from transferring weapons of mass destruction technology. the consequences of one weapons of mass destruction attack could be devastating for our budget, our children and perhaps our freedom. last fall, i led a delegation to east africa to strengthen out reach to several governments on improving security related to biological pathogens. we must redouble efforts to deal with proliferation threat wherever they may occur. food shortages and high prices for commodities have been issues in almost every middle eastern country that has experienced

recent demonstrations. this underscores the pivotal position of the united states as the largest and most diverse grow our of food. this role comes with enormous economic opportunities and national security imperatives. the world will experience explosive growth in the demand for food as large populations in china, india, and elsewhere become more affluent. countries throughout africa and asia suffer from severe hunger and malnutrition. the united states must give high priority executing a global food policy that creates exporting opportunities for our farmers and agricultural businesses and addresses hundred in volatile regions that could impact our national security negatively. i am grateful for the secretary's interest in this topic. i encourage her to work with the congress on this issue. we appreciate the time the appearance of the secretary

before us today in the midst of a demanding schedule. i admire her stamina and look over to our discussion. thank you, mr. chairman. >> madam secretary, we are delighted to have you here. >> thank you. i want to begin by thanking you, chairman, and you ranking member lugar, not just for those up and statements on our priorities and our needs as a nation, but for your service in your lifetime of leadership on issues that do matter to america's security, interest, and values. it is an honor to appear here before you. i recently took part in an emergency meeting in geneva to discuss the events unfolding in libya. i would like to offer a brief update. we have joined the libyan

people in demanding that colonel gaddafi must go now without further violence and bloodshed. we are working to translate the world's outrage into action and results. marathon diplomacy at the united nations and with our allies has yielded steps to pressure and isolate libya's leaders. we have started steps to suspend libya a from the human-rights council. we are dispatching expert humanitarian teams to help those fleeing the violence from libya into tunisia. we are prepared to support is critical civilian missions. we are taking no option off the table as long as the libyan government continues to turn its guns on its own people. as both the chairman and the ranking member have noted, the region is changing.

a strong, strategic american response will be essential. in the years ahead, libya could become a peaceful democracy, or it could face protracted civil war, or fall into chaos. the stakes are high. this is an unfolding example of using the combined assets of smart power, diplomacy, development, and the things to protect our interests and our values. this approach is not just how we must respond to the crisis at the moment. it is the most effective and cost-effective way to sustain an advance our security. it is only possible with a budget that supports all the tools in our national security arsenal. that is what i am here today to discuss. i understand and agreed that the american people are rightly and justifiably concerned about our national debt, our economy, and about unemployment.

also, americans understand the need for responsible investments in our security for the future to make us safer, to keep markets open, to ensure that we remain the leader in the world. just two years after president obama and i first asked you to renew our investment in development diplomacy, we are already seeing tangible returns. in the rock, we have seen 100,000 troops come home and civilians the best in iraq -- in iraq, we have already seen 100,000 troops come home and civilians have taken control. we have imposed the toughest sanctions get to rein in iran's nuclear ambitions. we have signed trade deals to promote american jobs and

nuclear weapons treaties to protect our people. we worked with northern and southern sudanese to prevent a civil war. we are working to open up a political system, economy, and society in this remarkable moment in history in the middle east and support orderly, peaceful, irreversible democratic transitions. our progress is significant. our work is ongoing. these missions are vital to our national security. now would be absolutely the wrong time to pull back. the budget we discussed yesterday will allow us to do that. it is a lean budget for lean times. i launched a development review to help us to maximize the impact of every dollar we spend. we scrubbed this budget. we made a painful, but

responsible cuts. we cut economic assistance for central and eastern europe. to over 20 countries by more than half. this year, for the first time, our request is divided into two parts. our core budget request is $47 billion. that is for partnerships in every country but north korea. it is essentially flat from 2010 levels. the second part of our request funds the central portion of our war effort. this is the same way the pentagon request it's funded. a contingency overseas account. we are now taking a more transparent approach that reflects our fully integrated, civilian efforts on the ground. our share of the president's

$126 billion request for these exceptional wartime cross -- costs is $8.70 billion. this budget funds by tell civilian missions in afghanistan, pakistan, -- this budget funds vital civilian missions in afghanistan, pakistan, and iraq. the military and civilian surges set the stage for the third surge, a diplomatic push in support of an afghan process to split the taliban from al qaeda and help stabilize the entire region. our military commanders are and that it. they cannot succeed without a source -- our military command

er are emphatic. they cannot succeed without a strong civilian partner. denise to be a nation with strong ties and interest -- there needs to be a nation with strong ties and interests to a civilian ally. we will address pakistan's political and economic challenges as well as our shared stress. we have a chance to help the iraqi people build a stable democratic country in the heart of the middle east. that is what we hope will happen in egypt, libya, and tunisia. it is happening in iraq. it is imperative that as out troops come home, civilians will

take the lead training police and inculcating the habits that are at the root of any kind of democratic society. shifting responsibilities from soldiers to civilians saved taxpayers a great deal of money. the military's total request worldwide will drop by $45 billion from 2010 while our costs will increase by less than $4 billion for iraq. every business owner i know will gladly invest $4 to save $45. even as our civilians help bring today's wars to a close, we are working to prevent tomorrow's. we will sustain a strong u.s. presence in a volatile places where our security and interests are at stake. in yemen, we will provide

assistance in the midst of the al qaeda headquarters. it focuses on those samples in somalia. it held haiti rebuild. -- it helped haiti rebuild. we are trying to tear down the wall in the bureaucratic their addiction all obstacles that prevent the united states government from being as efficient as it can be by bringing all of our government assets together. this budget also strengthens allies and partners. it trains mexican police to take on buy lists cartels and secure our borders. -- to take on violent cartels and secure our borders. it supports security assistance to over 130 nations.

these security funds have created valuable ties with foreign militaries. we saw that when it came to egypt. because the united states military has trained a generation of the egyptian officers, because that experience build relationships between american military leaders and the egyptian military leaders, we saw the egyptian military refused to fire on their own people. there were many conversations going on between people who were picking up the phone -- who were not picking up the phone for the first time, but who had trained together and live together. we what those who share the benefit of our spending also share the burden of common challenges. we have focused on hunger. thank you, senator lugar, for your constant pointing out that this is in the america's

interest as well as in the world's interest. these challenges not only threaten the security of individuals, increasingly individuals at home, they are the seeds of future conflicts. we have to make the investments that will make our world more secure. our largest investment is in the global health programs, including those launched and led by president george w. bush. these programs stabilize entire societies that have been devastated by hiv, malaria, tuberculosis, and other diseases. global food prices are approaching an all-time high. this led to protests and riots in dozens of countries. we are helping farmers grow more

food, try economic growth, and turne aid recipients into partners. i look forward to working with the congress as we try to sharpen this program. climate change threatens human security and national security. our budget helps to build resilience against the droughts, floods, and other weather disasters. it gives members to us to persuade china, india, and other nations to do their part as well. we are committed to making our foreign-policy a force for domestic economic renewal. we are working aggressively to promote economic growth, a level playing fields, and create jobs here at home. we are fighting for companies large and small. for example, our economic officers in the philippines helped a company win a $21

million contract that will create jobs in tennessee. this budget'ts funds the people and platforms that make possible everything i have just described. it funds political offices that promote our values, the of the officers spreading out to enter -- spreading opportunity and stability. several of you have asked the department about the safety of your constituents in the middle east. this budget helps fund the consular offices that helped evacuate people from libya and haiti. they issued 14 doubt -- 14,000 passports last year and served as our first line of defense for would-be terrorists seeking

entry into our country. the 16% cut in the usaid that passed the house last week would be devastating. we need a fully engaged and fully funded national security team, including state and usaid. there have always been moments of impatient in our country to resist obligations beyond our borders. each time we have shrunk from global leadership, the vents have summoned us back to reality. savings came at an unspeakable cost that we are seeing 10 years later in the money and lives.

generations of americans have grown up successful and safe because we chose to lead the world in tackling the greatest challenges. we invested the resources to build up allies and trading partners in every region. we did not shy away from defending our values and seizing the opportunities of each new era. i believe, as i have travelled around the world -- i am the most travel secretary of state in history -- the world has never been in the greater need. everywhere i travel, i see people looking to us for leadership. this is a source of strength, a point of pride, and a great opportunity for the american people. it is an achievement, not a birthright. it requires resolve and resources. i look forward to working closely together with all of you

to do what is necessary to keep our country safe and maintain american leadership in a fast- changing world. thank you, mr. chairman. >> you can watch this entire hearing with secretary of state hillary clinton by logging onto c-span.org and clicking on the video library tab. >> with a two week extension in place, republican and democratic leaders continue to work on a spending bill for the west of the -- rest of the year. read transcripts and find a video archive of every member at c-span.org/congress. >> this week on "prime minister 's questions," david cameron talks about possible military intervention in libya. other topics include cutting funding for child education

centers and changes to government welfare programs. "prime minister's questions" tonight on c-span. >> over 1000 middle and high school students entered this year paul student cam video competition. the winners will be announced during "washington journal." >> now a house appropriations subcommittee meeting with defense secretary gates and admiral mike mullen. they testified about the president's budget request for 2012 totaling $553 billion. this is about one hour. ord and you present it to us in any way you like. >> thank you, mr. chairman. members of the committee, i appreciate the opportunity to appear before you, perhaps for

the last time, to discuss the presidents budget request for the next fiscal year. at first like to thank the members of t committee for your support of the men and women in uniform would answer the call in time of war. i know you'll join me in doing everything to ensure they have all they need to accomplis their mission and come home safely. the budget request for the department of defense being preseed today includes a base budget request for fy 12 of $553 billion in an overseas contingency operations request for 117.8 billion. i submitted statements includes the details of this request. i do want to take this opportunity go to address several issues that i know if any subject of debate and can turn in finance the outlines of her budget proposal last january. first ey will suffer by operating under continuing revolution resolution for fiscal

cover 2011. second the project is so an individual flat over the next five years. third come to plan future reductions in size of the crown forces and for the proposed reforms to the tri-ce program for teenage retirees. i want to start by making it clear that the department of defense will face a crisis if we end up with a year-long continuing resolution or a significant funding cut for fy 2011. the president's defense budget for fy 11 with $549 billion. a full-year continuing resolution will fund the department at about 526 alien. that is a cut of $23 billion halfway through the fiscal year. the legislation the house passed a week ago would provide us with about 532 billion, still a kind of 17 billion. let me be clear. operating under a year-long

continuous solution or significantly reduce funding with this severe short telephone and tales what do you research programs, cuts and maintenance could force part of our aircraft fleet to be grounded with depleted facility improvements. cousin operations would mean fewer flying hours come if you were steaming days and cutbacks in training for home stations, all of which directly impacts readiness. mr. chairman, recognized in the current fiscal and political environment, and it's unlikely the department of defense will receive the full but requested for fy 11. based on a number of fact are scum including policy changes that lead to lower personnel costs and reduce the duties by the continuing resolution, i believe the department can have a lower number. although it is my judgment the department of defense needs an appropriation of at least $540 billion for fy 11. for the u.s. military to properly carry out its mission and maintain readiness and prepare for the future.

which brings me to the proposed $70 billion reduction in the defense budget toplines over the next five years. to begin with, this cut is to the rate of the predict growth. the size of the defense budget is still protect did and projected to increase in real inflation adjusted dollars before eventually flattening out of this time. or significantly, efficiencies, reforms that we've undertaken over the past year have made it possible for the department to absorb lower projected growth in the defense budget without sacrificing real military capability. in fact, the savings identified by the services have allowed our military to add some $70 billion to her priority needs a new capabilities. of the $78 billion in proposed reductions to the five-year defense plan, only 10 billion is direct related to military combat capability. for billion of that comes from restructuring the joint strike

fighter program. the rest, about 6 billion, results from the proposed increase and decrease in strength of the army and the marine corps, starting in 2015. that decision all addressed now. just over four years ago, one of my first acts as defense secretary was to incase the permanent strength of our groun forces. the army by 65,000, marine corps by 27,000. the army went to 547,000 soldiers in the marine corps to 202,000 marines. at the time the increase was needed to relieve the severe ress of the force in the iraq war is the search is getting underway. toupport the latter class up of troops inafghanistan, and subsequently authorized a temporary further increase in the army of some 22,000, and increased always plan to end during fiscal year 23rd team. the objective is to reduce stress on the forest, limit and eventually end apart is its top

blogs and increase troops home stations while time. as we and the u.s. troop presence in iq to sare, according to her agreement with the iraqi government, the overall deployment plans honor for his third decreases significantly. that is why we believe beginning in 2015, the u.s. can with minimal risk begin reducing army act of duty strength by 27,000 the marine corps by somewhere between 15 and 20,000. these projections assume that the number of troops in afghanistan will be significantly reduced by the end of 2014 in accordance with the president and need a strategy. this would still leave the army with nearly 40,000 more soldiers in the marine corps with 12,000 more marines than when i became secretary of defense. if our assumptions prove inaccurate, there's plenty of time to address the size and schedule change. these are supported by both the army and marine corps leadership

finally as you know, sharply rising health care costs are consuming a never lurching share of this budget, going from 18 billion in 2001 to $52.5 billion in this request. among other reforms, the fy 12 budget includes modest increases to tri-care enrollment. later index to medicare premium increases for what teenage retirees, most ofwhom her employed while receiving full pension. all six members of the joint chiefs of staff have strongly endorsed these and other cost-cutting reforms with congress. just be clear. the current tri-care arrangement, one of which these have not increased for 15 years is simply unsustainable. if allowed to continue, the defense department was the risk of other corporate bureaucracies that were ultimately crippled by personnel costs the department

fabians and reform combined with a host of new investment will make it possible to protect the u.s. military combat power, despite the declining rate and eventually flattening of the defense budget over the next five years. i should note, and you refer to this, mr. chairman. this will only be possible if the efficiencies reforms and savings were followed through to completion. in closng, i want to address calls from some quarters for deeper cuts in defense spending to address the country's fiscal challenges. but her mind them over the last two defense budget submitted by president obama, we have curtailed or canceled troubled or access programs that would've cost more than $300 billion is seen through to completion. additionally total defense program declined further as the u.s. military withdrawals from iraq. we still live in a vey dangerous and often unstable world. all you have to do is pick up

the morning newspaper. our military must remain strong and agile enough to face a diverse range of threats from nonstate or is attempting to acquire and use weapo of mass distraction to sophisticated missiles, to the more traditional threats of other states, both within a conventional forces in developing new cpabilities to target ourstrength. we shrink friend responsibilities that are imperiled. return trip brought about by shortsighted cs could well lead to costlier and more transit consequences later. indeed as they always have in the past. mr. chairman before closing time i want to raise one item of great concern of urgency. exactly a month ago, the dertment amended a request for the congressional defense committees o reprogram $1.2 billion in fy 11 fds to assess to purchase needed equipment to otect their troops in afghanistan. general petraeus requested this equipment is an urgent matter to

better protect our forward operating bases as we continue to push into contested areas. the equipment involved is mostly to improve our protection against ied is by enhanced intelligence, surveillance and reconnaissancecapabilities, particularly through the very successful use of fixed these sensors. as of last week from all congressional committees except this one have approved this request via mr. chairman, our troops need this protection equipment andhey need i now. every day that goes by is a bummer day they will do without. every day that goes by without this equipment. i urgently want to get these items so i can get these important capabilities into afghanistan in time for operations, prior to the fighting season that begins in a matter of weeks. i understand the committee has a concern over one of the funng sources, the army humvee program. the u.s. military has over 180,000 humvees in the inventory

today. 154,000 in the army alone. this vehicle family continues to be a workhorse for network. the army determined over a year ago that we have more than enough, particularly since the act is outside protected areas foreveral years. with your extraordinary support, we've ve to better protect vehicles like the imap, which is saving lives every day. mr. chairman, i wish this were a matter of finding another source of funding, but the size of the cuts come in the congress is proposing in fy 11 budget an uncertainty over the continuing resolution, we simply do not have the luxury of leaving this undated $900 million on the table. ..

>> thank you, mr. chairman. mr. chairman, representative, dicks, and establishes members, i'm honored to appear before you to discuss he fiscal year 2012 defense budget. before i do, lt me echo secretary gates comments about the real dangers inherit in failing to pass the budget. fiscal year 2011 if carried forward would not only reduce our account by $23 billion, it would deprive us of the flexibility that we need to support our troops and their families. the services have already taken disruptive and some cases irreversible steps to live

within the confines. steps that make us less effective, certainly less efficient at what we're supposed to do for the nation. it also strikes me that this budget is a budget that we -- the services started working on -- in late 2008. so for the lt two and a half years, there's been some planning to execute this budge, which we can't. d also have that kind of affect in 2013 and 2014 as we actually work now to prepare the next budget. the navy did not procure government furnitured equiment, the army and marine corps have curtailed or frozen civilian hiring. all services prevent for issues contracts for new major military construction projects. some programs may take yearsif the cr is continued through the end of september. i urge you to pass the fiscal defense bill as soon as

possible. it will provide us the tools that we need to accomplish the bulk of the missions we have been assigned. accomplishing those missions into the future demands support of the fiscal year 2012 proposal. this combined with the efficiency effort provides for the well being of our troops and families, current operations in afghanistan and iraq, and helps balance global risk through streamline organizations, smarter accusati, and prudent modernization. the army, for instance, will cancel procurement of a surface to air missile in the online aside launch system. but it will continue production of the joint light tactical vehicle and spearhead the development. it army will give up headquarters and reduce it's man power and increase the use for ships and aircraft, allowing it to continue development of the

next generation ballistic missile submarine, purchase combat ships, and another l17. the arines will cancel the fighting vehicle and reduce their strength starting in 201537 -- 2015. they will reinvest to sustain the assault vehicle and light armoured vehicle. even as they advance and restore much of their naval expedition expeditionary skill. the air force will get a new tanker, bomber, and f-15 fighters. all while finding savings of $33 billion through reorganization, consolidation, and reduced facilities. none of it will come on the backs of our deploys troops. we are ask for more than $84 billion, nearly $5 billion for

increased isr, and more than $10 billion to recapitalize our rotary aircraft fleet. these funds plus the partner capacity in places like afghanistan, pakistan, iraq, and yemen all speak to the emphasis we are placing on giving our troops and their partners in the field everything that they need to do the difficult jobs we've asked of them. we must also give them and their families everything they need to cope with the stress and the strain of ten years at war. that's why i'm pleased with the funds devoted in the proposal, almost 3/4 as much as the $200 billion for operation, maintenance, personnel, housing, and health care issues. as you may know, the chi and i pinned a rare 24 star letter to congress, expressing our unqualified support for the military health care program changes included in this budget. we sought equity across all alth care programs with

beneficiaries and health care delivery providers having the same benefits and equivalent payment systems regardless of where they live or work. that in turn led us to proposed increase in tricare enrollment fees for working age retirees. these increases ar modest and manageable, and leave fees well below the inflation adjusted out-of-pocket cost set in 1995 when the current fees were established. we sincerely hope you will see fit to pass it. please know we will continue to invest wisely to include research, diagnosis and treatment of mental issues, and brain injury, in health services and new battlefield technologies. we understand that changes to health care benefits cause concern among the people we serve in the communities in which we receive care. but we also understand and hold sacred our obligation to care

completely for those who have bourn the brunt of those wars as well as those for whom the war ner ends. i remain convinced we haven't begun to understand the toll in dollars and in dreams that war extracts from our people. as the grandsons and granddaughters of the world war ii vets still struggle to comprehend the full scope of the horror those men yetconcealed. so too ill our grandchildren have to come to grips with the wounds unseen and the grief unspoken. unless, of course, we get it right. i believe the investment we are making in wounded care and family readiness will pay off. but it will take time, patient, and money, three things we seem rarely to possess in this town. that brings me back to this particular budget request. with limited resources and two wars in process, we should be prudent in defining our priorities, in controls cost, andin our thirst for ore and better systems. e oldhalso e clear about

the joint forc cnot do anntpat dicks has agreed, mr. br at our brief hearing at our threat briefing, mr. bonner was the only one that didn't get any time. so i offered to give mr. bonner, and he has a very important mission in his chairmanship, and he has to perform that this morning. so mr. bonner, we're going to recognize you now for five minutes. >> thank you, mr. chairman. secretary gates, welcome back to the committee. i think the fact that there are so many members here, in fact, it's almost full, speaks volumes of the importance of your testimony today and the many important issues that are facing our country and, infact, the world. and in fact, your own comments in recent days have raised questions here in congress and around the country as we are

currently engaged in two wars in iraq and afghanistan. so i'm sure some of my colleagues will like to focus your attention to some of the other pressing matters that come before us today with your testimony. forgive me for being a little get parochial in my questions and my concerns. notwithstanding a friendly disagreement with the ranking meber and the gentleman that i have a lot of respect for. the people along america's gulf coast, not the people of france, suffered a great setback last week with the decision that the department made with regard to the case ex tanker. in 2008 while you were secretary under the previous administration as you will recall, we won this contract. at that time, the eads aircraft was judged to be by your own

officials the best value at the best price. it was protested to the gao. gao ruled that on eight process issues, out of somene 150, the department should have amend rfv, seek revised ofers, and make an award decision. you chose not to follow the gao recommendation. the contract was canceled. and then you created a new acquisition strategy on the lowest price technically acceptable basis and the result was that last week the loser of the 2008 competition won the contract today. you know first hand how the debate regarding government spending, which has been discussed by the chairman and the ranking member and the chairman of the full committee

has evolved over the last two years. we have focused now, more than ever, out of necessity to find every savings that we can out of the federal budget. when i joined capitol hill as a young staffer in 1985 with then congressman sunny callahan as his pre secretary, the debt of our country was $1.8 trillion. it's now over $14 trillion. so i understand. i think probably every member of this subcommittee understands that the attitude on major defense procurement, such as tanker, has to focus on the bottom line. but i think we all are also concerned about any affect that this could negatively have on our warfighters as well as on the taxpayers. i trust that we could also agree

that the first serious price -- fixed-price development contractor awarded since you and dr. carter initiated this to control the cost of procurement came out this year would be the tanker contract. certainly one of the size of a $35 billion award for 179 planes. as you know, dr. carter recently said the defense department must not start programs that it cannot see through. i think many of us agree with that. and feel it is important that we continue forward in this direction to avoid future debacles like the presidential helicopter and the medium extended air defense system, both of ich were canceled for running over budget and behind schedule. also recently, president obama scratched the virtual fence,

otherwise known as the secure border initiative network. the high-tech fenc along the mexican border that ended up costing the taxpayers of this country $1 billion that we got nothing for. i realize that's not a d.o.d. project, it was department of homeland security. but it raises the point that moneynd time were both wasted nonetheless. i personally feel that any unforeseen changes to the kc46a, of which will certainly will be, will leave taxpayers footing the bill, our warfighters at greater risk, and i at least for one feel that the most capable tanker which won the competition the first time will be sitting on some allies tarmac while we are waiting for the delivery of these tankers. so i want to say without said in the six questions that i hve,

there's no animosity whatsoever for when you were president of texas a & m and you stole our football coach from the university of alabama. these questions are not about that. these questions win think, do deserved to be asked, and i'm going to ask them in their entirety, if you can't answer them with respect to the other questions, if you could get back in touch with us, i would appreciate it. the first one, in this contest, can you commit to this committee and to the american people that the loser has been and will be afforded the same information this time around a was provided in 2008 which led the winner -- excuse me, which led boeing, at that tim, a loser, to make a well inormed protest of the northrop eads contract? number two, historically contractors in development

programs such as this have run into major program delays and cost over runs that forced the military t buy fewer models, or even cancel a program. recently, the air force chief of staff, general schwartz said he would have no patient for the graduated sales prices and contractors don't blow smoke up my ss about what a platform can do and when it will be ready. mr. secretary, what assurance can you give congress adding cost in the uncompetitive environment, via change orders, will be strictly prohibited. number three, given the contract, can you tell us what we will be buying with the kc46a. will it be -- mr. chairman can i submit the other questions for the record? i'll be happy to. but the last question was which tanker will we be get the

kc6200, kc72400, nd i will get the other questions to you. >> could we hear the other two questions? i'd like to hear the other two questions. >> if there's no objections. >> that's okay, sure. go ahead. you are on mr. dick's time now. so it's okay. [laughter] >> while theloser is assessing their decision whether to protest, it is a beginning to appear that the winner simply bought this cotract through te low price bid. that maybe to the benefit of the american taxpayer and war fighter, time will tell. but on the fixed price basis, what enforcement mchanisms will you institute o this contract to ensure that congress and the company and air force will simply not use change orders in th future to add capability in currently making the contractor whole on the price? my last two questions are that a company official from boeing

last week said after the announcement that they would fly their airplane for the first time in 2015. this contest calls for 18 aircraft will be delivered by 2017. so my question is, mr. secretary, have you ever seen a program that will executed that quickly from first flight to delivery of 18 aircraft in your history? and then lastly, i would ask you to provide the committee with the specifics of what we're buying under the kcx contest award, what specific price, and what specific schedule? mr. dicks, thank you for allowing me to get the answers in. >> my answer will be short. given the technical nature of our questions, i will take them for answering for the record after our lawyers and acquisition officials have thoroughly examined them. >> figured that's what mr. bonner wantedanyways.

thank you for cooperative. you are recognized. >> right. well, i wasn't planning on getting int this. but since the gentleman from alabama who has been a gentleman throughout this entire process raises this issue, i want to make a couple of comments. one, i have been involved in this thing for ten years. i think this time the work of the air force was much better than last time. i would remind the gentleman that the gao said there was seven or eight major violations, any one of which could have turned this in boeing's favor. also when the -- when the gao added up the price, boeing had the low bid as well. and yet we still lost. there's a question here of fairness. and i think secretary gates made

the right decision in turning this over and making him do it again. because of the multitude of problems. and this time i got to tell you, i really believe that the low bid was buy over 1%, ad that's why boeing won that's the clear cut reason. i also want to clarify one thing. there's ben sme press stories that talked about life cycle cost. i really believe that we have to do a better job of evaluating and bringing in all of the factors in life cycle cost. you know, when we got the john young changed the life cycle from 25 to 40 years, not because of political pressure, but because it was in the joint requirements document that was done by the jay rock. they said the life cycle should be 40 years.

i rankly thought it should be 50 years, because the kc135 which we are trying to replace here were -- have flown for over 50 years. they were all built between 1957 and 1963. so on that point, i just want to make that clear as well. and also bigger isn't better. you know, what -- many of the secretarieshad said up to the point of that second go around was that they wanted a smaller airplane because it's more energy efficient. and the life cycle cost. you don't need the military construction. so there are reasons why we wanted a smaller aircraft. in fact, the secretary of the air force and pete aldridge says the season they didn't let air bus bid the first time was that air bus didn't have a plane that we wanted.

that's why the first time when boeing got it, which was approved by everybody in congress, it was because airbus didn't have a plane. their planes are bigger. i know the secretary is going to give you forthright answers. i believe this thing was done totally on the merits. i don't think there was any pressure from anywhere that made any difference. everybody tried to do a lot of different things. i think it was decided by the air force on the merit. and i hope this is a decision that is sustained. >> okay. mr. jerry lewis, former chairman of the committee and subcommittee. notice his portrait is behind him. mr. lewis, you are recognized. [inaudible comments]

>> thank you. i'm concerned about your comments, admiral mullen, as well as secretary gates, regarding the year-long cr,the implication it has in terms of readiness, flexibility that we need to move some of those dollars around. can either of you describe for us what we experienced with a year-long cr last year? what actually was the fallout? . ind of day-to-day blows from what you saw from that cr? >> well, actually, i tried in my opening statement, sir, to capture certainly what we see this year. and there are, you know, there are as -- and we've done this certainly more than once over time. what isn't captured too often when e talk about -- we are talking about the malta projects

we can't start, and the projects that we can't start, what we have to pay for it, goes to the $23 billion piece of this. but you see particularly inside th services they really start to constrict in terms of what they will spend their money on, and what they won't spend their money on. currently, there are costs that we have to pay. we have to pay salaries, we have to pay health care increases. they are given. they really pile up where almost as the chairman said six months halfway through this year without a budget yet. and what's hard to describeare the inefficiencies that it generates that are almost expotential other time. we get to a point where we say we finally get a budget and we'll have to execute contracts in a short period of time. which are incredibly expensive and inefficient as well. some of the specifics, i mean the major pieces that i talked about, where we have major systems that we are not buying

equipment for, we can't buy equipment because we don't have the money. it cascades into the major program. i'll use the submarine program in connecticut. where we cash flow to keep programs going. but at some point in the time the navy is going to stop cash flowing. there are potentially, you know, workers that will get laid off up there. we see that. we talked about freezing, one the first things we always do is freeze hiring. and i mean from one, you know, literally from the major suff to the kinds of capabilities we execute on a daily basis. it's incredibly inefficient. and services. they can't spend money they don't have in the end. they really contract and hold back. we get into a point in time, typically as i'm sure you know, summer time, where secondary

loses flexibility in being able to pay salaries at some point in time. because the services run out of money to do that. and being able toreprogram that in a way that we must in order to pay salaries which we get from programs, et cetera. so it's -- it is the inefficiency, it's the program piece, meaning we can't start new things. we don't buy things as well as just the almost expotential inefficiency over time. >> let me just add a couple of things. first of all, on a continuing resolution, we're $23 billion below what thepresident request. that means thers no funds for the pay raise, for any increase in fuel prices, no money to pay for increases in health care sts, has a severe impact as the admiral has described on our acquisition program. he mentioned the potential. we've worked for the last several years to get ourselves to the point where we could

build two virginia-class attract submarines. fy11 was to be the first year. that's at risk. the air force, that will be -- we'll have to reduce our buy by probably 24 airplanes, we'll have to reduce the buy of ch47 helicopters. all of the services will cut, sustainment, repair, and maintenance. there will be an impact as i indicated in my opening statement on training. we have just gotten back to the pot that we have enough army troops to begin doing full spectrum training. now in fy 11 if there's a continuing resolution. there's no money for it. there'll be no ne military construction, no milcon, a whole year out any new milcon. that would describe the troops among other things of a full year of needed construction of new facilities. you know, it'll have impact on special operations, particularly in terms of training and

support. but it'll have -- we will probably be in a situation where we will have to dramatically ramp down the work of the army dee poas at red river and letter kenny. then it goes down to the things that affect our military men and women in personal way. just to conclude with one example. the navy has done, usually -- correct me if i get the dates wrong --the navy has a pratice of notifying families six months before the pcs move. that moteification is now down to two months because of cash flow proble. this has an impact across the entire defense budget, top to bottom. >> mr. chairman, a lot of discsion is taking place within the department of defense, but also within other agencies relative to our

effective use of space in terms of our national defense. yesterday we spent a lot of time in he interior committee talking about the difficulties of that department just to get their agencies to communicate with one another and thereby use dollars reasonably efficiently to carry forward their missions. some of our future capabilities, in terms ofreally securing our country as well as i think the rest of the world relate to our effectiveness in the way we use space assets, the way we use satellites, and indeed even the way we used unmanned aerial ehicles. i'm interested in having you describe for us, mr. secretary, what the department is thinking about and talking about relative to our responsibilities in the application of the space assets to our future security. and i really want to know if

the are effective communications vehies between the various agencies involved, and the black world and otherwise, that allow you to be absolutely certain that we are affectively communicating with each other rather than just -- rather than just continuing to secure stove pipes and those standards in the federal government operation. >> well, i will get a detailed statement or response back to you, mr. lewis. but i would just say one the examples of acquisition recore that is in the fy 12 budget is for the first timed, blacked buys of satellites that will meet the need of multiple customers, and allws us instead of contracting one and two satellites a year to the builders, instead, to give them a predict -- a higher number and a predictable number over a several year period that allows

us to bring the cost down. it also forces us to communicate better among the different customers of the satellite builders to do that job. the other is, i worked very closely with the deputy under -- with the under secretary of defense for intelligence a couple of years ago. and he with the director of national intelligence in terms of putting together a joint architecture of what we would buy, both in the white and black world and where we can complicate, i'm sorry, where we can compliment what is often very expensive in the black world with often commercially available satellites in the white world. that allow us, and that would be used by both the deartment of defense and the intelligence community. so i think we've made white a bit -- i had more than alittle bit of experience with this when i was dci. but i would tell you i think we've made considerable headway over the last two or three years

in getting our arms around this and doing it more as a -- looking at it more whole -- holistically we will get it to you. >> really, sir, i want to make a couple of points. i will strongly echo what the secretary said in terms of focus on this from an interagency standard point. it's much better than it was. the stove pipes are still there. i think we all have to continue to focus on that. secondly, it is a boundaryless domain that impacts our national security and the national security of others. i think there's recently issued a space strategy which i think is a sgnificant step forward here specifically which guides us, and the last thing i'll say which i've been concerned about for years in space is the industrial base. so how do we make sure we have a

robust enough industri base, secretary talked a little bit about, you know, this combination of using commercial as well as obviously defense contractors here. how do we make all of that work together? i think we do have to focus on that in bth the white and the black world to make all of this work. it's a vital domain, vital requirements that deserves the fus, sustained focus, over a long period of time. >> okay, mr. chairman. >> mr. moran. >> thak you, thank you very much, mr. chairman. mr. secretary, mr. chairman, i strongly believe that you are as fine of a team as has ever led our national security. but i fear that as history has shown ith so many outstanding

leaders, that while they were the right people at the right r- in the rights place, they were there at the wrong time. and i worry that your legacy is going to be crowded by our engagement in the afghan war. and i think more and more people are coming to that conclusion. the -- and the reason that i say that, while we've spent $450 billion, you are ask for more than $100 billion again this year. we have seen 1500 soldiers killed, it's gone up each year since 2003. the afghan government is the most corrupt government in the world. and unfortunately, we've contributed to that $14 billion economy pouring in that kind of money, perhaps, it was

inevitable. at one point, we were told that the kabul bank ws the most successful postinvasion institution that we had creed. and yet we now find, and there was just a saving investigation by the international monetary fund just this month, tat about $900 billion has been taken from that bank. much of it went to president karzai and his associated. he has -- president karzai has undermined our mission there deliberately. he has said the teams ledby the u.s. and it's allies were designed to bolster governments were, in fact, undermining his government in kabul. he's now authorized the establishment of a separate police force. the more we look at this, the

less justifiable this mission seems to be. and i think you may have noticed the review of bing west's book, front cover of the "new york times" book review sunday. here's an assistant secretary of defense from the reagan administration, former infantry offer. counterinsurgency isn't working because the afghan people will turn on the american troops on a dime. they don't want us there. no matter how already guess that we bring. i think theqestion that we really have to ask you again is, is the government that weare backing in afghanistan, the karzai government, worthy of the resources, the sacrifice of lives that the american people,

and particularly of the dedication of our soldiers who are fighting over there. secretary gates? >> well, first of all, let me just say i realized full well when i took this jo in december 2006 under president bush that i was inheriting two unpopular wars. and that that was -- and i took this jo knowing full well that the chances of ending one or both in terms honorable to united states and those who served our national security interest were pretty grim. i think in the first instance of iraq, we are ending it on terms that are honorable to the united states and serve our national

security interest, leaving aside how it began. i think we have to understand the nature of the conflict in afghanistan. we are in afghanistan for our own national security reasons. we are in afghanistan because we were attacked out of afghanistan and the pakistani/afghan border remains an epicenter of terrorism that has the potential not onl to destabilize the entire northeast and southeast asia, but still launch attacks against the united states. so our strategy is not focused on the government of afghanistan. our strategy is how do we defeat al qaeda, how do we prevent insurgent groups from overthrowing the government of afghanistan, and how do we degrade the capabilities of the taliban to the point where the afghan national security forces

can sustain them? can sustain their security? now you asked me a very serious question. i'm going to try to give you an answer. it's not one i'm going to do in a sound bite. this has been a very tough fight. as of this morning, we've lost -- since 2001, 1,045 american soldiers, marines, airmen, and sailors. we have at the same time, the afghan national security forces have lost five times that. they are in this fight. and so they believe what they are fighting for is worthwhile. and i think that the consequences of our leaving precipitously, of leaving this job unfinished is that we will confront exactly what we did when we did exactly the same thing in 1989 and turned our backs on afghanistan. and 12 years later, we're

attacked from there. we can't leave this place alone, and i tink that those who are in the fight and the closest to the fight in some respects are the most committed to the fight. >> chairman mullen? we know there are 50 to 100 al qaeda in afghanisn on any given day. we know that pakistan serves as the safe haven for the taliban and other anti-american elements. every day it serves as a safe haven. is it possible to achieve any form of military victory in afghanistan as long as there is a safe haven in pakistan for our enem >> sir, for a long time, i ave not focused on -- >> excuse me. after the admiral responses, your time is expired. >> yes, i understand. thank you, mr. chairman. >> as i have focused on this

area, it has not been afghanistan alone. it has been the region. and i think that's important for all of us. as we move forward here and underpin the strategy and the reason and i believe the same relationship with pakistan that i have spent time on has improved remarkably over the past two or three years. that doesn't mean we don't have our significant challenges. but specifically, for instance, yet again it's been widely reported last week with general on the trip to the middle east region. what i say between general petraeus and general was a level of cooperation that no one could have imagined across the border in the last couple of years.

that's been a lot of hard work to improve the relationship and trust. we are not there. but we broke that in 1989, 1990. we have the gap. and just like the secreta, i believe that we have to sustain that for the long term that downside consequences of a pack -- a nuclear capable pakistan that -- who's government collapses and is there in the hands of violent extremist or thee cattic individuals is a huge, huge danger, globally and certainly for us. i believe we have to tonight to work that. we have to continue to invest in it. it's not going to happen fast enough for any of us. and our ability to work that has is significant impact on what's going to happen in afghanistan as well. so it is, in fact, working both sides, and, in fact, al qaeda is

in much tougher shape tan it was a year or two ago. some of the taliban organizations are certainly much more concerned about their future than they were as recently as a year ago. beuse we finally got the resources right, we finally got the people right, we have the strategy right, and we are starting to turn. no one is more aware of who we've lost and the people that we've lost. but as the secretary said, if you want to talk to someone that thinks we have this right, get out on the front lines with them. all of that said, we can't do it without having some level of legitimate government to pass this off to. at the local level as well as at the national level. so the challenge you lay out is certainly there. we see that much more clearly than we did in the past, including where the -- where's the money going? how we are audits contracts, et cetera. i think we know what we have to

do, and the question is, you know, execution as we move ahead. >> if you'd -- mr. chairman, if you'd just yield. i would like to hear secretary gates address the question that we raised about the government itself. the karzai govrnment, and it's -- the problems there. and what can we -- are we trying to get them to cooperate and to be -- i mean they make comments all the time that make you wonder. here we are making this enormous sacrifice. karzai sys things like we're the big problem. give me your tae on that. >> first of all, i would say that the competition for the most corrupt government in the world is a tough competition. and i don't think actually the afghans are in the top five or ten. >> mr. secretary, they are. they are tied with burma. >> not in terms of dollars. >> no, but those are our dollars

>> the honest answer to your question is it's a mixed picture. some of the ministries, the ministries that i deal with, that we deal with, the ministry of defense, theministry of interior we think is pretty good. they are competently led. they are feeding people, they are recruiting people, putting them into the pipeline. they are ahead of their schedule in terms of recruitment, in terms of training, in terms of literacy training and everything else, partnering with us. but they are delivering the young men to us ahead of the schedules that we laid out. which is terribly important to the end of our strategy. but i would say that, you know, let me just say a word about president karzai. i think we have done a lousy job of listening to president karzai. because every issue that has become a public explosion from president karzai has been an issue that he has talked to

american officials out repeatedly in private. he lik the iraqis before him, complained a long time about the private security companies and how they were out of control. nobody had oversight over them. he told us that repeatedly. he didn't go public until he'd reached the end of his teeter. civilian casualties it wasn't until general mckiernan and mcchrystal got there until we started taking the civilian casualties seriously. it was something that he raised every single time. these issues that ended up with him having the explosions, the critical comments that he has in my view in most instants, there is a basis for that. maybe he over does it, maybe he carries it too far, but that's a reality.

and, you know, the truth of the matter is, again, this is one the things that the administration has looked at and has spent a lot of time other the last several months on. where do we -- where do we set the standards in terms of or goals? we are not there to build a 21st century afghanistan. what do we need to do in terms of development, both in terms of governance, and also in terms of their capabilities and so on that frankly gives us a path out? having accomplished our objectives. so the idea, there isn't a developing country and particularly one anywhere near as poor as afghanistan in the world that delivers services outside the capitol. there isn't a government like that that isn't corrupt. so ho do we -- how do we establish objectives that allow us to accomplish our national

security objectives within the framework of the reality of the history and culture of afghanistan. and at the same time, help begin to build the relationship with them that we have with dzens of other developing countries that will last long after 2014 in terms of having -- helping them modernize and develop some of these capabilities. but figuring out how to balance what our objectives are and what we actually need to do in afghanistan is one the things that i frankly think this administration has done a better job of than i've seen duing the entirety of the >> with a two-week extension

employes, republican and democratic leaders continued to work on a spending bill for the rest of the year. track the daily house and senate time lines, read transcripts of every session, and find the folder york, for every member at c-span.org. >> house appropriations committee chairman rep hurl rogers talks about the debate on crimfederal spending. that is at 6:00 p.m. eastern on c-span. >> during a house financial services committee hearing, federal reserve chairman ben bernanke said a house republican plan to cut $60 billion from the budget this year would result in about 200,000 lost jobs and slightly lower economic growth. mr. bernanke also said that he

favors the deficit reduction plan that would go into effect over the next five years to 10 years. this is three hours. committee. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] . . chairman ben bernanke on the conduct of monetary policy and the economy. without objection, they will be made part 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 ti. we were td 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 whicwe 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 accusedy 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 newss no news. i want to say i was pleed 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. foyour 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 toy. 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 ideify 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 withhatever 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.

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 numbeof factors including the stabilization of the financial system, monetary policy end inventory rebuilding. economic growth slowed in the spring and summer of last yea 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 grods 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 forecasfrom private sectors. expectations are to stay low. so 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 wks 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 rearchers main high. it allows us to make decisions

longer term. the ft said is tt 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 sms 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 unid 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 dinition, 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 theilitary 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. ly the military does job creation. i was also stress that the house recently boasted to do this from car and bombers. >> this could hav 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 noon? >> be at is not fully implemented.

it has suffered back capital liquidity. ere 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 theaxpayers. 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. wh 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 cuthe spending. inflation is exploding. 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 ican 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. weasically 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. coul 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. r 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,his would translate into a couple hundre thousand jobs. i think the numbers are a little high. >> there are a couple hundred thousand jobs. nd 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 t 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. iope 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 cfidence 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 ofhe regulatory burden. that iwhat 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 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 understanthe 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 -- wi 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 te monetary policy actions to avoid any significant increase in overall inflation. the relative price of oil, again, isrimarily 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 ming 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 inhe 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 i 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 the reasons is that there's not the capacity to service new debt. we look at companies that i talko, 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 theenefits 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 ithis 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 thee 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 revery than the united states om 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 workersver 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 dd-frank and the issue of

servicing agreements. >> we have been working -- i do not know the ect 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 servic 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 ido -frank.- in dodd =

>> i will have to give back to on that. the servicing isart 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 wholessue 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 imct 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 iue 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. ould 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 rritories -- and fluctuate -- influctuary territories. 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 isow long it tas 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 fisl 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 regutory impact of dodd-frank. so far, nothing has really

happened. that is a very difficult problem, the availability of cred. the fed has been working very hard with the banks and our examiners to make sure that good loans it made. but the main proem 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 thathe federal real it will remain an exceptionally low level for a spare and a -- four expended. ti 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 mexicis 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 tighteneup 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 fancing 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 typoaphical error or the failure to convict -- to track the flood plain since knows time in some of these- areas that we have had flood insurae 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 yo'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 daylhts 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 tt 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 notersonally 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. t 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 a 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 sn 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 areo 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, n in ocks, 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 famiar 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. weppreciate 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,he 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 ad in terms of trying to harmonize transparency rules, record- eping 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 sigficant that will be. >> in terms of ensuringhat 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 om 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. whatffect 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 raise taxes. there are legal questions at the beginning of that debate. again, i am sorry. i cannot really judge whathe

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 shoulde 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 buysore 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, includin 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. >>lat 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 king, 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 lon term sustainable picy or production? what if we run up a $1.50 trillion this year and $1.60 trillion next year and north of one trillio 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 s 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 ha 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 potential 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 u 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 ospects 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 minus. >> 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, ihelps eliminate the deficit because you're cutting and you have more money coming in alsand 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 he 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 coury 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 thats 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 e 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 bartisan 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 commiee 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 formation 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.

iill leavit at that. i will touch on thesecond 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 consequens 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 followhrough 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 t $60 billion in cuts to the federal government, did i hear you correctly at 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 discraged 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 meanto 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 tt 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 ck, 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 good aftern. 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 at you cannot do more on that side. is there any way to quantify the

benefit of that? would u 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 timated 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 agnosti in my testimony. perhaps the banks are saying that they are lending less. arhat there is the willingness. if that wererue, 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 th 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

informatio 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 relative 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 a 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 fedel 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 deadoeed to provide confidene 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 urge 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 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 ucation.

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 the is no demand. did the construction industry is quite reduced. the other athat is -- the other if that is that peoplere 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. >> i 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 iwould you put it dealing with foreclosus? >> 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 difficultroblem. >> 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 tt 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?

i do not know what the income effects will be. some could be made up by other fees or charges. we will have to see what the impact is. it has to be negative, you are right about that. >> it is a real concern. if the income is not made up, services have to go away. you cannot provide something that cost and keep your doors open. this is a problem for everybody. i was wondering if the examiners are going to be given special instructions on how to handle this or are we just going to see what happens? >> we are following the statute congress provided. we do not have the authority to make our own decisions on that. >> with regards to what is going on in europe now, there are a lot of difficulties with their economy.

our banks have $1.3 trillion in loans to the governments of the different countries over there. what effect will that have on our economy and monetary policy? >> most of the exposures our banks have are to the stronger countries like germany and france. they've limited direct exposure to the governments of the country is dealing with fiscal issues now. they have exposures to banks and companies as well in europe. we're watching that very carefully. my expectation is that europe will solve their problems. they're very committed to preserving the euro and european unification project. i would not put that in the very top rank of risks that our banking system has now. that as a ball that?

it is right in the meadow. >> one quick concern is with regard to the qe2. was a lk 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 y'll overcome uncertainty. >> thank you. let me ask very quickly to follow up on the previous question concerning interchanges. i would urge an extenon 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 deductio. 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 volatil 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 doou 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 >> you can watch this hearing

and others by logging onto c- span.org and clicking on the video library tab. >> i find more and more the behavior of professional sports owners to be unseemly in the sense that they want millions of dollars from their communities. yet they do not really participate in the problems of the communities. >> tonight, best-selling author sally jenkins on the intersection of sports and "q&a."policy on c-span's >> monday, live coverage of the presidential forum in iowa. we will hear from possible republican candidates, newt gingrich, rick santorum, tim polente, and herman kane.

i will will hold the first caucuses in early 2012. our live coverage will start at 8:00 eastern here on c-span. : we want to welcome back frank luntz, who we have seen on the fox news channel. hes the author of "win -- the principles that take your business from ordinary to extraordinary." welcome back to be at c-span -- to c-span. guest: it is great to be a c- span. i am glad you are the one here. host: we have the third week of demonstrations going on. the issue is collective bargaining. how is the governor performing? guest: when you call a collective bargaining rights, the public wants to protect it. when you speak about the right of individuals to reject or join

a union, then he is winning and the union is losing. this is one of those where how you frame it, the context, determines who wins and loses in the court of public opinion, and why words matter so much. when we get a phone calls, whatever you take, you will hear their context, their framing. in the end, the pson who frames it wins the debate. host: let me ask you about governor chris christie. sarah palin took a swipe at him. i do not know if you heard what she said, but how is he doing? host: i do not know of anyone who has had the kind of success gov. christie has had in five years. he does not sound like a politician. he is a big guy. his language is big and powerful. it is real and down to earth.

you may really dislike him, but you love to listen tot in. he is compelling because he is so direct in the words that he uses to communicate. it is both the style and substance. he may say that he is not running for office, but if you put them in the presidential debates, -- him in the presidential debates, wow. host: let me share with you some of these comments that were focusing on some of the missteps of newt gingrich and mike huckabee. mike huckabee was going after obama, saying he grew up in kenya. of course, he grew up in indonesia. then there was the non- announcement from the gingrich -- newt gingrich. every single candidate will make a mistake

from time to time, no matter how good you are. i have looked at iowa voters and new hampshire voters, who are very different. language plays differently in those two. they're looking for someone who says what they mean and means what they say. i am using these words and a very measured way. i want to provide you with the exact language that the american people want to hear. the democratic line will not like the republican words. the republican line will not let the democratic words. "mean what you say" is the most impoant phrase for any presidential candidate. host: he says there are, at most --

guest: that is a very -- george will has always been the most brilliant political writer. we both went to oxford. i have that in common with him. i pay attention to what he says, because he has a vy keen understanding and the way that he expresses himself as a poweul. i am not sure that i agree with his conclusion, but i always pay attention to him. host: your book "win -- the principles that take your business from ordinary to extraordinary." we will show some of the excerp in a moment. what is the message?

guest: your success in life is only limited by your ability to communicate your boss, family, friends and colleagues. it is only limited by the drive -- there is nothing you cannot accomplish if you know the right words to use and you have the right attributes, the right character traits of some of the most successful winners. i interviewed almost three dozen people on the forbes' 400 richest american list. i interviewed ceo's. i interviewed people like larry bird, david stern -- all winners in their various fields. i tried to encapsulate the language that works, the attributes that work, the intent that works. i am not doing another book. this is everything i have done put into one text.

host: winners don't preach, they persuade. in terms of political candidates, who would you put in this category? guest: what matters is not what you say. it is what people here. there are too many people in washington and who call into this show who want to be heard, but they are not thinking about the impact to their words have on others. chris christie best epitomizes this of all politicians today, he is the one who says he is not running. he encapsulates the most attributes of winning and the best language of winning. host: you also write that americans have had their patience stretched to the breaking point.

guest: i am not convinced that they are doing that. this is where i give credit to paul ryan on the pop -- paul ryan on the republican side for being responsive to what voters ask them to do -- asked them to do. politicians to look you straight in the eye and tell you, this is what you told me to do, this is what i am doing -- they are the ones who are most effective. those who come to washington and ignore what the public is asking of them do so to their own detriment. barack obama's did of the union speech, -- state of the union speech -- i would tell you, from a linguistic standpoint, was very effective. he used words and phrases that came from the public. if you look at the details, that started to break down. host: he is not talking about

spending, he is talking about investment. guest: when he says investment, everybody else hears "spending." when i hear the word "comprehensive," what do you think of? host: health care. guest: there is another one -- immigration. part of the reason i wrote "win" is to update the public on what works best in 2011. people watching this show engage in public -- political debate every day. i am sure when you're out in public people ask you what you think. would you like to win those debates? would you like to influence the way people think? that is what this book is all about -- not just to influence the debate, but to win the debate. host: mitt romney spoke in new hampshire yesterday, beginning

to ramp up his candidacy. he turned up in the pit area of the daytona 500 commingling with race drivers. he also showed up at a strip mall in atlanta where he got a haircut. guest: and glad that it was a strip mall. i was waiting for the word that came after strip. what is interesting about romney, his communication, that when you ask people about the substance, he won the debate. when you ask about the style, he did not. what he is trying to do now is become more familiar, trying to use is more casual attributes, which you really is in private

life, but you do not see it in public. he is trying to demonstrate it is not the brain that he has, but also the heart. in 2012, you do not win unless you demonstrate your intellectual capability as well as year end that the -- empathy. host: some say th. guest: the first is ridiculous at this point. the people who vote on religion is ssmall that it is measurable and the survey. even the republican primary. and the latter point. it is more of a challenge. what this health care portend in massachusetts, and we will not know that until the end of the year. obama was not doing that to give him a shout out, he was giving him a smack down. host: you can see the telephone

numbers. you can also send us a tweaket. what is your handle? guest: my office does it for me. i have an issue with so few characters. when i want to communicate, and i have done it here, i have tried to offer viewers very specific recommendations. nobody cares what i have to say. no one cares that i am taking a train from washington, d.c. upton york. -- up to new yk. i wouldather focus on substantial communication in a hundred words. host: that was the title of the book. welcome to the conversation, john. caller: the title of the book says it all. randi weingarten -- "win," it

does not matter if yo tell the truth, or your the ventriloquist for a lot of republican politicians staying on message. this guy is the modern-day joseph burbles. -- goebbels. guest: i hate that. i am jewish, and to be referred to as a nazi, that is the type of uncivil discourse that americans reject. some people d it in the blog pose, but 99% of americans not only would reject that, but they stop listening. that gentleman could have made a very strong point, but by referring me today nazi, that kills everytng. and if i may, tre may be a camera that can get this, i do want to follow up on this, number nine. these are the nine necessities

of winning, and the most important is the last one, number nine, principles. if you have no principles, it does not matter what language you use. if you have no principles, the words will f on deaf ears. people want to know who you are, not just what you say. if you are inconsistent, if you are hypocritical, if you are bigoted, if you use of offensive language like that phone caller just did, all the other language goes out the vote window. no. 9 is essential. persuasion -- you cannot persuade people by insulting them. or by yelling at them. to persuade by bringing them to you, not the type of language that cable television and radio programs too often promote. it invites people to come to you. and the second one there, perfection -- always trying to improve. it is not good enough to have

language that is effective. every month, i am testing myself, challenging myself, are there better words to use, of better visual. you've got an american capital behind you in the shot. host: and it is a live shot. guest: i could jump out his window and it would really hurt. it is a real window. host: you would have to jump through three windows. guest: the number one source of pride -- the most powerful visual is the statue of libty at daybreak. that shows pride, patriotism, and opportunity. a new day, a new beginning, a

new dawn. if you want to communicate and win, you have to understand people's aspirations and hopes, not just their peers. you have to appeal to them and help them, and keep your right of center, help them help themselves. host: from twitter -- guest: i have a wonderful home with the varied jewish mother and father, and i realize that in early age i had to use the right words to get what i wanted i have learned, and one of the key attributes o winners, i keep throwing charted you, because if you do not want to buy the book, you can get it for free but you have to write this down. knowing the right question to ask is most importantf successful people. i will look to my mom and say, how far as the earth from the sun? the response would be, how far

do you think it is? such a jewish response. c'mon, i just ask you a question. she said, though look it up. she would say, go look it up. that is the power of words and phrases. ross perot in 1992, newt gingrich in the contract with america in 1994 the company focused on the words and the power of language. oxford university, for my ph.d. in philosophy, which i hate it. and focus groups on msnbc and in thoughts of for the last quarter years. host: another from twitter, and his potential bid for the white house. guest:ou have to have a legitimate bid. might blumberg could make a bid for the white house because he

has had a greater impact than anyone else than probably bill gates. donald trump is a television personality. mike bloombe is a statement. i would assess bloomberg to be credible. host: from iowa. caller: i have one question, and now it is too. i am from iowa. i live in steve king's district. so i walk among a lot of misinform the republicans in my daily life. had you find that many -- they were surprised to find out that the president of united states was not a muslim. do you believe that you should of said something?

guest: the voters that colin from iowa and new hampshire, you are gold. and particularly at this point in the election cycle. i will be in iowa tomorrow for a stake in freedom and then. temple in the an newt gingrich tomorrow night live on c-span. watch it on c-span. guest: i would like to be there live. is not my job to correct. if i correct -- it is my job to challenge and illustrate public opinion. it is not my job in that role to shape it. you should in knowledge that sean and if he was the host when that focus group was pulled. hannity did inform them that they were misinformed. you get a chance to hear from

the american people in an unfettered way, to hear the back-and-forth. that is why this show is so important, and c-span, because people have the chance to interact in a very powerful way. we have a lot of misinformed people there. that is the way that things were. it appeared on "meet the press," and more people saw my focus group there than anyone i have done. host: from colorado. what this shared sacrifice, take to you? guest: what they want to hear is a fact-base conversation. they want the details and the know -- and they want to know how things stand. common sense -- you do not want to hear that word? the rest of americans do. it is one of the most powerful

words in the english language right now. they are tir of partisan solutions. what they want our common sense results. and in terms of shared sacrifice, it means that we are all in this together and you cannot just planned for today. you have to plan for the next generation. i have sn some of the budget numbers. i have gone to the whole budget process when i do what i do. it is frightening. i am glad i am as old as i am. for someone watching this program right now in their 20's, they are not going to see medicare. they will not see social security. these numbers are absolutely dreadful. and that is just on the national level. if you live in california, nevada, illinois, new jersey, wisconsin, and a half-dozen other states, those states are in danger of bankruptcy. and the federal government does not have the money to bail you out. shared sacrifice, we are going

to have to do it. host: our next caller is on the republican line. good morning, james. ller: glad to get through. my idea is relatively simple, but difficult to make this a saint. the economic and social security -- concerns, i do not see those as two groups myself. i am basically a social security -- social says -- social conservative. how can you have a social policy like we have been united states -- in the united states, spend money like crazy, and it basically rewards people for doing the wrong thing? if you look at the statistics for children, the children to grow up from broken homes, four times is likely to drop out of school, five times as likely to do drugs, eight times as likely

to go to prison -- all of these things that to social costs, and we have a social policy that pays people to break up their famili. host: can you stay on the line? i want to put on some the table some information and he want to deal with your point. first of all, americans rank 15 at 37 in math literacy. less than two thirds of high- school graduates are accepteto college every year. one half of all african-american high sool students will not graduate. today, only 70% of low-income fourth grars are proficient in reading, 50% below the basic level. in each year, more than 1 million high school seniors fail to graduate. guest: it is a tragedy. it is worse than a tragedy, it is a disgrace. and i was listening before i came on, and i was frustrated

with the comments as i am sure people are frurated with me. but can agree that the schools are failing our kids. i was concerned about this, suburban, a couple -- upper- middle class schools that are not encouraging children to reach their highest potential. i'm concerd about the school's not more than 2 miles from this building, where the class sizes are ridiculous, little accountability, you had a,rhea, trying to make that change in washington, d.c. and she gets tossed out. i do not understand parents and grandparents, because you have got the time and capability, you can make a difference. why they are not fighting in demanding that your kids learn more and do more and are fully prepared for the 21st century -- will tell you something. i get 200 reza may -- resumes

for every one person that i can hire. they cannot write or speak. how many kids are 18 years old and they look around when they talk to you? and we accept that? we battle with the politics about what takes place from here. and yet we let all whole generation of kids essentially brought on the vine. host: and from the "detroit free press," when the test scores do not add up. the pressure is so intense, schools are tempted to cheat on standardized tests. guest: you get class sizes up to 60 people. when you're trying to teach a 60-person class on a middle school level, it is impossible. it is a tragedy.

host: did you want to follow up, sir? caller: no, he is going along the same lines that i am. allowed only add that we really have this crazy place in the best thing that some men can for their families is to abandon their families so that they can qualify for state aid. guest: like to borrow that charge. this is a perfect example for that. these in the attributes of winners. put it on the screen. james and people listening, values education as an example of how to apply these attributes. the human dimension is the impact on these children. the likelihood of being on welfare, and being unemployed, having children out of wedlock, ending up in prison if we do not educate them effectively. knowing what questions to s, and not making statements but asking rhetorical questions, how can

our children captured the american dream when they are being left behind at school? asked the rhetorical question rather than making a statement. and to see what could exist -- that is where the word imagine comes into play. imagine how much stronger and healthier and more successful our country would be if we give our children the information in the skills they need to learn so that they could be happy, healy, successful adults. imagine what that would do to our economy. number four, it is not just the statistics but the solutions that truly matter. if we only focus on the statistics, we will not focus on the results. number five, to do more and do it better, that is the essence of rejecting the status quo. it is simply not good enough, and is one of those uniquely american attributes, to appeal to something that is better.

and the one that is actually a willingness to try, fail, and do it again, that is about making a commitment to innovate so that every year, the schools are better than what they were before, and the final one, the ability to connect and communicate. when that gentleman said he was not sure that he could say it succinctly, i cringed. but there should be one sentence or two sentences of the demonstration of the principal, and then the facts, which he did very effectively. you can apply this to any potential predict any political situation or business situation, and now it enables those who do not agree want me to understand the rules of communication. i would argue that there will be less arguments as a result. there's a lot more common ground between me -- us. you know i have relationships with a lot of people that wod

surprise to viewers back home. in reality, we actually agree on a lot more than we disagree. withost: the main go presidents. jimmy carter, the only president to see the party switch in the 20th-century and to lose one term after being elected. guest: his communication was very well-received in the beginning. but he was perceived to ame the american people for the failures of america. and the public does not want to be blamed. we expect our leaders to inspire us and to help us aspire to something greater. jimmy carter was, it is our fault, it is our responsibility, and that is the issue of sacrifice that frankly want people of both political parties -- if you talk about sacrifice, the public is not going to say no. if you talk about shared sacrifice, the public says yes.

host: george w. bush in a compassionate conservative campaign. guest: no one believes that conservatives are compassionate. they are tgh and smart on the issues, but compassion? liberals are compassionate. some republicans will complain on me, but it is not believable. do not tell people something that they will not believe. host: with regard to president obama, you say -- the american people believe that he is forcing a partisan divide wider. guest: the labeling is not helpful for you talk about what a person has done. but when you cim your centrist, you have to look to policy not just your language. and there is a greater spread right now between what obama says he is doing and what he is actually doing.

host: ronald reagan was a great storyteller. you say in the book that stories are the way that we understand the world. guest: it is setting the context. for the callers calling in, when you set the context effectively, everything else follows. it comes as a matter of principle, one of the most powerful ways to start your phrase. and the most powerful way -- and i will put in the last chart if i can, the most powerful way to in the statement is -- let's get to work. that is the call to action. you have told me what you're about and what you can do and what i can do. you need the call to action. and that is the best one we have analyzed. host: in texas. caller: i really appreciate the

book. the attributes of winning. i really wonder about the commitment to candor. how important his veracity and the political strategy for republicans as well as democrats? one specific point. in your conversation earlier this morning, when you talked about ronnie, the american people will dismiss the fact that he is up mormon. and then splitters someone brought up your focus group about president obama, and the misconception that he is a muslim, and then you said, it is not my job to correct what the american people think. i'm just curio about strategy. is that more important, to win?

is it about veracity or st winning? guest: it is about being accurate. . reference to candor is brilliant. watch this, steve. you will hear that phrase within the next seven days. someone wl say. but my responsibility is to provide you with accurate information that you can use in your day-to-day life, that you can use with your employer or ployee, in political debates, that you can use and social interactions. that can provide something accurate. my responsibility in my business and professional life is to be accurate in what i did. when i am on television as a focus group moderat, i am not there to have an argument with them over whether we are increasing or decreasing spending, over whether it is a

tax cut or a tax increase, or what someone's religion behavior is. my job is to illustrate what the american people think, right or wrong. and then it is the responsibility of the host or others in the group to challenge that infortion. i assure you, ma'am, if i were to put my own beliefs or i were to start correcting people for being wrong, that would change the entire dynamic of those groups and less people would be watchi. i am very careful about this. there is a time and a place to engaged in the debate and then a time to step back. host: ellis joins us from odessa, georgia caller: that is of augusta, georgia. i must and men, i love this the to have.

when i say something, i mean in. and i expect people to understand that. they are very good, i must admit. one question i want to rescue. where did fox news get their i mbalance from? when i listen to sean hnity and bill o'reilly, is about as balanced as elephants and a mouse on opposite ends of a seesaw. can you please tell me, and then, they are very careful about the phrase that you use, because you're told, i cannot do this, i cannot say that. guest: first, you could see it.

you could visualize it. that is part of effective communication, not just the right words. they are giving me great ideas. i will sing you a $5 for royalties. that came fm roger ailes. it was something he wanted to contrast between fox and the other news networks. what sounds imbalance to one person is different to another. there are peoe that have lo at the top of all news networks for bng the most accurate and being the least bayh's. obviously that gentleman does not agree. the republicans would say that fox is the only fair and balanced. fox from 8:00 p.m. to 11:00 p.m. not meant to be fair and balanced. beloweilly does let you hear

both sides. the same with hannity and gre ta, but they're not trying to put forward a straightforward, non-biased view in that time period. the news to buy it -- the news side is very precise in what it does. there is such a huge difference between a bill o'illy and keith olbermann. i used to watch keith because this important know what the other side is thinking as well. he never had republicans on, ever. he trashes their points and never gives them a chance to be heard. host: and he is off the air now. guest: on fox news, on every show you hear an opposing point of view. that is what i expect not just

from a news network, but from a news and opion network. host: and exchange on sarah palin and bill o'reilly. the story here is this morning, sarah palin to bill o'reilly, do not interrupt. >> we do not change patient benefit. >> i agree. >> and i apologize that up. alaska we have this four-second delay. try to get my point across to you if you interrupt. i'm going to continue to talk on the reform and entitlement programs. guest: i had the chance to do focus groups for the today showed that -- back in the beginning of the 2003 iraqi war. there was a six-second delay, and it was very hard at that time to communicate. i understand.

bill o'reilly, it is his approach to the direct and challenge. i do not think that she was been -- i think her comment was legitimate. i don't think he was trying to give her aard time. we are so immediate. and i will go to another one of my words -- host: you do all of our work for us. guest: i always wantea producer. i want the b of the guy behind the camera. no. rate, real time. we expect full information without delay, that anyone who offers is us real-time information, we will respect them because then they allow us to decide. host: and your comment about the opinion block of fox news. : he is part of something

that comes before. the show that comes after it, bret baier, is news. caller: good morning, frank. my name is randy o'neal and i own a smallusiness in virginia. it is a simple concept. it is a mobile facility that travels from school to school with stationary bikes and side that its children asoung as three. we use video and music to whip them up about health and educion and growing neurons. i ve been over to -- have been to over 1000 schools, when i go to new schools, many are put into a basketball court. i show up with 300 square feet, and i can handle 400 children in

a six hour school day. recently have went to williamsburg and had 350 kids, and everyone had a fantastic time, and it was a field trip on the school grounds. it reduce costs. i would like to say that i am a fitness eld trip coming you do not leave the campus. we're very wealthy in the state of virginia. but i am stupefied by how many of these administrators are afraid of a little box of bikes that you handle 400 kids. and i am greeted by the children and hired mostly by the parents. guest: what he should have done their -- can you hear me? this to sound like a commercial. frankly, it sounds like a pitch. if you had begun your communication by saying, as a

matter principle, the physical well-being of our children is this important is their intellectual well-being, and how they grow up physically, their happiness and their health, it is as important as their intellectual capability. that is how you began this, it would been more effective than just going into this is what i do. it is all about the context and saying something that transcends politics and age and society. based on "win," i wld change your opening the way. host: this is from "politico." tempo linty said that he would make his announcement within the next 45 days. -- tim pawlenty will make his nouncement within the next 45 days. guest: you cannot call him a dark horse because he may burial will succeed. he is a conservative gernor in

a very liberal state. he was able to cut the budget. and he is also very midwestern in his values. he does not raise his voice, does not lose his temper, and has the temperament, the perfect temperament of a presidential candidate. voters need to hear a lot more of him. they do not know him yet. i think he will play well. host: we will be live with him tomorrow evening. yonkers, new york with frank luntz. his new book, "win-- the principles that take your business from ordinary to extraordinary." guest: you mentioned the shared sacrifice of americans and also i had a question about the november election, the mandate to cut the deficit.

the first thing the republicans did when they got into office was extend the bush tax cuts. that added $900 billion over the next 10 years to the deficit. where is the shared sacrifice from the top 2%, and how come we do not talk about the bank's and wall streetausing the enomic crisis that we had in 2008? guest: do not go yet. will jobs be created if you raise taxes on individuals and businesses who up to this point, are the ones hiring people? will jobs be created or lost? i do not believer: that there are a lot of jobs created and 2001 and 2003. guest: the job re fell to 4%

and now what is up around 9%. there were a lot of jobs created. would you in knowledge that statistically those are the numbers? will you? caller: if we are in such bad shape, where is the sacrifice on the top end? guest: this is my point, going back to "win," kisses i knowledge if there was at 5:00 m. show that did not fallen to the news blog, i just told the caller that he nds to in knowledge of the fact that it's -- that shows he is not correct. there is one thing that matters to me in this book, if i may. the most powerful poem, and it is such a great way to begin a sunday morning. just one stands up of that. if you can talk to crowd and keep your virtue, or talk to

teens and not lose the common touch, if neither friends or foes can hurt you, if you can fill the unforgiving minute with 60 seconds of the distance run, yours is the earth and everything that is in it, and which is more, you will be a man, my son. that is from yet -- but for the kiplinger. -- kipling. these are not empty words are empty recommendation. will never do another book and so i wanted this to be a statement that language alone does not succeed. it has to be based in character. it has to be based in reality. but even the best character and the most accurate informaon will fail without effective communication. and i have tried "win to "" a book of effective communication.

host: 4 obama, what is the message for the president and for the republicans? guest: for the president, it has to be, i will still try to inspire you, but i have heard what you said about where we win, and maybe we tried to go too far, the united, we will achieve much more than we will divided. and united, there are no limits to achievement. those of the words of recommend for him. for the republicans if you want change, you have to vote for it. if you want to restore the american dream, you have to vote for the who believe in those principleswho would advocate is policies, and if freedom is still a value that matters to you as it does to most americans, and you have to vote for those people who are promototing freedom,

tomorrow, the hot line executive editor talks about how republican governors are challenging the white house on health care, a federal money for high-speed rail, and unions. maggie gallagher from the national organization for marriage and brian moulton discuss the law known as the defense of marriage act. pat dalton is the chief operating officer of the government accountability office and discusses the gao report on overlapping federal reports. overlapping federal reports.