than the foreign automakers. i definitely want to save american jobs. thank you a lot. host: south carolina. jim, go ahead with your comments about the auto industry. caller: there was a racing team that split up their partnership. the one that left, he went down into. florida. he developed a carburetor that would give 50 miles to the gallon. i do not know i don't know why they haven't brought that back. it was said that the big three back then, they wouldn't -- they bought him out and wouldn't let him -- they would not use those carburetors and i was just wondering why that had not been brought out. that's all. host: that will be end of our

show today. of course we will be back tomorrow at 7:00 a.m. but now we want to take you live to the senate budget committee. it's a hearing on the global economic outlook. it's just about to begin. the senate today in session dealing with the debt limit, but this hearing is going to begin in just a minute in the senate budget committee. we will be live with it all day. as long as it's in session. leon pennetta at 2:00 p.m. outlining some defense cuts that he'll be making. here's kent conrad, the chair. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] >> i want to go to a markup in committee and i want to do it sooner rather than later. the unknown for us is when we will get c.b.o.'s reestimate and we don't have an answer on that. they sometime ago talked to us about march 9 as a time they might have reestimates.

since that time they have end indicated that might slip. so we just have to wait and see. but i will be talking to all the members of the committee and want to start that consultation immediately. we'll start consell takes next week -- consultations next week with members of the committee and certainly be talking to senator sessions about timing and hopefully we'll know in the near term what c.b.o.'s schedule is with respect to re-estimate. i wanted to start with that. i also want to -- >> thank you. i appreciate that. i know that the chairman deeply cares about these issues and i think that process will be good for america. thank you. >> i do too. look, we may have some disagreements on some part of what's happened heretofore and i'll talk a little bit about

some of that as well. we also have places where we agree. i think it is good -- good for us as a body. i think it's good for the country to have the fullest possible debate. i think it's -- you know, last year in some ways we got overtaken by a separate process because very early on a negotiation began at a higher level than ours, and that had an effect on what we did. i do want to say that when i hear discussions that we don't have a budget that i don't agree with that. i just think that's wrong because when we did the budget control act in august that provided a budget for this year and next. and the budget control act was not the normal way of doing a budget.

i'll be the depirs one to say that, -- i'll be the first one to say that but in many ways it's a stronger document than a typical budget resolution. a typical budget resolution never goes to the president for a signature. it's purely a congressional document. the budget control act is actually a law. passed overwhelmingly in the senate. 74-26. and not only does it have the force of law, it also set discretionary spending caps for 10 years instead of the one year that you normally have in a budget resolution. and it provided enforcement mechanisms, including a two-year deeming resolution, which improves the enforcements of budget points of order, something i insisted on in the budget control act. and finally, it created a reconciliation-like

supercommittee to address entitlement and tax reforms. and it backed that process up with a $1.2 trillion sequester, so it is certainly different than a typical budget resolution, but we do have the critical elements of a budget in place. i'd be the first to say i'd like to see it different than what was adopted in the budget control act. i'm sure each of us would have done it differently if we had the power to do. today's hearing -- i want to focus on now, focuses on the outlook for the u.s. and global economy. we have three excellent witnesses. dr. alan blinder, now professor of economics and public affairs at princeton university. dr. joel prakken, the chairman

of macroeconomic advisors, one of the most respected macroeconomic firms in the country. and dr. ike brannon, the director of economic policy at the american action forum. welcome to all of you. thank you for being here. we appreciate very much your spending time with us. i'd like to briefly review the economic situation confronting the country. it's important to remember the economic crisis that we have come through. in 2008 and 2009 we experienced the worst recession since the great depression. the economy contracted almost 9% in the fourth quarter of 2008. in a is really stunning. 9% contraction in the fourth quarter of 2008. housing market crisis was rippling through the economy with home building and home

sales plummeting and record foreclosures and we faced a financial market crisis that threatened to set off a global economic collapse. credit markets were largely frozen. we've come a long way since then. the federal response to the crisis, including actions taken by the federal reserve, the bush administration, the obama administration and congress successfully pulled us back from the brink. it's clear that our economic situation would be much worse now if we had not had that federal response. in fact, one of our witnesses today, dr. blinder, along with economist mark zandi, who is former advisor to the mccain presidential campaign, completed a study in 2010 that measured the impact of federal actions on shoring up the economy. their conclusion was as follows -- we find that it's effect on real g.d.p., jobs and inflation are huge and probably averted

what could have been called depression 2.0. when all is said and done, the financial and fiscal policies will have cost taxpayers a substantial sum, but not nearly as much as most had feared and not nearly as much as if policymakers had not acted at all. if the comprehensive policy responses saved the economy from another depression, as we estimate, they were well worth their cost. this chart shows dr. blinder and dr. zandi's estimate of the number of jobs we would have had without the federal response. it shows we would have had eight million fewer jobs in the second quarter of 2010 if we had not had the federal response. now, i understand dr. blinder will present estimates for the number of jobs saved in 2011 as well which i look forward to hearing. although the recovery is recently shown signs of strengthening, it's been a long and difficult road back.

that's not unexpected. economists have found that following recessions caused by or accompanied by a severe financial crisis, recoveries tend to be shallower and take much longer. here's what two leading economists, dr. carmen reinhart, and dr. vincent reinhart, found in their research. and i quote. "real per capita per g.d.p. rates are lower in the decade following a severe financial crisis. in the 10-year window following severe financial crises, unemployment rates are significantly higher than in the decade that preceded the crisis. the decade of relative prosperity prior to the fall was importantly fueled by an expansion in credit and rising leverage that spans about 10 years. it is followed by a lengthy period of retrenchment that most often only begins after the crisis and lasts almost as long as the credit surge."

in other words, we should expect to see a period of lower than normal growth and relatively higher unemployment right now because we are recovering from a severe financial crisis. if we look at private sector job growth we see it's improved dramatically from when we were in recession. as i noted in january of 2009, the economy plost more than 800,000 private sector jobs. private sector job growth returned in march of 2010, and we've now had 22 consecutive months of growth. some additional positive signs we see in the economy. as i mentioned before, we have had 22 consecutive months of private sector job growth. last week unemployment claim fell to their lowest level since april of 2008. we've seen nine consecutive quarters of real g.d.p. growth. and g.d.p. growth is now expected to have risen to 3.1% in the fourth quarter of 2011.

housing starts are up 25% since december of 2010. consumer confidence was up sharpry in the last two months of 2011. u.s. auto manufacturers are returning to profitability. and state revenues are showing signs of improvement. but knows good news elements are no reason for complacency. there are serious risks that remain to economic recovery. for example, unemployment and underemployment remain far too high. housing continues to pose a threat with too many homes still in foreclosure or underwater. political dead lock in washington could block key measures. federal, state and local budget cuts could add too much near-term fiscal drag. and the european debt and fiscal crisis is creating uncertainty and threatening u.s. exports as we saw reported on the front page of "the

washington post," yesterday. i hope all of our colleagues red read -- read the story about the slowdown in europe and how that is affecting u.s. companies as well. beyond that we have what i have termed our own debt threat. we have a debt that is too high, growing too fast and it is imperative that we present a plan to deal with it. i was part of the fiscal commission, part of the group of six. both of those efforts we came up with plans to reduce depet by some $4 trillion over what would otherwise occur. let me just say i personally favor an even more ambitious effort than that. my fondest wish would be that we could come together around a plan that would reduce the debt from what otherwise will occur

by about $5.5 trillion to $6.6 trillion. why do i pick that number? because we could balance the budget in 10 years if we put in place a plan of that magnitude. the timing of when it begins is critical because economy is still weak so i would not personally start tough medicine until we see the economy doing better. but i would put in place the plan right now to achieve the kind of debt reductions that i've described. i believe that would be a tonic for confidence in the economy. i believe it would help assure markets that we're serious about the fiscal affairs of our country. with that i'm going to stop. i apologize for the length of that opening statement, but there's a lot to talk about in

our first meeting. senator sessions. >> thank you. >> welcome back. >> and i agree with you that our plan now is needed. i do believe that it would in fact provide tonic, as you say, or confidence in our business world and the world around us that now we have our house in order. i think destabilizing our return to growth is lack of confidence that we have our house in order and we have a plan that would bring our house back in order and balancing the budget in 10 years would be a really good goal. i believe we could do it but it wouldn't be easy, as you know. you know it wouldn't be. so we're entering the budget season for fiscal year 2013, producing a budget for public accountability and scrutiny represents one of the fundamental duties i think of a good government and a governing

party, particularly during times of economic stress. last time we -- the parties presented a budget plan was in 2009. i believe that's 1,002 days ago. senator conrad, i do appreciate very much your thoughtful comments, your expressed desire to work on a budget resolution and i look forward to working with you in a realistic tough way because it's not going to be easy to lay out a plan that works. it's become a habit, a trend. our debt is now greater than our entire domestic gross domestic product, our growth, that is. pulling down growth today and casting a shadow of doubt on our economic future. i believe it is impacting growth today.

we'd have high growth today if we didn't have as much debt as we have. americans were promised that saurge in spending would -- a surge in spending would correspond to job creation. maybe there's been some help there. certainly the amount of money that's been spent certainly should have been in the short run, provided some help, but i would just point out the -- our job situation is not good. the number of people working today, 131.9 million, is less than in 2000. that was 132.5 million. we had more people working in the year 2000 than we have today. so the unemployment rate, the number of people on unemployment compensation is one thing. it's a valuable insight. but it's not the only thing. we are not creating sufficient jobs. i saw the -- one of the french ministers this morning on bbc saying they believe they got to get their debt under control,

but most importantly make the french economy more productive and grow. the middle class is i think being squeezed. from all directions. real wages are declining. inflation is at 3%. real wage is at 2 fathers. that's not a winning combination when you not have jobs and income. declining food and energy prices are rising, job prospects remain scarce. health expenditures which we hoped and were told it was going to go down at the end of this year will go up for a family of four $200. so after near $5 trillion in new debt in just three years, the government is tong to grow while the middle class is continuing to shrink. and what makes matters worse i

think is the growth we have seen has been too much driven by unsustained borrowing by the government. this is not a solid foundation in my view. c.b.o. warned us, for instance, that the president's first stimulus package, and they accounted for this carefully, ultimately would be a net drag on the economy. yes, they said you would have a short-term benefit, but that stimulus is now gone. the money is spent. the benefit short term is now gone. but we're carrying the burden of that debt still. so we are adopting policies that i'm afraid have left us weaker, not stronger in the long run. in his state of the union tuesday, president obama had a chance to tell the american people the truth about the danger of the debt as the debt commission told us. he missed perhaps his last

opportunity to rally the american people to make tough decisions that will be tough but won't require us to savage this spent -- government spending. i was astonished of how little the president spoke of our mounting debt and fiscal obligations. over 10 years the supercommittee finally agreed, as you know, mr. chairman, in only $2 trillion in reduction of deficits instead of the $4 trillion we've been told repeatedly is the absolute minimum. mr. zandi, i remember, interrupted one of the discussions to say, i want to say, senator, this is the -- $4 trillion is the minimum and you said you'd like to see more. we'll spend $40 trillion in the next 10 years and we'll add $2 trillion to the gross debt so i don't think a $4 trillion reduction in that expected growth of debt is too much to

ask. i really don't. the president outlined no plans to go beyond that $2.4 million. he only called for spending half of the war saving, the money that we were borrowing to fund the war, we were hoping to reduce that amount of borrowing and stop increasing the debt by bringing the war costs down. and now he proposes to spending at least half of that on new programs. so that's a concern. we hear spending cuts need to be deferred but i think this goes against common sense and really more of the political reality. the american people are really ready to hear the truth and they're willing to take some action. we got economists that say cutting spending now would be the perfect time. raising taxes now would be the perfect time. you should next june cut taxes by a certain amount, but this is a political world. we are not able to make

decisions like that. we have to move when we have the consensus to move and i'm really troubled that we might lose the consensus we have to make some real good changes that i thought the last election led us to. mr. chairman, i'd offer more of my remarks for the record, but you i would just say we should focus on solid policies, creating jobs without adding to debt wherever possible. more growth, more jobs without more debt, that means more domestic energy exploration, american energy, fewer burdensome regular police stations, the ones that don't work and don't provide benefit, a streamlined tax code focused on growth, more free market competition in health care, not more government domination, a trade and immigration policy that serves our national interest and legitimately protects our american workers.

it means making the government planer itself and more productive. that would make american stronger and healthier. the president says he wants america built to last, but we dant do that on borrowed money. -- we can't do that on borrowed money. spending is not the virtue. borrowing cannot be our future. thank you. >> i thank the senator. i just want to say there are places where we disagree and, you know, we are going to have a really good debate in this committee and hopefully we are going to have a really good debate on the floor of the senate. but while there are places we disagree, there are places where we are in strong agreement, especially plea the place where i see that we are in strong agreement is the need for a substantial plan to deal with the debt over this next 10

years. and, you know, if we could find a way to come together on this committee -- i've been here 25 years. i'm not operating under any illusions. this is an election year. but i do believe if we could find a way to come together around this committee, that in itself would be a boost to confidence in the country. so let's try. you have my commitment. i am eager and this is my last year i am going to be here. i am not burdened with the re-election campaign. i will spend every possible moment focused on trying to achieve a result. and i ask all members, you know, i know it's hard. i mean, we have all taken positions, things we feel

strongly about, but if all of us -- if none of us are willing to give any ground, we're not going to succeed. it is going to take all of us to give some ground on things we hold dear to find a way to come together. and i sat on both sides, on both sides, and i plead with colleagues. let's give it our absolute best shot. let's give it our best shot. i pledge to do that. >> well, you've taken action too. you've said we're going forward. you made a decision to go forward in the budget process and that's real action. i think that's a good first step. thank you. >> i thank you. we'll go to our witnesses. dr. blinder, we'll start with you. we'll go right down the table. what have we said in terms of -- seven minutes. if you tried to hold to that, full testimony will be made

part of the record, and then we'll open the panel up for questions and, again, thank you very, very much for being here. appreciate it. dr. blinder. >> well, chairman conrad, ranking member sessions, members of the committee, i'd like to take the opportunity to share my comments on the budget with you today. i think even if this very fractious, the recovery from the recession has been far too weak. we are getting new g.d.p. numbers tomorrow but the ones we have now show a compound annual growth rate since the recession ended of only 2.4%. that's a rate we'd be satisfied with if we started with 5% unemployment. it's a rate that is totally unsatisfactory. starting from 10% unemployment and the growth rate over the last three quarters has only been about half that. some reservers view this macroeconomic performance as unsurprising and maybe inevitable given the financial

crisis that brought about the recession. you more than alluded to. you mentioned carmen reinhart and vincent reinhart, showing it takes a very long time for economies to recover from banking and financial crises. what was pointed out in a very nice paper recently by three researchers at the fed is that the extraordinarily poor performance, say over a decade, is not so much from the slow recoveries at the bottom is that the bottom is so deep and it takes a very, very long time to climb out. and that should be a lesson to all of us. it means that we are not condemned to a sluggish recovery in terms of growth rate much less one that never gets us back to full employment as you hear some people claiming. there are many, many factors related to the speed of economic recovery, including both economic policy and luck.

i will start with the first and finish with the second. it would be nice to have a little luck. the u.s. policy response to the devastating recession was vigorous, as you said, mr. chairman, but it's petering out, as you also mentioned. the fed deserves a lot of kudos for what they have done. but i want to focus on congressional action. i know members voting for tarp back in 2008 was about as much fun as root canal work, but i have little doubt that history will record that that vote, the vote for the recovery act in february, 2009, followed then by the very successful bank stress test that spring which by the way required the tarp money behind them to be effective really turned the tide making a horrific situation merely terrible. it's a hard point to make, all right. we wound up in a terrible point. it could have been much, much worse. in that paper by -- with mark

zandi that you mentioned, mr. chairman, we used the large scale model of the u.s. economy. not macro advisors' model, moodies.com model, to say all of these policy responses taken together on the economy. i think as far as i know it's the only such estimate to this date. there are many estimates of the effects of the recovery act, for example. but there were many, many things done on the financial arena. we estimated that all those policy responses together added 10 million jobs in 2011 and 2012, it's roughly the same number for 2011 and 2012. if you translate that to the unemployment rate, that's roughly 6 1/2 percentage points. if that's anywhere near correct, just think about. instead of 8.5% where he could

have been about 15%. that's an unthinkably bad outcome that we avoided. now, the spending from the tarp, of course, is long gone, and spending from the recovery act peaked in 2009 and has been declining ever since. in fiscal 2011, that amounted to roughly 1% of g.d.p. from the recovery act. in fiscal 2012 it will be perhaps half that amount just as a ballpark number. correspondingly if you look at the federal spending component of g.d.p., it's been negative. it's been falling since third quarter of 2010. this comes to the point about the near-term fiscal drag thaw mentioned in your -- that you mentioned in your opening statement, mr. chairman. i publish an on-ed in "the -- op-ed in "the wall street journal" a week ago. one is we have an urgent deficit problem that has to be

tackled right away so we don't become the next greece. thats a a core lear the notion if there's any fiscal stimulus you have to pay for it immediately if not sooner less we spook the markets. in fact, if you look at the markets they are practically falling over themselves to lend money to the federal government. the united states federal government. not some other government. at negative real interest rates. so i suggested as an example a package that would spend another $500 billion in the near term and pay for it 10 times over with $5 trillion worth of deficit reduction. i would support that kind of a policy if you changed the five to a six, to a four, to a three, almost any number. a second miss, which i know comes straight from your legal mandate to deal with 10-year budget windows is the obsession on the next 10 years. in fact, if you look at the c.b.o. long-term projections,

what happens over the next five years is actually quite benign and what happens over the next 10 doesn't matter very much. it's after that that things explode entirely out of control, almost completely due to health care spending. so that is the issue. finally in the last minute, i see on the clock, for the luck issue. my rough outlook for g.d.p. growth in calendar year 2012 is about 2.5%, the same tepid pace we've been experiencing since the recession and minus whatever we lose to bad pluck. the biggest threat on the economy is constageon from europe, financial contagon from europe. in the last few days or week or so is pretty good but it turns good and it turns bad. it could change any day. if we get a worst-case scenario, a european financial blowup that plooks somewhat like lehman brothers, it wouldn't be exactly like lehman brothers, the details would be

entirely difficult, that 2.5% growth could just evaporate in a worldwide recession. the other major risk, which i can't begin to calculate, comes from the middle eastern oil. so far that looks ok but who knows what might happen there. so in sum i say the near-term outlook for the economy is for mediocrity if we're lucky and stagnation if we're not lucky. and i would have hoped that the united states of america had higher aspirations than that and i would have also hoped that fiscal policy would help, not hinder, this recovery. thank you very much for listening. i'll be happy to answer any questions in the question period. >> thank you very much. dr. prakken, again, welcome and please proceed with your testimony. >> commarme conrad, distinguished -- chairman conrad, distinguished members of the committee, i'm the senior member of macroeconomic advisors. thank you for inviting me to

this hearing surrounding the u.s. and global economic outlook for 2012 and what policymakers might do to improve it. our outlook, like alan's, for 2012 is garden. we see it growing only 2.5%. we don't see it get below 8.5%. unemployment could deprift up modestly over the next 12 months. given that much slack in labor and product markets, inflation will remain subdued. consumer prices likely will raise only about 1.5% over the course of the year, but with unemployment that far above the full employment benchmark and inflation below the 2% that we believe the fed impolice italy targets, monetary policy will -- interest rates will be grow. consumer spending will grow about the same pace of g.d.p. a narrowing trade deficit will

be a modest boost to growth. but fiscal policy will restrain the recovery. this fiscal restraint has three components. first, the stimulus associated with the american recovery and reinvestment act of 2009 is abating. second, the caps on discretionary spending passed as part of the budget control act will start to bite. third, in the face of ongoing pressures, state and local governments will trim spending and boost taxes. where are we in the deleveraging process that all of us, you know, are concerned with? at least at the aggregate level there are indications in the united states we're nearing the first stage of the deleveraging process. corporations, well at least large cormingses, are flushed with internally generated funds and boasts well structured sheets. it is stabilized far below the 8% to 10% that some pundits were forecasting just a few

years back. house prices have fallen back into income and rents. thanks to consumers retrenchments and interest rates, the debt ratio has retreated to a very low level. yet, the steadily brightening picture masks other legacies of the great recession. a sizeable percentage of homeowners remain underwater on their home mortgages and this is a drag on consumer spending, housing rebound and the impediment to labor mobility that -- credit standards have tightened, especially in the residential mortgage market where qualifying credit scores and loan to value ratios linger above recent historical norms. it can prove difficult to secure financing or refinancing for commercial real estate projects, especially those originated or refinanced at the height of the real estate boom five years ago. federal regulations intended to

curtail systemic financial risk are now in development. although it may safeguard the economy and improve the quality of expansion, they do restrain the pace of the recovery. now, in my 30 years in this business, i have never known as much uncertainty to surround our forecast as the case today. and i want to discuss briefly with you several areas of risk that is critical to how the economic environment may evolve over the next several years. areas about which i think many economists actually agree, although there could be some disagreement on some of those points. let me address fiscal policy. now, we prepare our forecast using an economic model that requires us to make explicit assumptions, very explicit assumptions about future fiscal policies. changes in the form plass governing mandatory benefits, changes in tax code and major changes in discretionary spending were relatively

infrequent and usually considered permanent in nature. now, the fiscal landscape is cluttered with temporary policies, extensions, modifications or expirations which could have measurable and sizeable imimpacts on our forecast. now, i don't know how all these things will play out and i would be suspicious of anyway forecaster who claims he or she does. our forecast assumes that the payroll tax holiday and emergency unemployment benefits are extended through december but will be paid for gradually over the next decade, that the a.m.t. will be foxed, that the doc will be fixed, most of the bush tax cuts will be expanded. a lot of assumptions there. however, imagine the enormous fiscal drag in 2013, roughly 5% of g.d.p. should either by political design or political miscalculation the tax hol day, unemployment benefits, the a.m.t. patch, the doc fix, the bush tax cuts all expire even

as new health care taxes take hold and discretionary spending is sequestered. furthermore, all that could happen in the still puttering economy when the fed, having fired most, could not respond aggressively or might be politically restrained. in our opinion, that's a recipe for a recession. and the european crisis, it's the single largest downside risk to continued economic recovery here in the united states. slower growth in the e.z. means slower growth in the exports region. it could make a higher value of the dollar. far more important would be the financial contagon that could spread around the globe. the prices of risky assets around the world would decline together, even as the dollar strengthens, if the financial

tsunami were severe enough that could tip the u.s. in the back end of a double-dip recession. this doesn't consider the possibility of days illusion either in part or full of the euro itself. house prices, my last point, the issue here is that homebuyers and home builders delay buying and building if the expectation is for further decline in house price. the consensus forecast is forist house prices to begin rising modestly and that would be good news. rising could lower inflation, cost of mortgage finance and thereby supporting housing demand. they'd also boost household net worth, prevent foreclosures thereby supporting consumer spending. it is difficult for house prices. for one thing not long ago the consensus was for house prices to turn up last year and for another no one knows for sure how large is the shadowing that could be brought to market a moment potential sell remember

-- bottom out or lowering the pressure on houses again and delaying for even longer the eventually turnaround in housing. so as the economy approaches the three-year mark of this recovery, the coming year or two are likely to see growth and utilization rates that while not especially surprising will nonetheless feel and be very disappointing. furthermore, the risk of the forecast and the uncertainty surrounding them have seldom, if ever, been as buried or prevalent as of now and neither our monetary orificecal authorities are well positioned to counteradverse shocks to the economy. in short, these will be very trying times. now, you can call me a cock-eyed on mist because i can imagine worse outcomes than i do consider likely but i don't foresee. thank you for your kind attention today and the opportunity for me to offer my advice. >> ranking member sessions, members, thank you very much for the invitation. as somebody who worked on the

hill nearly a decade as an economist and one whose job was to inform members of economic forecasts, i just want to give the warning that it's really difficult to do economic forecast. i always try to caution my bosses not to put too much faith in them. it's not to denigrate dr. prakken who has the best forecast out there. this is just an impossible thing to do. and if you look at forecast the way they work, generally people forecast next quarter something close to what this quarter is and then the quarter after that is some kind of combination of long-run growth and what it was last year and three quarters out it's more or less of what they think long-term growth is. this really isn't a science. as dr. prakken indicated, it has contingencies happening out there. there is a lot of risk to the economy. i think dr. blinder identified, who knows what will happen in the middle east, who knows what

will happen with oil prices. i think as everybody who've spoken here has indicated, what happens in europe is the real wild card. there's been a few articles in the last few weeks, "the washington post" article yesterday refuted that. the idea there is a delinkage there, somehow we're immuned what happened in europe. i don't think that's the case at all. it's an increasingly globalized society, we are very much at risk. and this idea there this might somehow benefit us because if combal -- capital leaves europe they might come here. that might be true in the short run. i take a little bit of exception to dr. blinder. i don't think if we're going to run trillion-dollar deficits for the indefinite future i think at some point that's going to start spooking markets, especially as he indicated, especially if we have an entitlement debt that's

growing and growing and growing and there hasn't really been any real movement to do anything about it. i am not a big fan of fiscal policy. it's interesting and fun game to play what if. what if we made certain changes if we hadn't made certain changes in 2009 what would have been the impact? i just don't think the government's ever going to be very -- is going to be nimble enough to enact fiscal policy in a way that benefits the economy. an example, i like to give people, loges dele was located for 40 years at 15th and i street. in early 2010 as part of a stimulus project that building was remodeled and all of the ground floor tenants were booted out in 2010. in twelve the work has not -- in 2012 the work has not yet

begun. and many of them lost their jobs. the dele found a new place to work. government does things slowly. it's simply the nature of the beast. if there is some kind of new recession out there caused perhaps by the year ecrisis, we simply count on the government to nimblely respond to this with fiscal policy. as both my counterparts have noted, the federal reserve doesn't have too many quivers left to deal with the current crisis we have. it's almost impossible to see how they can -- they can't lower interest rates further. the twists about done. it's really difficult to see what else they can do. and so what i'd like to encourage the senators to think about, instead of thinking about the very short-run policies we can do to stimulate the economy for the second or third or fourth quarter is to think longer term and think

what we can do to engender long-run economic growth. and the things crb cited before. i think it's time to have a true entitlement reform occur. i think the simpson-bowles committee made an admirable first attempt at that and i thought that would have been a wonderful place to begin. the gang of six also talked about this. again, that would have been a great place to start the discussion. i wish members of both side would have picked those things up. as chairman conrad said, it's difficult to do it during an election year. it seems waiting one more year is something in a we really can't afford at this time. for a number of reasons, not only are health care costs rising, another good thing that's happening that also happens to have a bad outcome is that longevity is increasing

draw matcally, especially from age 65 on. it's kind of interesting, if you look at the centers of disease control data from 2000 to 2007, longevity increased for people at age 65 by nearly a year over that seven-year period. if longevity is going up for people who hit the retirement age by nearly two months a year, that's going to overwhelm our system and that's something that social security and other actuaries really haven't been able to account for yet. this is kind of one negative surprise of something in a otherwise is a very good -- is a very good trend. so the other thing i'd just like to say, since i'm by training a tax economist, it really is beyond time to have a tax code that looks like somebody designed it on purpose. as former treasury secretary said so nimbly, we don't do a very good job at encouraging investment.

we don't do a very good job encouraging all kinds of things. just the complications that are indemic in the tax code is something that needs to be fixed. to me it seems obvious there is a bipartisan solution that could keep rates relatively low, get rid of a lot of exemptions. things like the mortgage from deduction, something i've written about quite a bit, carve it down and end up with more revenue and more reasonable rates and something that actually encourages economic growth rather than discourages economic growth. seems like entitlement reform, fax reform are two gigantic things. i know it's difficult for congress sometimes to do more than one thing at a time, but to me it seems like it is a profishes time for the senate to bite off as much as it possibly can. thank you. >> thank you, dr. brannon. thank you very much for your references to the fiscal commission and the group of six and your references to the need for tax reform. i used to be a tax commissioner. i used to be chairman of the

multistate tax commission. and for anybody that's familiar with the tax code, as i know you are, we are way past time to fundamentally reform it. ifs -- it is an abomination. if you are going to sit down and design a tax code that would have the worst disincentives to the very things we all want to see happen, savings investment, economic growth, you'd be hard pressed to do a worse job. i'm going to defer my questioning time to senator cardin and then we'll go to senator sessions and proside with other members. i'll reserve my time. senator cardin. >> mr. chairman, thank you very much. let me thank all three of our witnesses. i found the testimony to be very persuasive that if we had not taken action, decisive action, that today we would be

faced with unfloiment rates that are much higher. and options that are much fewer -- unemployment rates that are much higher and options that are much fewer. i also take away from this, mr. chairman, from the testimony that's been given, that if we do not extend the unemployment insurance programs, if we do not deal with the payroll tax issue, if we do not deal with a.m.t., if we don't deal with the physician problems and medicare that we are going to put a real anchor on our recovery and cost us employment. our unemployment rates will go up. so we have a short-term /long-term issue here. i want to associate my comments with the chairman and the ranking member that we need a deficit reduction plan over the next 10 years but at a minimum reduces the deficit by $4 trillion. i agree with that.

but in the short term we've got to take steps to counter some of the challenges to our economy. there's -- our state and local governments are going to be reducing their input into the economy, that's for sure. they have no choice. they really are relying upon the federal government to provide some assistance to our economy. we got to figure out a way to do that, consistent with the long-term commitment to reduce our debt. and that's what we really need to do. i want to ask a question, if i might, as if relates to the housing market. you all touched upon it somewhat briefly. we all know that it was the housing bubble that burst that sparked the current recession. wasn't the cause of the current recession. it was certainly a spark. two of you have commented on it directly, but we may not yet be

at the bottom. we hope we'll see housing prices increase. what can we do at the federal government for policy that would be helpful to encourage a more healthy housing market? we know there's a lot of inventory that is potentially out there. people have been sitting on the sidelines. we also know that mortgage rates are historically low. what can we do to try to encourage a responsible return in the housing market that will help not only housing sales but also new home starts? >> i may start on that. i won't start with pie in the sky with congress appropriating huge sums of money to help these people that are underwater in their mortgages which in an ideal world i would. in 2008 i advocated that. this is not going to happen. there's something much simpler

which i would hope that republicans and democrats could agree on. when the law in 2008, establishing the fhfa, was passed, it provided for conservatorship of fannie and freddie if the worst happened. the worst did happen. they are now in conservatorship. it -- there are shareholders out there whose interests need to be protected, that we're conserving value. the head of the fhfa who has never been confirmed, is acting, which is another issue, is under a legal mandate from congress, from this body to conserve value. the truth is, as we all know, that fannie and freddie are nationalized companies basically and the only shareholders that matter is the taxpayers. i don't think it would need to

be more than a one-paragraph law to take care of the rest, which will eventually be the demise of fannie and freddie, the one objective should be to serve the citizens of the united states, period. i think that would help. >> dr. prakken. >> a number of things. we should start by staying there is no silver bullet that can fix the housing mess. it will under all circumstances be a long and drawn out affair. but i think we could agree that to date the programs intended to facile fate mortgage modification and refinancesings had difficult pickup rates. i think those disappointing pickup rates is part on the lenders' side to participate in these. so schemes that somehow broadened the number of mortgages that qualified for

these plans perhaps coupled with some approach to sharing future house price appreciation with the lenders could encourage them to become more actively involved in this. i know you've written about this. they are also extremely worried about having the so-called representations put back in them if they go in the refinancing game. a better attempt to modify mortgages without actual debt fore givens which i think -- >> on that point if i may interrupt for a moment. it's a major issue in my state of maryland. i've had many housing forums and i have one saturday not far from here. there is an inconsistency among the banking institutions. some are happy to try to work things out because they understand it. others are very remote and we can't seem to get their attention. is there any way we can get the attention of the mortgageholders in a more direct way?

>> it could be banks have different views on this have different financial stakes and that could explain their different responses. so better information will be helpful. i think also there's this notion out there that the g.s.e.'s, you know, are sit really on large amounts of properties that have already been foreclosed and they could put those to the market in bulk sales perhaps with a provision they would become rental properties for a certain number of years. my understanding is there are investors chomping at the bit to get access to those properties because they understand demographically housing is the pent up accumulating demand and it will be toward renters. but this is really, really important. there is a housing boom waiting out there. demographics suggests we have to build 1.5 million housing

units. we are now building 450,000. we have to have a financial system in place that can accommodate that going forward. the most important ning to do immediately is to do what we can to stem house price declines. the most important thing i think we can do there is to do what we can to prevent particularly the so-called strategic foreclosures because we know as soon as the house goes into foreclosure the property value goes down by 35%. anything that can share the appreciation, somehow or another to put a floor on the expectations of house prices will be really, really helpful. then you have to find a model to replace the originate, securitized and flip model that failed us badly was something that could accommodate this push for housing demand that will be coming over the next 10 years. >> let me thank the witnesses.

this is an issue that we will follow up when we have more time. thank you, mr. chairman. >> thank you. senator sessions. >> mr. chairman, i would yield my time to senator johnson. >> thank you, senator sessions. and mr. chairman, i'd like to agree with you that i think it's crucial we have a plan. i certainly want to extend my hand. i'd like to do everything possible to work out a budget resolution. i think that's just absolutely crucial to restore some confidence, reduce some levels of uncertainty because as somebody who, you know, been in business for 31 years, made investment decisions, hired people, created jobs, i don't think there's any doubt really what's holding back our economy is the high level of uncertainty and just a total lack of confidence in what's going to happen with our economy. i think so much of that is driven by what's going to happen with our government. you know, to me it really is the cause of our problem is the

size, the scope, all the regulations, all the intrusion of government into our lives, into economic decisions that businesses have to make and the cost to government. i couldn't disagree more of dr. blinder in terms of the fact that debt and deficit doesn't make a difference. i think it makes a huge level of difference. when business owners see $4 trillion in additional debt and deficit accumulate in the last three years, trillions in addition -- in additional deficit spending occurring in the next 10 years, that scares people. i guess it was dr. prakken, you were talking about the level of uncertainty in economic forecasting. making your job harder. think of a job creator, a business person, the level of uncertainty when he's having to put his own money on the line or her own money on the line to make those investment decisions. that's the problem. and dr. brannon, i totally

agree with you. i don't think government can positively affect in a in terms of our actions. i don't think we're good enough to say let's spend another $3.5 billion and juice the economy. what government needs to do is get out of the way. thanks for your testimony. the deficit risk, the additional deficit risk that nobody is really talking about. i certainly worked with douglas holt agen on the true cost of the health care law. you are talking about the uncertainty around the health care law. c.b.o. estimated only a million people would lose their employer-sponsored care and get put in the exchanges under highly subsidized rates, but the mckenzie study found 30% to 50% of employers right now are planning on dropping coverage. 180 million americans get their health insurance through employer-sponsored care. if half of them lose their health care and get dumped in the exchanges, the cost of obamacare won't be $95 billion.

it will be over $400 billion. if everybody loses -- it will be close to $1 trillion. i want your comments in terms of that plelf of risk, dr. prakken. >> thanks for such an easy question. >> not a problem. >> i have no way of quantifying the impact on an intermediate term economic forecast of the united states economy of the affordable health care act. because the name of our firm is macroeconomic advisors and much of what is going on in health care reform is a microeconomic phenomenon. in particular market -- segments of the markets, particular populations. i think i'd be a little careful with the example that you just gave. if a firm drops its health care coverage for its employees,

what happens to the money that it saves when it makes that decision? does that go to higher wages? so doing these anal sillses is extremely complicated. i think what you have to come back to is this. we have a huge unfunded federal liability over the next 75 years as the actuaries account these things. i think we all agree here that the principle source of that is health care. medicare and medicaid. furthermore, given the way kolb estimates these costs -- c.b.o. estimates these costs, they make very optimistic assumptions about the growth of health care, how fast it grows over the rate of g.d.p. these like thes are probably even larger than c.b.o. estimates. yet our response to this unfunded liability is not to

tackle head-on that issue, it's instead to whack discretionary spending over the next 10 years. >> excuse me, our response is to increase the unfunded liability. that's the point i'm making. >> but not within the system. not within the health care system. >> i'd like to have your comments on that. >> the level of uncertainty caused by these deficit risks that we're not talking about here in washington because we're simply not even addressing the ones that are already on the table in economic forecast. also, i'll throw one more into the hopper. you talked about 2.5% growth. there's a study released by the lindsay group. if we only achieve 2.5% growth, add $5 trillion to our debt and deficit. the c.b.o. estimates for every 1% decrease in economic growth, add $3 trillion to 10-year deficit figures. these are the risks, this is the level of uncertainty that is causing job creators not to act, not to invest. >> i think the biggest problem we have with health care right

now wasn't really dealt with by the affordable care act. it's the rising entitlement cost. i think that's the thing that really threatens the solvency of the federal government and also i think that's what employers are scared about more than anything. there's no denying that lots of small billses in oshkosh and elsewhere are really worried about -- trying to figure out what these costs are going to do and i don't think any of them believe that their health care costs are going to go down all that much. if you look at the balance sheet of the united states, we might have had a $1 trillion deficit last year but the amount of unfunded liabilities went up by $3 trillion last year alone. i think that's what frightens financial markets and i think that's really where the federal government has to think -- make first in terms of their priorities. you're right. there's a lot of things in the affordable care act that i don't think are really solving anything. >> ok, thank you. i'm basically out of time. thank you, mr. chairman. >> thank you, senator.

>> there's a lot of legislation around here that over the decades doesn't solve a lot of things either. so you can kind of randomly select legislation. in my state it would be no child left behind which is thousands and hundreds of pages of junk in my opinion. but that's another issue. another committee. another discussion. so, let me first if i can, you know, before i ask some of the questions, i say this every time i come to this committee when there's folks talking, you talk about the stimulus, it's petering out, which it is, and didn't really have long-term impact and that's which are want to take a little exception. just to mention a couple of things. then i'll get into my questions. because, you know, what i've learned over the years, if you let stuff kind of keep out there in the media world or cyberworld it becomes fact when it's not necessarily fact. i'll give you these three or four projects and i'm talking through to the broader folks that are listening.

in alaska we received one of the two indian health services hospital projects to construct a $170 million hospital in alaska. yes, it's true, when the project is done the stimulus money has been spent. but the end result is we're going to have several hundred people working there for many, many, many, many years to come, providing health care, to provide better health care to people who then have more productive lives which then in turn work longer, pay taxes, produce product, it has an effect. the problem is, c.b.o., which i have my own problems with c.b.o., never will analyze that because they don't believe in that. that's not part of the equation. but that's the reality. or small road construction project, intersection that was the most jammed up intersection in anchorage, alaska, now because of stimulus money is completed. it has had -- it is the most improved intersection for traffic flow in the city. why is that important? last time someone sitting in a

car -- less time someone sitting in a car, burning up fuel, burning up time they should be at work or taking their kid to the doctor or whatever it might be, they become more productive. again, c.b.o. will never score that. but that is a long-term impact to those kind of dollars that we have put out there or g.c.i. built broadband through western alaska. that had no broadband. they had no capacity to enter this new world we live in. all because that's done, more businesses, individuals will be productive and bring more product to market, more people, more kids will have education to internet which they can't get currently and a variety of other things. so, again, c.b.o. will never score that. so, every time i hear from people who say, and i'm not saying you, but some of my colleagues who say stimulus didn't do anything long-term, it is just flat-out wrong. i can go from project to project. the problem is, in this

fantasyland of washington, d.c., you can't score those things. you can't analyze those things because they don't want to hear about that. so that's my rant for a second here. but there's a couple -- i thought this was an article and if i pronounce your last name wrong, joe, i apologize, prakken, you had a good quote and i thought it was interesting, called the 54,000 jobs, a surge -- [inaudible] small business surge in the unemployment numbers and what's happening there. and someone who comes from the small business world, still in it, to me that's a very important indicator because small business people who hire people, doesn't matter what time of the year, they're not hiring to fire, they're hiring to keep. versus a larger company, christmas time, they hire them, then they fire them, or lay them off. but small business people don't do that. they're hiring to keep. and i thought your comments were very interesting. if you can give me some

additional feel on that of what you think and how the small business community is starting to play a role in this recovery . >> the number you're talking to was about part of the a.d.p. national employment review that we partner with a.d.b. to provide. and so it shows that small business hiring which many economists think of as the engine of economic growth has accelerated over the last several months. that's certainly a good development. that data in itself doesn't tell us much more about small businesses, but a very interesting regular survey done by the national federation of independent businesses routinely asks small businesses how they're doing on a variety of different fronts, including questions like, what is your number one challenge? what's your biggest challenge? and the answers to those questions actually are surprising given the rhetoric that one reads in the paper

about what problems confront small businesses. the number one problem they have to deal with right now is lack of demand. they do not say access to capital, they do not say burdensome regulation is their number one problem. they say their order books are thin. and, you know, this gets to the point about can government somehow stimulate the economy, short run, in return for a long run deficit reduction that could be really helpful and i think i agree with that one, that that's something we should think about. now, i also like your point about the ongoing return to some forms of federal spending. look, the federal government can borrow at negative interest rates right now. are you telling me there aren't some wort while social projects that have -- worth while social projects that have rates returned that aren't higher than that? >> right. >> now, you have to pick them carefully and there's obviously the opportunity for squandering the funds but to think that

there aren't social investments that have rates of return higher than the current cost that the government faces when it enters capital markets i think is to cut off a variety of policy options that could have long run benefits. >> very good. did you want to add -- i have one broader question on the housing -- >> i'd like one sentence. i agree with what joe just said. c.b.o.s that tried for the most -- c.b.o. has tried for the most part to stay away from dynamic score keeping because it can be easily abused. c.b.o. has in the past study the returns on infrastructure spending and at a request from this committee would generate a c.b.o. study. either with specificity or generality, however the request was made. on the economic returns, not to mention the social returns on infrastructure. >> i just have a broader issue with c.b.o. that i think they have to change the way they do their business because the way we -- from a small business world, some of the ways they do their stuff, it just doesn't make sense. but i'll leave that there. let me ask a quick question on

the housing, i want to follow up. i'm not one of these ones to necessarily support principal knockdowns. i think that's not necessarily the right approach but the real approach to me seems logical. there is a proposal out there that some folks have talked about and i think it's a good idea and that is, if you know for the last 2 1/2 years someone who has underwater property but they've made their payments on time, they've done it, even though their rates are higher than what the current market is maybe by a point, two, in some cases three points higher, doesn't it make sense just to create a financial instrument that says, you, even though your property is underwater, we don't care what it's underwater because obviously are you staying in that home because of several factors, producible job, probably kids in school, neighborhood, a variety of things. that's what people buy for. why don't just lower the rate, it's an enormous stimulant into the economy, when i say not --

it might be a government-backed but the idea is, let's just do it. because we will lower the risk that they will go into foreclosure because we give them more cash flow and it will stimulate the economy and we don't care what the bankers say because all we're doing is creating another instrument that if you want to refinance you go over here and go get it done. and then they pay off the bank and that's the end that have story. tell me your thoughts on that. it's so simple and it's so -- everyone has all these grand plans that make no sense and this is all you need to do. >> i like to jump in on that very quickly. there is no one magic fix in housing. as joe said, there are many things to do. one of them is exactly what you just said. exactly. and a major -- the easiest way to get that done is through fannie mae and freddie mac and the f.h.a. which are basically the only players left in town. that comes back to the remark i made earlier. fannie mae and freddie mac via their regulator are hamstrung by the law. i think they're not quite as

hamstrung as they're acting. >> but we write the law. >> you wrote the law, can you change the law. you can change the law. i don't believe any member of congress back in 2008 wanted to make life more difficult for the american taxpayer. that is the effect now of a law written in 2008 and this is the body that has the ability to change it. fannie mae and freddie mac cannot change the law. >> thank you, mr. chairman. >> nor sessions. back to you. -- senator sessions. back to you. >> i yield my time to senator portman. we appreciate senators johnson and portman. they each add great talent and expertise. >> thank you. i appreciate it, senator sessions, and appreciate you letting me take the time ahead of time. just on stimulus, i can't help myself. you know, dr. blinder's talking about infrastructure and if you look at sort of the classic definition of infrastructure, probably it was 4 1/2 -- 4.5%

of infrastructure in the stimulus package. and to dr. prakken's comments about how inexpensive it is for government to borrow so shouldn't we be borrowing to spend more, it is true we're borrowing more than we should be, of course, and at the federal level we're now borrowing about 40 cents for every $1 that we spend. sooned there is an impact that goes beyond the obvious -- which is what the interest rate is. at some point we can't just keep spending more than we take in and not expect to have an economic impact. so i just have to throw that out. also, to throw out the fact that economists including folks who -- dr. binder, were your successors, at the councils of economic sizers in this administration predicted that the stimulus is going to work in ways that it hasn't. and they predicted unemployment would be under 7% now and we're looking at 8.5% and actually

the 8.7% over the last to two months if we hadn't had so many people leave the work force. so we all hope the economy is improving. i certainly see some positive signs. i also see some really troubling signs. but you cabinet say that the expectations that were set by those who supported this have been met. so i wish there had been more infrastructure in that legislation since it passed and i certainly wish that we would have seen a better impact from it. i'm curious if i could go back to the health care debate, because i think all three of you, and i'm sorry -- i'm sorry i didn't get to hear your testimony, but all of you understand the importance of health care indaling with our fiscal crisis as well as our economic crisis. in other words, this incredibly slow growth we've seen in this recovery compared to other recoveries and really a true jobless recovery in 2001 and 2002 we called it the jobless recovery. at this point, 48 months after the recession, we had net about

350,000 new jobs. here we're down about 6.1 million new jobs. in a deeper recession we were up over six million jobs at this point in the recovery. and here we're down six. so i think health care is playing a role, not just in the long-term problems that we face, but also in some of the uncertainty you talked about and i liked what you said, dr. prakken, about the fiscal landscape being cluttered with uncertainty and in your 30 years you've never seen such uncertainty as you see now. i think a lot of it is these huge unfunded liabilities in health care. so you were starting to go there in response to senator johnson's question and i wonder if you could talk about that and the first part of your response was that we were focusing too much on the discretionary spending side as i read it and i thought you were going to follow that about the need for us to focus on long-term. >> the real issue in health care is, there are two parts to it. one is the population is aging and as you get older, you

require more medical attention. and the second is that the prices of medical services are rising faster than overall prices. the issue philosophically that we must address as a society is do we think our elderly are somehow entitled to the best available health care irregardless of the cost? and if the answer to that is yes, then the resulting game is just one of shifting the costs. who is going to pay for that? is it going to be the government, is it going to be the private sector? is the government going to shift the cost to the private sector? ok? the other issue as well, maybe we are just going to tell these folks, these aging folks, that they really are not necessarily entitled to the best medical care that money can buy under all circumstances. and until we really wrestle with that debate, it's just hard to see how we're going to

make progress on health care. now, look, the health care circumstances don't change that much from one year to the next. it can't be why growth is slower this year than last year. it doesn't change fast enough. the demographic projections don't change fast enough. the financing terms of health care don't change fast enough for that to explain short-run movements in g.d.p. growth. it just doesn't make sense that that would be the case. is it a long run issue? could it undermine our standard of living down the road? sure. but that's not why our forecast is 2.3% for next year instead of 3%. it's simply not. >> you talked about it not being a microeconomist, at least your firm doesn't specialize in that. i'm going to give you a microexample. when i'm at business round tables had, another one in ohio last week, health care costs come up all the time. it's the cost of doing business. and so a manufacturer tells me, rob, we're getting a little more business, a little tick up in the business. i'm not going to hire somebody and the reason is health care

costs. instead i'm going to go with overtime, so somebody is getting overtime, but it's not as cost effective of course for that business and you're not hiring somebody new. we're bringing in some part time people. so the notion that our current health care uncertainty and obviously the cost increases which exceeded which you talked about aren't impacting the g.d.p. and you talked about demand earlier, how do you get demand going? part of is it to add some uncertainty on the health care side. dr. brannon talked about it earlier in terms what have the health care legislation has done to make it worse. i totally agree with you on the long-term impact but i think we forget that it's impacting today's economy too because it is a cost of doing business. >> but do you need to be careful about this -- but you do need to be careful about this. i'm managing director of a small business. 20 people. i went to my c.f.o. and i said, how is health care effecting us right now? and he said, well, we pay very generous health care benefits so we're going to be slapped with this cadillac tax. otherwise it's not an issue because we're exempt from it.

i don't make any hiring or firing decisions based on health care costs within our firm. maybe bigger firms that have different circumstances do, but -- >> but if you're self-insured as a lot of big companies are in ohio, if you have a health savings account which a lot of them do and those tax benefits are made less valuable, there are lots of impacts and a lot of uncertainty. >> i think the example you stated is not uncommon. there's a lot of what we call labor hoarding out there and there has been for a while. firms are very reluctant, beginning to lay off workers when a recession comes because they're not going save all that much. they'll have to pay health care costs for a while. but once they lay them off they really don't want to bring them on. ideally we want an employment, a labor market where we don't have a higher cost of hiring people. >> my time is done. i was hoping we'd get to a consensus which is we have to

deal with this. the chairman and ranking member have been leaders on this saying you're not going to get the budget under control until you deal with the biggest part of the budget which is the mandatory side and the fast of the growing part which is health care. i would hope that's one of the conclusions we can all agree with and maybe disagree on some of the issues. i think the way you put it, dr. prakken, is probably accurate in terms of some of the difficult choices we have to make with regard to health care for the elderly. what you didn't talk about the is county fact need to restructure the way we deliver health care. not just making a tough choice between price and quality and saying, how do you get away from the fee for service model and a third-party payer model and have very good quality health care but at lower cost. >> restructuring can bend the cost curve. >> and also improve outcomes in quality rather than focusing on volume and input. thank you, mr. chairman. >> i just want to say how much i agree with senator portman's last statement. if there's one thing that's clear in hundreds of hours of

hearings on health care is we've got to change the way we pay for health care. we create incredible incentives for waste in our current system. and i think virtually everyone is in agreement on that score. so hopefully that could lead to us taking action. senator americaly. >> thank you very much, mr. chair. i wanted to ask about the availability of credit to small businesses. we had the small business lending fund which in oregon's mini bank supplied and not a single one was granted access to expand their base and be able to leverage additional loans to main street which was the whole goal. it's still not clear why so many banks that met the ratings and so forth were denied lending.

but this was one strategy. we had a second strategy with small business lending funds, sustaining the 90% guarantee. some banks have started to increase their lines of credit and help restore some funding there but i'd like to know from your perspectives whether that's actually been a significant change. we spent a couple of years having businesses come to my town halls and talk to me about their lines being cut in half or eliminated. and then of course small businesses can't -- if they can't borrow on their credit card and they have no equity on their house to bargain on and they can't get loans for their bank, they're basically still in the water. and can't even manage inventory ups and downs that go with the course of a business year. so, credit to small businesses. any insights? >> i think one thing that i've observed is the segment of the small business community that is particularly prone to these credit issues are the ones that somehow have exposure to real estate.

they're either commercial real estate companies themselves or own assets that are used to collateralize their small business credit lines that have declined sharply in value given the housing bust. and there i think is a legitimate argument that there's a segment of the small business community that can't refinance their positions or can't get access to credit without recapitalizing their businesses. so, i'll give you an example. an auto dealership in stth lose, very successful. -- in st. louis, very successful. they couldn't refinance their credit line three years ago and the reason that was stated was the market value of the properties that they ownhood fallen so significantly and those properties were used as collateral against the loan that, yes, you could have the credit but you had to either put in more equity yourself, ok, or you'd have to hold a $1

million line of compensating balances at the bank, raising the cost of the credit. i think we need to be careful about distinguishing the kind of companies that have exposure to the real estate boom and bust that is impeding their access to capital and other kinds of businesses. the banks that i talked to in the midwest are actively looking for quality opportunities to lend. now, i think their definition of a quality opportunity is tighter than it was four or five years ago. but, again, if you look at the survey responses for large numbers of small businesses, they do not rate credit availability even close to the top of their list of significant problems. they rate thin order books as their number one issue. >> i'm aware of the fact that the sblf hasn't worked in the sense that not nearly as much money as was hoped for was put

out from it. i don't know why, although i suspect what joel just finished on is part of it. but here's something we do know from one program after another, going back to entitlements, to harp, to hamp, to almost everything. there needs to be outreach. believe it or not people that are entitled to entitlements don't always claim them. they don't know, they're too businessy. they have 100 other things to attend to. so if you really want to push something out, it requires quite a bit of outreach. it's not enough to say -- just put it on the table and say, you're a certain class of people or a certain class of businesses are eligible for this. and i always have a suspicion that when takeup rates on programs are low that that's a major reason. >> let me just be clear with sblf. the issue was not banks not reaching out and applying to

the program. they had a huge incentive to apply, only if they intended to lend those funds out the door because there is a 1% versus 7% differential based on whether lending increased proportion atly for the banks -- proportionately for the bank. the difference was the treasury turning down their application and we haven't had much of an explanation or analysis of that from treasury. i want to get a brief comment and switch gears. >> so i'm from a small town near peoria, illinois, and we have a hometown bank and the president of the hometown bank was calling me last year almost on a weekly basis asking me when treasury was going to initiate this. again, it's part of the problem with the bureaucracy. it just took treasury so long to kind of get their act together, to finally issue that before they could actually -- before they announced the rules and issued that money out the door. it really would have been a lot more help this -- had they done this a year before they actually ended up doing it. >> did that bank -- was it

accepted into the program? >> eventually it was after four or five months of waiting for that. >> that's real positive because in oregon not a single bank was accepted that applied. and, mr. brannon, you note the issue of changing the ability of bankruptcy judges to modify the terms of the primary residence. this is actually an issue that the president pledged to champion right before he took office. that didn't happen. and indeed there was a huge pushback on this issue. you also note that you can do it for second homes, judges can do it on boats and on planes and every other mortgage contract. a lot of concern that's been expressed is that this would have a significant impact on mortgages, interest rates in the future. but that's been countered by saying, let's do it looking backwards and also by looking at the impact on second houses now where the power exists and

we don't see that large discrepancy. so, why is it so hard for folks to entertain the concept that you've advocated for? >> so i think the biggest problem is that people see that there would be certain people who would be unjustly benefited from such a thing. people who made basically a real estate bet and they lost it and they're still going to get bailed out. i think far more common is the person who took out a loan for a $500,000 for maybe a house that was worth $500,000 and $550,000 and then the price fell to $300,000. and i just think that person is not going to pay, if they're a rational person, they're not going to pay $500,000 for that house. they're going to walk away if they don't get some kind of loan modification and i just think that what we should do is we should acknowledge that fact and we should create a situation so people who are willing to undergo chapter 13 bankruptcy, which is not

available to anybody, if you have assets you aren't allowed to do a chapter 13 bankruptcy, and set up a procedure so that these people can basically pay what the mortgage holder is eventually going to get for that place anyway and that's $300,000. >> i'd note when this power exists in other types of loans, a second -- of second homes and so forth, that it's rarely utilized but it does serve as an instrument, as a lever, if you will, to encourage negotiation. in this case we have all these modifications in which the servicing agency isn't very motivated but this would create a lot of motivation. do you both support that concept as well? >> yeah. i think you need part carrot and part stick to get widespread mortgage modification. you know, the car rot if not proven successful, a stick might be successful. >> at this late stage in the game i'm ready to support

anything that would increase the number of mortgage modifications. >> thank you. senator sessions. >> thank you, mr. chairman. senator sessions. thank you all for being here today and providing your insights. i wanted to -- we haven't passed a budget resolution here through the senate in almost three years and i know that the chairman would argue that we did deem a budget last year in the budget control act and the fact is we did set carnings at least caps for two years and put them in place. but we haven't passed a formal budget resolution now since 2009 and i hope that this committee will find its way to do that this year. the main reason for that, the reason that's problematic in my view, is that we've all made mention of the fact or you have that what's driving federal spending and senator portman mentioned that just previously is entitlement programs.

primarily health care. medicare and medicaid are growing at multiples of the rate of inflation and we can't sustain that over time and so doing entitlement reform, doing something on taxes is absolutely critical if we're going to take on what i think are the biggest challenges facing the country from a spending and debt standpoint. but the other thing -- the other reason i think it's so important that we do a budget is because there's increasing, i think, concern among people out there, investors in the economy, about what congress is going to do. there was a study of over 1,600 investors that was released on tuesday that identified the national debt as being one of the top concerns on investors' minds as we head into this new year. the study also found a significant number of investors believe that deficit spending along with uncertainty coming out of washington and excessive regulations is holding the economy back. similar polls conducted for the u.s. chamber of commerce earlier this month that confirmed that 85% of small business executives think the economy is on the wrong track.

and so the question i guess i would have in perhaps, dr. brannon, if could you kick it off, is, do you agree that a formal budget resolution is important, not only because we've got to address the issues of entitlement reform and tax reform to help get deficits and debt under control, but also because we need to bring certainty to investors and job creators out there? i think there's a direct correlation between deficits, spending and the economy and jobs. we all talk about economy and jobs, everybody i think in the country is concerned about that. strikes me at least that the uncertainty that comes out of washington with regard to how we're going to deal with these long-term problems is complicating the ability of the economy to get back on track and to create jobs. >> i think i agree with you. i think it would be -- having a real budget resolution would be a good first step towards -- and a signal towards investors and small businesses that

congress is really on their way to addressing the problem. it wouldn't be enough. i think we need to have real fundamental reform that might take more than that. but it would certainly be a good first step and it would be a signal that maybe the gridlock that we've seen the last year or so might be a thing of the past. >> dr. prakken. >> anything that you can do to make fiscal policy and hence the fiscal environment of which companies are trying to grow their businesses more stable and more predictable has got to be helpful. so there's an interesting -- it's a young literature but it's interesting and it's growing that attempts to measure fiscal uncertainty among other things by looking at how many temporary provisions are in the tax code, how valuable they are, when they're going to expire. and this literature does suggest that such measures of fiscal uncertainty can be shown to be correlated with slower economic growth. and i think the logic of this

is pretty straight forward. if you don't know what environment you're going to be looking -- working in, your natural inclination is to delay important decisions until more clarity is possible. but it's not easy to have clarity right now. so it's not just having a budget resolution, i think it's illuminating the uncertainty for people about what's going to happen at the end of february when this temporary holiday extension expires. what's going to happen in 2013 when you can have fiscal drag equal to 5% of g.d.p. if everything goes bad industry in to me that is a huge element of uncertain -- uncertainty. so, i think on paper we know what we have to do. we have to reform the tax code and make it permanent. we have to address the unfunded liability entitlements and we have to adopt a process for assessing the value of government programs so that we

don't propagate into the future programs that are unproductive. >> what level of a deficit reduction do you think is necessary? the budget control act had $2.1 trillion provided -- >> that is not sufficient. >> simpson-bowles said $4 trillion. what's the -- >> i i would put it between $4 trillion and $5 trillion over the next 10 years. we did the study of this a little while back and showed if you continue on the current path, within a decade you'll see inflation adjusted interest rates starting to move up and that the amount of deficit reduction would thank would prevent that from happening and stabilize the debt to g.d.p. ratio should be between $4 trillion and $5 trillion and that would be enough that when projected beyond that you'd make a significant improvement in the unfunded liabilities that really otherwise would start to grow quite rapidly after that period. so i was heartened by the formation of the supercommittee. i was disapossibilitied that it

failed. i'm hopeful that it will reconvene in some form this year and get back to the task of coming up with the $2.4 trillion. but actually that's not enough. it's only going to be the opening gam by the and what will have to be -- gam bet in what will have to be a larger physical contraction. >> i'm not a forecaster, i'm not going to try to pull a number out. but i will say this, i think we are underestimating the growth in entitlement spending. i think not only do we have, as dr. prakken pointed out, not only do we have the baby boom generation reaching retirement age, but longevity, especially for people from age 65 on is increasing by leaps and bounds and i'm notshire sure anybody at social security or c.b.o. is capturing that. it's kind of interesting. people think, longevity in the united states isn't changing all that much if you look at the aggregate numbers. for people like you and me, longevity actually hasn't changed at all in 30 years. the things that kill men, we

haven't gotten any better ating those but we have gotten a lot better at heart disease, at treating cancer, the things that normally befall people at age 65 and on. and that's what's really i think going to exacerbate this entitlement problem going forward. >> my time's expired. thank you, mr. chairman. >> i thank the senator. the senator wasn't here when i hoped and said, we will go to a markup in this committee. you know, last year we sort of got bigfooted here. that's my terminology. by negotiations that started early in the year, frankly above our pay grade. we're not in that situation this year. for the knowledge of members, in terms of the hearings that we're looking forward to, we are going to have the chairman of the federal reserve. we are going to have the head of the office of management and budget, we are going to have the head of c.b.o., we are

going to have the secretary of defense. we're trying to get the secretary of treasury, we're negotiating on dates with him right now. we are going to have the secretary of transportation, we are going to have a hearing on entitlement reform and a separate hearing on tax reform because i think there's strong interest in those areas and they really are the central features of our long-term imbalances. and then we're going to have a hearing on income inequality. we've had another request for a hearing on energy policy. we're going to have to see if we can work that in because this year i think we're going to need to -- if we go to the kind of markup i anticipate, we're probably going to need more time for markup than we've seen in recent years. if we're going to take a real run at doing what members of this committee have told me individually and collectively

they'd like to do, it is going to acquire a longer markup than we have had in previous years. so that's going to have to be factored into our thinking as well. final point is, c.b.o. has not yet told us when we will get the re-estimates. it initially told us they were shooting for march 9. that has now -- we've been told, has slipped. we don't know what it slipped to. so that's a factor we just have to learn about before we can reach a conclusion. with that, senator whitehouse. >> thank you, chairman. i think the chairman can probably predict what i'm going to jump into here. because this discussion of health care is always so trust wroughting -- frustrating in this committee because the focus is always on the cost and the trends which are real but

as dr. prakken said, you know, based on demographics and rising prices, we always overlook is the fact that we are running the most inefficient health care system in the world by orders of magnitude. i mean, we're at 18% of gross domestic product that we burn on health care. and the nearest country -- industrialized country to us i think is the netherlands at 12%. other countries deliver health care that's about as good as ours on average for 10% to 12% of g.d.p. it takes 18%. there is bipartisan agreement from really responsible leaders that the savings every single year to our health care system could be anywhere between $700 billion and $1 trillion a year by reforming the delivery system in ways that will actually likely improve the quality of care. so i was delighted that senator portman brought up that issue

about restructuring the way we deliver care. i understand that that is a process of innovation and of learning and of reform and that for those reasons c.b.o. can't score it. but it is unbelievably tiresome to have witnesses come before us and never mention this enormous issue because it's not scoreble. simpson and boles agreed that -- simpson and bo with, les agreed that this was an enormous issue but did not mention it because it was not scoreble. at some point we have to act like grownups it's an look at this as a real problem, take off the c.b.o. blinders and get to work on this. we can't burn $700 billion to $1 trillion a year in this health care system and do nothing about it when it's going pay for things like hospital-acquired infections that kill tens of thousands of americans every year, run up billions of dollars in costs and are completely preventable. that's the discussion we need

to be having and it's just -- i can't, you know, when we get into this stuff i just can't but react to that because it's a constant frustration. and there's so much to be done and it's such a bipartisan thing that we could be doing and hospital and health care systems from california in kaiser to gunderson lutheran in senator johnson's state of wisconsin to pennsylvania, to mayo in florida and minnesota, all across this country are actually doing it and showing that it works. they are actually saving money by delivering better care and yet we have these budget discussions that operate in the artificial c.b.o. universe and we never even take that on. so, vent concluded. but the other -- i'm sorry. does the chairman want to say something? >> i always enjoy the senator's presentation on this project especially since he's right. >> the thing i wanted to talk about today was the housing

predicament that we have and for a long time i was the chair of the subcommittee in the judiciary that looked over the bankruptcy system and it struck me as a pretty unfortunate anomaly that if a bank is underwater or is having financial troubles and needs to renegotiate with its lender, the value of its headquarters or of property it owns, the bank won't hesitate about talking about reducing the principal as part of a workout but that same bank will then turn around and tell some poor homeowner, nope, we're not going to discuss reducing the principal of what you owe me on your home. and i know that dr. brannon has talked about this a lot. in fact, i'd like to ask unanimous consent, mr. chairman, that dr. brannon's article "a cure for the housing blues" be admitted into the record of this proceeding and i

have a copy of that for the record. >> that will be included. >> thank you. could you just talk a little bit about the value of allowing a homeowner who is in bankruptcy to sit down with the lender and negotiate a new principal balance for what they owe in the light of, first of all, if they walk away from it, the bank's going to be written down a lot anyway through the foreclosure process. my take is they'd actually probably get a better number in an organized bankruptcy than they would going through the foreclosure process with all of its destruction of the property itself, collateral costs and so forth. >> as it stands my father is a bankruptcy lawyer in peoria, illinois, so i'm well aware that you were in charge of bankruptcy. my father would love to chat with you about this.

he has many ideas for bankruptcy reform he'd love to run by you. my idea is simply, i agree with you in the sense that this is what i told senator merkley. a situation where someone owes $500,000 on a $300,000 mortgage, the mortgage holder is not going to get $300,000. i think we need to acknowledge that. we see this all over america where people are walking away from their mortgages. whether by law or by custom people have almost everywhere a nonrecourse loan. and it doesn't seem like that's going to change at least in the near future. so my article, i simply said, i think we should acknowledge that and we should create a system so people who are severely underwater can file a chapter 13 bankruptcy which isn't available to everybody. if you have assets then you're not allowed to file a chapter 13 bankruptcy. you're told to go away. and allow the court to negotiate something for them just like they do with other assets. >> do you think that would have the prospect of that, do you

think that would influence behavior elsewhere? i've lived since the mortgage crisis with imnumerable stories from rhode islanders who are on the receiving end of the worst bureaucratic treatment i've ever heard of from the big banks about their mortgages. never getting the same person on the line twice, never getting a straight story, up to 19 months in one case that one of my constituents of simpley the run-around and when you've got your home at stake, you can imagine how infuriating and frustrating never being able to have a sensible discussion with anybody is. and i think that's one of the reasons that the administration's programs have been so unsuccessful. is that the banks are so unmotivated. we got money into rhode island for the hardest hit plan and rhode island housing sat down with the biggest banks to design the program for how the hardest hit plan funds would be distributed and they agreed on a plan and then when it came

time to go forward, the big banks said, well, we may have agreed on the plan but we're not going to participate. because i don't think they feel any -- there's no alternative. so could you react to that? >> let me, if i could stop the senator on that point, because we're out of time on this questioning by this senator. here's our problem. we've got -- we've been told that the vote is hardwired for noon. senator sessions and i have with held -- withheld all morning so he so we still have four senators to question. and we only have 12 minutes. so that's a problem. senator sessions. >> thank you. well, i remember about a year ago, a little over, i was at the home of al blanton in

marion, alabama, and we had a town hall-type meeting in his house and we lost him originally. but everybody talked and a man well in his 80's said that, well, i've lived through the depression, i've lived through world war ii, lived through korea, i lived through the big inflation and other things that have happened and i don't believe our problem is the high cost of living. i believe it's the cost of living too high. i was at another town hall meeting in evergreen, an african-american stood up and said, you can't borrow your way out of debt. we've talked and you have, dr. prakken, and others about the uncertainty that's out there. could you give me just briefly so i can move on, would not you

agree that when you look at europe and you look at the united states and that if our debt to g.d.p. was 1/3 of what it is today, that would be less concern and more confidence about how you come out of a recession or where our economy would be? that the debt itself, because it's so large in the developed world, we're so highly leveraged that this is creating uncertainties that we've not seen before? could you say yes to that? >> i'd rather we had less debt than more debt. yeah. >> and it creates -- because look what we're talking about in europe right now. some are predicting catastrophic events. hopefully that won't happen. but our debt compared to europe as a whole is not much better than theirs, if any. we are on a path in which we

went from $161 billion deficit to $450 billion, to $1.3 trillion i think for the last three consecutive years and we'll be over $1 trillion this year. so unprecedented. and you tell us you can't predict the future. mr. blinder's friend and collaborator, dr. zandi, moody's predicted 4% growth for 2011. it came in at 2%. dr. prang, what was your prediction? i just don't -- dr. prakken, what was your prediction for 2011? >> too high. >> you don't want to tell us? >> made when? a year ago? >> yes. zandi's was made in january of 2011 for 2011 -- >> probably close to 3% and then -- >> you were a little more

cautious. so the point is -- and so, dr. blinder, when you say we ought to borrow another $500 billion in your opinion that this will create more growth than uncertainty and damage, it bothers me. because i'm just of the view that debt is a problem for us now. and i'm not saying we need dramatic cuts this year but i'm saying that we need to be very dubious about borrowing more than we are now borrowing. sort of sighing a bit of relief that we're reducing the war cost and now the president last night announces that he wants to spend half of this money we were borrowing as an emergency event to fight a war, that now becomes money he can spend. because he's saving it. well, it should be money that

no longer has to be borrowed each year because all of it's borrowed. the initial stimulus plan, as one mentioned, there was certainly less total than 10% went to infrastructure, it went to general spending and it created a sugar high, as bill gross of pimco said, but it's not a permanent thing. so, forgive me, i just -- you know, we've got a political dynamic out there. i think this past election was -- are you looking at know wrap up? -- at me to wrap up? the political die nam knick which the people were shocked about a deficit and prepared to take a little medicine and it's so disappointing to have the president of the united states say to us nothing about the debt the night before last tuesday night when he gave his state of the union address. when his own chairman of the

joint chiefs said the debt is the greatest threat to our national security. i mean, dr. brannon, you're sort of on a different political side, maybe, i don't know what your politics are, exactly, but would you start and say, are we missing something? isn't it a point in time in which this nation has got to actually worry about this debt course and does not it have the potential as the commission told us, the debt commission, it said, we're facing the most predictable financial crisis in our nation's history if we don't change the path we're on? >> i believe you are correct. >> dr. prakken. >> if fiscal policy, current fiscal policy, sun sustainable, fand we try to -- is unsustainable and if we try to sustain the unsustainable, the inevitable consequence will be a gradual rise in interest rates and a gradual decline in our standard of living --

living. >> thank you. >> that's right. but the emphasis needs to be on the trend not the level. we have no trouble now financing the level of the deficit that we have now. in fact, we're paying zero interest rates at the short end. the trend is totally unsustainable, completely unthinkable. and it's almost entirely as came up in this hearing, it's almost entirely due to rising health care costs. that is the one thing that needs to be dealt with in terms of long-term deficit control. if we could do that, unfortunately nobody knows how to do that, if we could do that, almost nothing else would matter. >> it was said we could be facing a debt crisis in two years. that was a year ago when he made that statement. and you're talking about medical costs in the next 20, 30 years, which are horrendous as you rightly point out, but

i'm worried that we already are having impacts on this economy and i think the europeans have decided they need to retrench now, even though it might have some short-term pain. so i'm dubious about a big spending program. thank you. >> let me just ask my colleagues, we've got three of us left. the vote is hardwired at noon. could we go to five-minute rounds? would that be accept snble i apologize to -- acceptable? i apologize to my colleagues. i tell what you, we'll stick it -- let's do six for the two of you and i'll just either not do a round or have it further truncated. >> you're very thoughtful. i'm just going to ask one question. i thinkky get under six. dr. brannon, you've worked on the hill for a long time and i'm going to direct this to you. my concern has long been that the lame duck session of the

2012 congress would look pretty much like the lame duck session of the 2010 congress. big economic challenges, a real fight over the bush tax cuts and frankly the 2012 session really has a double wacky because in addition to the debate -- whammy because in addition to this debate about taxes, you have this sequestration kicking in. sort of not really looking to target what you're doing in spending in a careful kind of way. and i've been looking at all the possible ways to try to break out of this cycle. i opposed the bush tax cuts but i suggested after the 2010 election, why don't we extend the bush tax cuts for one year so that congress on a bipartisan basis would be forced in 2011 to make some tough choices about tax reform and spending. so that both sides would be under pressure to come together. obviously we weren't successful

in it. i would have liked to see it. you know, senator coats and i have a bipartisan tax reform plan. there are others who have ideas on how to approach it but because the chairman's being very gracious about the time, my one question to you is, what do you think can be done over the next few months to try to drive this kind of bipartisan agreement around tax reform and spending reform so that you don't get this kind of lame duck meltdown where the choices are only ones that don't really serve the country's interests? just your thoughts on that. >> you know, the discussion we always have, when i started on the hill and it seemed to happen every six months, is how do you tie the hands of a future congress or even the current congress in the future. it's impossible. that's why we end up pushing things to the last minute and when i was on the staff of the senate finance committee, the last day we were in session we knew we would be here until 4:00 or 5:00 a.m. because the

last negotiations would not take place until everybody was too tired to do anything. i will say this. people have talked about the need for comprehensive tax reform and people on both sides have acknowledged this and say, that takes a year or two to get done. but if you look at what your predecessor, senator packwood did, ultimately it took about a month to get everything through and i've talked to him about that. he said, if you take much longer to do comprehensive tax reform, everybody starts figuring out how much their objection is gored. so maybe -- their ox is gored. so maybe the things they do as an outsider is try to do comprehensive tax reform in a lame duck session. >> chairman, thank you. >> i thank the senator. senator nelson. >> i have been -- i happen to agree with you, dr. brannon. i think that might be the way to get it done. otherwise we would get pecked to death on the finance committee.

tell me, if we have a long, drawn-out fight over this 2% payroll tax cut, what's going to be the affect on job creation and our economic recovery? >> well, let's see, it can't be too loming and drawn out because you only have a month left to make a decision. look, the decision is whether the holiday ends at the end of february or whether it's extended through the end of the year, correct? >> correct. >> in which event, the holiday would expire anyway. to be frank, that's not going to have all that much effect on the economy. moving up 10 months, something that's going to happen at the beginning of next year anyway,

but it is roughly $140 billion that would be taken out of the pockets of working men and women and unemployed people and they would reduce their spending some, and that would reduce demand for goods, that would in turn prompt reduction in the production of goods. is it a negative if you don't extend this beyond february? yeah. it's just simple. if you take a little money away from people, they'll spend less and people will produce less. >> can i add, senator, that i think everybody viewed, probably including members of congress, two months' extension as economically ridiculous, it was the best that could be done

in the political circumstances. i think there's a very widely shared view that i hold that the other 10 months are coming. the question is whether you drag it out to after midnight on the last day, which the congress might. i think the main thing that's at stake is not the 2% payroll tax cut, that's going to happen, it's the rep teags of congress. it starts looking ridiculous. >> i i gree there's -- agree there's that expectation but there's discussion about how it's paid for. if there's an insentence it's paid for quickly, that discounts it, but if you pay for it long-term, that's better. >> i think congress is better served about permanent changes

that contribute to economic growth and not worrying about short-term variations in the business cycle because i don't think they can do much about it. >> tell me what you think is going to happen in europe and according to what you think, if you think it's going belly up on the banking system, tell us how bad that's going to affect us. dr. blinder? >> yes, glad to. i alluded to it a little bit in the testimony. i think the best guess, and fwess is the right word here, is that they continue to manage the muddle through, kicking the can down the road a little further at each stage. they've been remarkably successful at that. this has been going on, in an acute phase, since spring of 2010. they keep kicking the can down the road doing just enough to get by.

i think that continues down the road. the risks are enormous. if there's the financial equivalent to lehman brothers that starts in europe, i think that's a recipe for a worldwide recession. starting in europe, but not staying in europe. as i suggested in the testimony, the potential to knock down u.s. g.d.p. growth, which might otherwise be say 2 1/2 or pick whatever numbers. to knock down u.s. g.d.p. greth 2 1/2 percentage points from whatever it would have been. >> any different points of view? >> agree with everything he said, hopeful that the e.c.b.'s decision to lend money to banks in the e.z., so they can either acquire some of this troubled sovereign debt or not sell the

assets they have in a fire sale to recapitalize themselves seems to have worked so far very well and i think it increases the chance of the muddle through scenario. one of the things that makes putting together a forecast so difficult now is that europe is the single biggest threat and you can imagine two or three different scenarios, all of which have different probabilities of occurring. the muddle through is one, disaster is another, either one probably has a 35% or 40% chance of occurring. it's hard to have a base case view of the impact on the u.s. >> thank you. >> i thank the senator. we've got 7 1/2 minutes left in this vote now. i'm going to for go my question now, this is brilliant management by the chairman, i use my chance to question witnesses but i had an

extensive statement at the beginning. i deeply appreciate the contributions of the witnesses here today. you've helped the work of this committee. with that, we'll stand adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012]

>> senator conrad wrapping up the hearing as the senate has a procedural vote on the president's request to raise the debt ceiling, a vote related to the disapproval of the increase, the house voted last week to disapprove. we have more live coverage coming up for you on the c-span networks. in under an hour, the president continues his post-state of the union tour with a stop at a u.p.s. hub in las vegas. the facility has deployed a fleet of natural gas powered vehicles, something the president talked about in his state of the union speech. we'll cover his remarks today here on c-span. and a hearing on the 2013 defense budget, live at k. next week, the senate select committee on intelligence will hold their annual hearing on global threats to the u.s. this witnesses include the head

of the c.i.a., f.b.i., and director of national intelligence. we heard from the national intelligence director, james clapper, at an event earlier today, aten event hosted by the stratiege -- center for strategic and international studies. we'll show you as much as we can until the president begins speaking at 1:00 p.m. eastern. >> thank you all for coming. i have no role here, other than an ornamental one, which is always a joke. i want to welcome all of you. i warned director flapper that

-- clapper that this is a dangerous audience. we're delighted you're here, thank you very much. this is going to be an interesting session. i did want to just say a word of thanks to my friend, general clapper. i had nothing to do with inviting him. so then -- so i feel completely liberated to say what i really think about him which is one of -- which is he's one of my real heroes. this is a man who has dedicated his life to something much bigger than himself. that's serving this country. he's done a spectacular job in virtually every position that the government has in the area of intelligence and national security. the only thing that he failed at, honestly, was trying to be a civilian for a brief period of time. he never liked that very much. and when called to come back

intoer is vess after a distinguished military -- called back to come into service, went become to n.g.a., transformed it, gave it the most complicated name in history for aer is vess, that led to him being pulled into the defense department as the undersecretary for intelligence and that led to his current role as the director of national intelligence. where he's doing a spectacular job at a really tough time. we've had, ever since the d.n.i. was established it has been an era of additional resources. now we have this pivot point, that's become the new favorite washington word, we're pivoting here, to an era where there's going to be austerity. fortunately, general clapper has such a broad base and depth of skill and understanding this community that he know house to

guide it through this perilous time. i think he's doing a terrific job. now this is a -- this is a very awkward time for general clapper to be coming because the budget is not formally released. i'm just going to give him permission upfront to refuse to answer some of your questions if he decides to. he can, as has always been the case, he's willing to put at risk his own careering but i'm not willing to do it for him. i'm giving him permission to say, i can't answer that because the president's budget is not out. it will be up to him to decide what to do. a very famous american said he wanted to judge people by the content of their character, not the color of their skin. i know the content of his character and we're lucky to have him. i want to thank our friends at i.b.m. who are giving us the opportunity to bring this public forum to this audience

today. dan, why don't i turn to you? >> thank you, dr. hamre. i'm dan, i work for i.b.m., we are happy to be part of this conference with csis. today's conference is an important step to continue this dialogue, the conference is focused on information sharing, adapted and expanded information sharing environment. since the intelligence sharing environment was started, we have come a long way, in predicting events not simply studying it after the fact. today's program aligns with i.b.m.'s long standing commitment to support our nation's effort to strengthen information sharing and improve global security. many members of the i.b.m. team are going to be participating

in events throughout the course of the day and we appreciate the opportunity to engage in these discussions. now it's my honor to tell you a little more than what dr. hamre did about our keynote speaker today, director of national intelligence james clapper. he was sworn in as the fourth d.n.i. in august of 2010. he leads the united states intelligence community and served as principal intelligence advisor for the president. he has a long and distinguished career in the u.s. armed forces, beginning as a rifleman in the army reserve and culminating as general in the air force and director of the defense intelligence agency. over 3 years in uniformed service, he also held positions as assistant chief of staff for intelligence at the u.s. air force headquarters during operations desert shield and desert storm and has u.s. forces in korea. of note, he served two combat tours in the asia conflict and

flew support somethings over laos and cam bode wrasm he retired in 1995 and worked in industry for three years with three successful companies he served as consultant and advisor to congress, the departments of defense and energy and is a member of a wide variety of government panels and advisory groups. he was a member of the downing task force that investigated the khobar towers bombings in 1996. he returned to government in 2001, the first civilian director of the national imagery and mapping agency. he served as director for five years, transforming that organization he then served for over three years in two administrations as the undersecretary of defense for intelligence, where he served as advidsor to director of

intelligence for the department, he was dual-hatted as director of intelligence for the d.n.i. he has a master's degree in political science from william and -- from st. mary's university in san antonio, texas. he has two distinguisheder is vess medals, the air force distinguished service medal, the distinguished civilian service award and a host of other awards and decorations. he was named as one they have top 100 i.t. executives and singled out by the naacp in the form of its national service award and has been given the national security medal. i had the honor of meeting him in 2007 when we served on a task force on civil liberties and national security and i had

the honor of working with the national security alliance supporting director clapper's thinking around civil liberties and keeping the country safe. in both those experiences with general clapper, i know his commitment to keep the country safe, i know his commitment to information sharing, and i know his commitment to civil liberties. with that, i would like to introduce director clapper and we look forward to a good day. >> it would be nice if i quit while i was ahead here after all that. i appreciate the very generous, very kind introduction. i appreciate csis for this opportunity to kick off, i think, a very important dialogue. obviously, don't need to tell this crowd, information share has been a huge mandate for us all since 9/11. the notion of sharing is an

interesting concept. it can be phenomenal, it can be dangerous. it depends on what is shared and with whom it is shared. there was an old eastern saying that thousands of candles can be lighted from a single candle and the life of the candle will not be shortened. happiness never decreases by being sheared. that's a little too farm and fuzzy for you, i also found some words written by a noted harvard professor. collecting data is only the first step toward wisdom. share dageta is the first step toward community. that applies in the spades within the intelligence community. at the same time, we have the dilemma of protecting information and so there is this dilemma that we all wrestle with, particularly

those in this group, in how you balance the two. we're here today, of course, to talk about the sharing of information. so we might dephone that as a national responsibility to ensure that any person with the appropriate mission need can discover and access actionable information at the right time. to successfully prevent harm to the american people and at the same time protect our national security. we believe, i certainly do, that sharing must be done responsibly, seamlessly, and securely. with regard to -- with safeguards in place to protect the privacy, civil rights, and civil liberties of the american people as well as prevent unauthorized disclosure. in short, the right data, in i -- any time, any place, usable

by any authorized recipient, preventable only by law or policy, not technology, and protected by a comprehensive regimen of accountability. that's our vision or in a nutshell sharing and safeguarding all information exquisitely and perfectly. that is, of course, the anywhere vanna of information sharing. one we may not always achieve but that certainly is the goal. as we all know, particularly in the last 10 years, it's not an easy task. information sharing goes far beyond the intelligence community. where i work, -- beyond the intelligence community, where i work, and it can get a little confusing. by way of explaining who some of the other speakers are, i want to explain these relationships, at least as i see them. you'll be hearing from six other people later this morning from my office.

the office of director of national intelligence. so our first panel will be, on it will be the, what's called the program manager for the information sharing environment. shumander paul. though he's deathered to the d.n.i., he's the national lead for all government -- u.s. government information sharing and reports directly to the white house. he cuts across the entire fabric of the u.s. government, straddling the other domains besides intelligence, which means law enforcement, public safety, homeland security, defense, and foreign affairs. he has a broader mission, including sinner jiesing and aligning these fields with the white house. so intel, my domain, is just

one area he touches and influences. i'd also like to recognize david chad, now deputy director of the information agency on that fers panel. he's a d.n.i. plak holder, he was there in 2005. on the second panel, which teal d -- deals with the cull her of information sharing, is sharon, who is on my staff with sharing information with the i.c. she's so devoted to to this topicing she -- topic, she came off maternity leave to be here. this is her idea of fun. so she'll be talking about how to change a culture to increase information sharing, which is of course one of the challenges

we have in the intelligence community. the way we're doing this, somewhat accelerated by wikileaks, is encreasing the confidence that the information is secure. there are oftentimes, although it's probably a mischaracterization, that there's a zero sum relationship between the need to share and the need to protect, maybe it's better or more accurate to coordinate, how do we increase both? so in the i.c., she makes sure we have the policies, procedures, and technology all in place to share information, protect the information, and safeguard civil liberties and privacy. it's those three pillars of those three factors we have to reconcile and synchronize. the third panel today is on

efficiency, scope, and privacy, has on it mike kyle, and wes wilson if the national counterterrorism center, another new feature of the intelligence landscape that was part of the intelligence reform and terrorism prevention act. nctc also housed in o.d.n.i. with a special relationship with the president. the fourth and last panel has my civil liberties and privacy officer alex joel. i think there's a message just in the fact that again, by law, on the odni staff, is a full-time civil liberties and privacy officer who, alex, i think, is a national asset, a very, very trusted advisor on many of our most sensitive and important issues.

he will be with o's who focus on how we advance policy and legal operational framework. so just, all to say we're heavily represented and heavily committed to this conference because of the importance of the subjects. so let me just touch on a few points and then, always dangerous, i'll take questions. one of the things that's sort of a new thing for me in this job is, of course, engaging in the domestic arena, particularly with the law enforcement community. i've had occasion to engage quite a bit with them, as a matter of fact, particularly through the us a pises of the national association of chiefs of police and their subordinate task forces and organizations. as was alluded to, i'm retired military and -- but i've come

to have great respect for what the law enforcement community does to protect our security in this country as well. found them to be a gold mine of wisdom and insight when it comes to what i call street intelligence. like the military and the intelligence community overseas, they too put their lives on the line, but here at home. years ago, i remember i was president of the community association i lived in, something i'll never do again and had helped set up one of the first neighborhood watch programs in fairfax county, there was back in the 1980's. in the course of the practice of doing that, had an opportunity to do ridealongs with fairfax county police and later with virginia state police and it's quite an education to sit inside a police cruiser looking out and

see how -- what our police and law enforcement officials deal with day in and day out. you pull somebody over, you have no idea what you getting into and of course the scariest call that law enforcement officials don't like to get, and they always go in pairs, is domestic disturbance. anyway, it was great preesh yankees, great sensitivity training for me, having that experience, knowing what our law enforcement people do day in and day out. we'll bring other initiatives we're working with law enforcement. let me briefly address six key points about the sharing of intelligence. the first, of course, integration, which you may have heard is kind of my emphasis, my schtick, my mantra, in this

job, focusing on intelligence integration. absolutely mission critical for the intelligence community. our goal, our vision, if you will is simply a nation made more secure because of a fully integrated intelligence community. for all of the u.s. government, threats require us to accelerate responsible information sharing. secondly, doing this requires some standardization. we're pursuing some efficiencies as all of us are in our business. i met yesterday with our five ice colleagues and one of them offered up a term that's become popular in his country, australia, they call et the efficiency dividend, which he said, orwellian euphemism for cuts.

anyway, we're doing that as well. one of the things, in the big idea department, influenced by budget pressure cuts, is for the first time ever, an integrated i.t. enterprise across the major intelligence agencies in the community. this is something we talked about for years, just never were compelled to do it, now we are. always love the line of the new zealand physicist robert rutherford when dealing with the budget crisis, we are running out of money, so we must begin to think. we're kind of in that mode now. anyway, one of those is cloud computing. which i think has huge potential for achieving savings and promoting integration and attendant to that will be the

requisite for security as well. but, like i.t. in general, this is an enabler, not a panacea. the third key point is in the i.c.e. protecting civil rights and liberties is paramount. i have in this job become particularly sensitive to this issue. this is a big deal in this country, as it must be. i think there is a maturity and sophistication in today's intelligence community about this that, i think, regrettably, the public doesn't appreciate or see. but protecting the rights of americans is core to our information sharing efforts. and this, of course, this, too requires an enterprise wide approach. fourth, sharing and

safeguarding information must be done in tandem. i guess this would be the opportunity to bring up wiki leaks, which has been a terrible event for us, that's caused us to make some cheages in our community in terms of auditing, monitoring, controlling media, and we have to do more to both tag data and ensure that we can properly identify people, so if we are sharing information, we are assured that, you know, they have the bona fides and they are authorized to receive the information. it's sort of counterintuitive but by having greater identity management and greater -- and improved labeling, tagging, and cataloging of data, that actually both ensures security

and also enhances sharing. if you can be sure that the information that you're sharing is actually going to an authorized recipient, that is an inducement to do more sharing. now, we will, of course, as we always do, instill all the appropriate i.t. mouse traps to prevent recurrence of wiki leaks but in the end, our system is based on personal trust. we had an egregious violation of personal trust in this case. we've had them before, and we will probably have them again. the president seened an executive order in october, executive order 13587, which is designed as a result of wikileaks to improve the security of classified networks and to promote responsible sharing and safeguarding of

classified information. it's set -- it's set up some organizational bodies to make sure that happens so we bring together both those poles of sharing and security. so as part of this, we need to build a more pervasive auditing and monitoring capability and we have varying degrees of capability right now in the intelligence community so we're going to do some investing to bring that into balance. we need to develop a national insider threat policy. as i said,est tab learn the bona fides with sharers. the goaling of course, as i said, is to find that nirvana, the sweet spot, between the responsibility to share and the need to protect. the fifth key point is, and

this is something we are working hard at, embracing common operating models and shared services. so we need, what that implies for me a greater integration across the so-called pipes as well as vertically from federal, state, local, tribal, and private sector. and our allies as well. manager for information sharing environment to transform justice and public safety, getting them into the information sharing business model. working to promote common operating models and shared services. the sixth and final point is of course in all of this, the challenges aren't technical, as much as they are just ensuring right policies and governance.

we have developed and coordinated a strategic plan for sharing and we have established a u.s. government-wide mechanism for managing and overseeing compliance and safeguarding standards among our mission partners. so with that, i think i will stop and we'll be -- i'll be happy to take some questions. are you geng -- going to moderate? >> thank you very much, general clapper, for that. we appreciate the remarks -- remarks and you taking time out of your extraordinarily busy schedule. i want to clarify one thing, my

boss, john hamre, gave me the ability to moderate this. this is the information sharing conversation, not the iran conference, not the president's budget conference, this is the information sharing conference. don't make me crack down on the questions. i'm going to use my prerogative as moderator and ask the first question. in information sharing, culture, how have you seen the community, not just the intelligence community but the u.s. goth, embrace information sharing over the last 10 years, some of it forced on them by legislation. ? and what do you think is the biggest factor that is causing information sharing and do you think it's got enough traction now to be self-sustaining? >> first, ask away, i just

won't answer, that's all. obviously the biggest event which, you know, was an epiphany for all of us, was 9/11. and having been around the intelligence community, you know, a long time, i think that event and what ensued after it was a signal thing for us, certainly in the intelligence community and the larger government. you know, classically, historically, there was a firewall that, having grown up in the intelligence business, between foreign and domestic. i was a young pup at n.s.a. in the 1970's, watch church pipe hearings and -- which were, you know, addressed a lot of the abuses, frankly, that went on under the mantra of foreign intelligence, but was done, you

know, illegally, really in the united states. maybe well-intended but bad for the country. that led to the first version of the executive order 12333, which laid out specifically the firewall between foreign and demest ex. all of that came, of course, to a halt, dramatic halt, with 9/11. so that is what has caused us, that gave rise to the terrorism prevention act which mandated, set up the d.n.i., set up some other things and the need, recognized the need, legislatively, for information sharing. so now that firewall is gone, that's not to say it's completely eradicated culturally, i'll say, but i think we've, you know, made a lot of strides. i think more and more there's a

recognition of the need to share responsibly and securely but protect civil liberties. in answer to your question, will it stick? is there enough momentum and traction? absolutely. i don't think there's any question about that. now that said, because of the history where we've been doing foreign intelligence a lot longer than our engagement in the domestic arena, which is not as mature, there are still sort of disparities there, which i think accrue largely from the history. from what i have seen in several capacities, three jobs i have had in the last 10 years, i think we made great strides, not to say there's not

more to do. >> thank you for that. we do have questions, do we have microphones? we have microphones going around. state your name and affiliation, if you have one, please, we'll start here. >> dave folghum, "aviation week," what's your best assessment of unintended information sharing, the effect on military programs, in particular the f-35 program, which was successfully hacked and is it your belief that that breach of information resulted in new costs and programs to compensate for those breaches? >> well, i'll just say in general that this is, you know, the internet age and all that that's given us, it's also led to egregious pilfering of

intellectual capital, intellectual property, and the f-35 was clearly a target, but i really can't draw any empirical conclusions for it because i don't know what impact that may have had in terms of program stretch out or program management challenges. i just don't know. clearly the attacks on our intellectual property across the board, whether from individuals or nation states, is a serious challenge as a country and we need to do something about it. >> next, we'll go ahead over here. >> kim, with associated press. you mentioned that you're working hard to do things like

tag the information and also put in a system where you're monitoring your own people. how far along are you on that? >> well, not to get too specific, it's a work in progress. this will be part of our, as we go to this new architecture, if you will, just speaking within the intelligence community, part and parcel of this, which will act, certainly promote, the thing i'm pushing, which is integration, not to mention efficiency, will be the ability to share more broadly within the intelligence community data, which is still a challenge for us, and in doing so, when we can tag the data so we can label it, we can account firt, we can catalog it, then when it comes to time to, let's say, establish a community of interest, you know what data is in question and if you have the

bona fides of those who need to have access to it, you can to that much more quickly and more efficiently than we're able to do it now. that's part of what i hope will ensue as a transformation of our i.t. enterprise, just within the intelligence community. so that then serves, to emphasize a point i tried to make in my remarks, that serves to enhance security and promote sharing. if you know what the data is in question, you know where it is, and you know with whom it can be shared and you can account for it when it is, you are in a much better posture both from a security as well as a sharing standpoint. our plan is over the next, say, phi years, i think we'll make -- we'll have made some serious and noticeable changes.

>> ok, over to john. >> good morning. there's been a lot of discussion about the continuing size of the commercial imagery buys by the intelligence community, the white house has a study group. where are you with the study group and is the role of commercial imagery going to change substantially? >> going back to -- before anybody heard of it, when i first took over in 2001, we were, i became a big believer in commercial imagery. it has the benefit, of course, of being unclassified, so that is great for sharing, both with coalitions overseas and certainly domestically. so i think there's always going

to be a need, a substantial need for commercial imagery within the intelligence community and for many other purposes. i don't know exactly where we are in the study but it should be the next couple of months, we'll have that done. that's just a relook at the utility and the applicability of commercial imagery. but that's not to say that in this era of budget cutting that commercial imagery is to be considered in that situation as well. >> john mccaffrey, formerly of

the c.i.a., despite the reputation my former agency has of being trog lo diets -- troglodytes, i'm not and i don't think we are. we understand the need to share and protect. a lot of people are concerned about getting into the terms that you use, the bona fides of the recipient information and authorities, i think there's a confusion, what does that mean? it's in distinct contrast to need to know, which became for a while a bad term. enge we've come back to saying there's an essence of need to know in everything we do. you have to understand the difference of the notion between need to know and bona fides and authority relative to information sharing. >> within the context of the intelligence community, there

is, of course, as john well knows, the need to protect, particularly sources and methods, and at the same time, there's the old saw about intel is cool, and reported intel is really cool. you have this dilemma between protecting sources and methods and the information that is gleened and how that information is used. what i was trying to get at is if you are able to tag and label kay data so you can break those -- and label data, so you can break those segments into sources and methods as opposed to information, which is what you really need, then you also can determine routinely and systematically, so it's not a big, huge deal, and do it with

-- do it automatically, determine, based on a given need, if you have the data labels and you know the people who need to have access to the data and we can do that and do it on an automated basis, which we can't do now very well, i think you opromote the interest of both sharing and security. >> next, in the blue shirt here. microphone is coming. >> john powers, information security oversight office. does the classification system aid information sharing? if not, what recommendations would you have to enhance it in the digital age. >> there's nothing wrong with the system, it's how it's used. i guess one way to remove the

hindrances is not classify anything. you know, the information sharing, you know, cartooning this a bit, taking it to its extreme, and this gets to the issue of overclassifying. which is an allegation that's often made and there's probably some substance to those accusations. my experience in the intelligence community is a lot of what drives or motivates classification decisions, given the volume of data we deal with, is actually affected by contemporaneous serks. so something we classify today, you might make a different determination if you look at it a year from now or five years from now. enge we're very, very conservative, fankly, as

personal opinion, not company policy, about declassifying material. again, this is another one of these nirvanas, a holy grail, we're always looking for, what is the ideal sweet spot for classifying? we shouldn't either overclassify or underclassify, it has to be in the middle somewhere, that's a difficult thing to do perfectly. day in and day out. >> thank you so much. the gentleman in the red tie over here. sorry, i can't see some of you. >> sir, to your mind, which agency has the lead responsibility for sharing informing about suspicious activity that indicates an imminent attack and makes sure the regional stake holders are aware of that.

is this a structure data problem? or is this an operation problem? who is making sure there's no problematic theme between those two perspectives? >> i'm sorry. your question is just one agency? >> which agency has responsibility for making sure the procedures and protocols are in place, like if you see a terrorist emitting smoke from a bag on the train, do you have to wait for hours to go through databases to get it acted on at the regional level. >> to say there's one single agency has the legal obligation to do that, it's a collective responsibility we all have. under the scenario you cite, it's, you know, state and local

officials, or starting with the citizenry for that matter, someone witnesses an event like that, gets it to the appropriate authorities, i really can't, i mean, i think it would be -- it's just not set up that way that one element is exclusively responsible for, legally accountable for ensuring that warnings are passed quickly. it's a collective responsibility. it's my responsibility. particularly to ensure, and that's what i've been placing so much emphasis on integration for, as i said before, both horsontally within the intelligence community and vertically, federal, state, local, tribal, private sector and that, by the way, is not intended to apply a one-way

hierarchy, it's two ways. the nexus at the state level, of course are the 2 or so fusion centers, which is, again, there's 72 of them, not just one, that i look upon as kind of the organizational nexus for either bringing information up from the local level or bringing it down from the federal level. >> we want to go over here. >> you talked about the threat policy, can you talk a little bit more about what that involves and where that is in the process and has been about a year and a half sense wikileaks, so where is that?

what's taking so long? and can you also talk a little bit about insider threat. >> i didn't hear your first -- >> the insider threat policy that you mentioned. you said they need to develop an insider threat policy, if i understood you correctly, what does that involve and where is that in the process? >> i don't know exactly where the written document is, if that's what you refer to, but i think frankly, inherently, we've always had a responsibility for detecting insider threats. i think what wiki leaks has tone is heightened our sensitivity about that. and of course for -- in an i.t. context, an insider threat is quite profound, that's why i think everybody is more sensitized about being alert to

detecting insider threats. and there isn't a silver bullet here. you have to have that, you have to have auditing and monitoring. we have done a lot to -- over the last three or four years to enhance and improve and streamline the clearance process, which is another dimension of this, which sort of gets at the issue of personal trust. >> last question. the gentleman with glasses. >> peter besh shop with w.w.n. software. your point six, i wondered if you could expand on that, you say you're not looking primarily for new technology but doing more in the way of write policies. presumably that means you're not waiting for new technology to move forward but that you

are on the other hand, you are still open if new technology is developed that can help with the more perfect -- perfect and exquisite sharing of information, you're open to it. can you expand on that? >> enge you said it, answered your own question. that's exactly right. this has always been about governance and oversight, leadership if you will. but as we're able to acquire the technology and substantiate it, pervasively, where there is confidence and assurance about the data, its content, and with whom it is going to be shared, that served, as i said earlier, to enhance sharing. so to the extent that we bring to bear technology to help facilitate that, even our big idea aside, absolutely. >> what a brilliant last

question. the question answered itself. thank you for that. we have a great agenda today. i encourage you to stay behind for the rest of the agenda. i want to thank our sponsor, i.b.m., for this, and thank director clapper for taking time out of his busy schedule to share his thoughts on this important topic. thank you, sir. [applause] >> in a related program reminder, james clapper, director of national intelligence, will be among the witnesses testifying next week before the senate select intelligence committee. their annual hearing on threats to the u.s. the other -- other speakers will include david petraeus. next, live to las vegas,

president obama continuing his post-state of the union tour with a stop at a u.p.s. hub in las vegas. this facility has deployed a fleet of natural gas powered vehicles, a fuel the president talked about in his state of the union address. the group has already heard from the chairman and c.e.o. of u.p.s., scot davis, who said the president is on time and expects to be out shortly. we will stay here live with a note that at 2:00, we're planning to take you live to the pentagon where the defense secretary, leon panetta, and chairman of the joint chiefs of staff will be unveiling the pentagon's fiscal year 2013 budget, "the hill" writing about that earlier, saying they're bracing for the announcement, about $487 billion in cuts to the agency's spending that briefing is coming up at 2:00. until then, the president

should be out shortly. live coverage here on c-span. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] ♪ ♪

>> this is the u.p.s. hub in south las vegas. president obama will be out shortly and will be speaking about gas-powered vehicles. the president will be talking about that. one of the themes he touched on in his state of the union address the other night and talked about a corporate tax plan and congressional quarterly wrote this afternoon that the president proposes to propose a framework for overhaul of the corporate tax system next month. corporate tax system next month. providing a