endangered species? >> the initial opinion provided indicated there would not likely be in jeopardy to existing threatened or endangered species. it was subsequently withdrawn. it was issued >> your agency, your biologists, they have fully reviewed the keystone part that would cross federal land over which to have jurisdiction. >> that is correct. >> there is no likely jeopardy over any endangered species. you're talking about a total of two ordered 70 acres roughly for the full pipeline. correct? so, the state department had of that information. >> we are one of many. that is the theory we are

responsible for as it crosses public plan. >> i think we have about 1 mile or 1 mile and a half in south dakota. >> all right. i appreciate that. i think that is important for the record because we have heard a lot of rhetoric here. i just want to get to the facts. i went through some of the -- in the last hearing we had. we hear about this jobs number. it gets bad all over. i think we want private-sector investment. this is $7 billion, i believe. there are estimates of 20,000. i think what he reference was only the construction jobs during the phase of the construction. but i know, having been a small- business owner for more than two decades, when you get involved in a big project, we were just in the radio business, but if i bought a transmitter, somebody had to build that thing.

i hired an engineer to install it. i had to go through a lot of other efforts. i think that is maybe were we love the difference of opinion here. if you only look at -- several thousands of jobs so be there in years of industry that has been devastated over the last three years. i would take whatever jobs we could if there is no environmental impact on the federal lands. it does not appear there would be. i think we can make the change that was recommended to deal with the issue. if we change this bill, that would not be a problem, would it? >> we would by law all the crossings. have you done that are ready? >> no, we have not. >> i see.

thank you very much. >> we recognize the general -- the gentleman from texas. >> thank you very much. we had a witness that would call his testimony. there were not equipped to do it. the time and that is being imposed by this particular bill was not realistic. i believe when you provide and what you bring to the equation of building this pipeline safely is invaluable and essential. i do not believe that this bill is the best method of accomplishing the keystone pipeline, which i support. i just do not think this is the way to do it. my greatest fear, and we will have some other witnesses, it is unrealistic expectations of what this pipeline is going to provide this country. i am going to do this as briefly as i can.

first of all, when it comes to price, fuel prices reduces economic growth at a very sensitive time in this country. hi gases produced -- high gas prices reduce -- it was substantial. i do not believe the keystone pipeline can reduce fuel prices. that is what we are telling the american public. i wish we had a hearing that would really explore the impact on price. because eventually it will be our constituents who will be dumbfounded when we complete the pipeline and they're still paying an extraordinary amount of money for 1 gallon of gasoline. gasoline supplies are being exported to the highest bidder. i said this last week. deleting all exports in this country was fuel last year.

-- leading all exports in this country was full last year. it is a global market. that is what we are in competition with. he said, it is a world market and it will go to the highest bidder. at a senate hearing, the president back in may of shall simply stated that oil is a global commodity. they are price takers, not a price of makers. that is the same lesson that will be closed -- imposed on refiners. it is is a global market. we will all the oil that is coming and it will be stored somewhere. maybe we can understand global markets and how the prices are arrived at. this is a story in the dallas morning news on the 15th of may last year -- some 17% of contracts for financial deliver are now blocked by speculators. largely big banks and hedge

funds who never take control of the oil. they just flip the contract for a big profit. only about 30% of contracts are bought by a purchaser who actually intends to use the oil, such as an airline. that is according to commodity futures trading commission which regulates trade in those contracts. the wall street investor testified before congress repeatedly that prices are well beyond what the supply and demand warranted. i want to end this with -- until the early 1990's, the ratio of expected trades to trades made by commercial users of oil was tilted heavily toward the users of oil. but from 1991 until ford, the big financial paid -- players goldman sachs -- we have

attempted to do something about that. we have been fought on this to the nail, whether it is dodd frank or anything else that oftaddresses some sort regulatory scheme. this is all part of it. we seem to be ignoring a whole listic approach. we're going to have a witness who will tell us that this may not be the answer to national security. i think that it can be, depending on how we use the raw product and the refined product that we derive from oil. but, if in fact it is a global market, the only way you maintain that edge is somehow making sure there is available, accessible, and an affordable supply in the united states. but if you have investors that are charged with the judiciary duty of making a big profit for

their investors, and that is the american way and i have no problem with that, what do you do? to keep in the investment market? or do you export it? it is not about the safety of the pipeline. i believe i would rather be depended on canada than saudi arabia. there is no doubt about that. the problem we have is that it is not a realistic approach. that is what concerns me. i am hoping to return for the witnesses who are going to be touching on some of the subject matter that i just touched on. i appreciate your testimony today. i think you are invaluable to this whole equation of building a safe keystone pipeline. thank you, mr. chairman. >> the senate recognizes mr. terry. >> thank you. i guess everyone likes to submit items for the record. a referendum from the state

department. it is dated june 22, 2011. on the issue that my friend from san antonio mentioned, it is on the record from the state department's review on this pipeline. that eliminating transportation constraints to houston would not adversely affect midwest gasoline consumers. in fact, it goes on and says that it would help crude prices decline considering that the transportation is consistent, reliable, and less expensive. keep in mind that what we are talking about is around 700,000

barrels initially going up to 1 million barrels that would completely offset the need for us to send tankers to venezuela and fill up with their heavy crude and should appear. -- and ship it up here. >> without objection. >> it defies logic to me that when you have a transportation system that the state department testified it wasn't the safest means of transport, the most environmentally safe transport that there be arguments that it would not add to an energy security. secondly, on jobs, it befuddles most americans that it denies the permanent and the jobs that would be created for the laborers, there are people sitting on the bench waiting to have their names on the list to be called. there is an engineering company that has ceased doing work

because of the denial of the sperm at on the nebraska route -- of the permit on the nebraska route. my friends on the other side of the aisle say that direct jobs out on the pipeline is not enough for them, it is only temporary. i don't know and infrastructure project that is not temporary, so evidently, we are against all infrastructure now. it befuddles me why they would oppose it. i appreciate your testimony here today, and with the help of the state department, you have made some valid points that we

realize and decided before this hearing today, that we need to make sure we are clear in the fact that the intent of the bill was the presidential authority needed to be moved away from the white house to an agency that had expertise in pipelines to make a decision on whether it is the safety and soundness of the pipeline versus politics that overwhelm this issue. making that correction that recognizes we're not usurping the corps of engineers powers, and you have any objections to this legislation? >> i can't speak to legislation where i haven't seen the actual

language, but it would be appropriate for us to look at and see if its put us back -- it puts us back. >> [inaudible] >> your microphone. >> the light is on. [inaudible] >> i am not aware that an official invitation was provided. >> in the state of nebraska, thank you. in this state of nebraska, what federal lands did the original route to take? did it go through any federal lands?

>> there was a small piece of land administered with the reclamation in the canal area. that is nebraska. >> my time is up, i am sorry. i will submit that for the record for you to get back to me on. >> and the gentleman from michigan. >> i think you for your courtesy, i would like to make a couple of quick observations. in 1970, we wrote the national environmental policy act. it was to politicize the approval of projects and see to it that we had the information we needed when going into those kinds of questions. that could be speeded up. i would caution that if you speed it up too fast, you will make a fine mess out of the thing. i would beg you not to do this.

parenthetically, i want to support this legislation. i think that canadians are going to do this letter will we want them to or not. it is better that if the pipeline goes anywhere, it goes south because it will be a more dependable source of energy for the united states. i urge my colleagues not to drive away members like me by moving too fast on this. if you do, you will just create a wealth of litigation. the business of the country will be delayed by carelessness in this committee. having said that, first question here.

did the state department for for the application to your department? >> say again? >> did the state department the for the application to your department? >> the application we received was for the land coming across montana. a right of way application. >> [inaudible] >> no, like the department of interior, the application came from the applicant. >> did blm provide views on the application? did blm provide views on the permit application? >> we were part of the environmental impact process that was led by the state department. the mandates that we have obligations with in terms of issuing a right of way grant in

montana, we did review the applications. >> did the core provide view >> in three, we received a pre- construction notification and we initiated a coordination with other agencies. we did provide response to the applicant based on comments we received from the department of state. >> so the answer is yes. and did need to be completed within 30 days even though blm would no longer be involved in the permit review process? is that enough time for them to do the necessary due diligence on submitting the views for the keystone pipeline? >> i would say no, it's not enough time. >> same question to you.

is 30 days enough time? >> i don't believe so. >> this goes to both. yes or no. and do you believe that they have the experience that blm has to review a permit of this scope? please answer yes or no. >> i don't believe they do. >> no, sir. >> do you believe firk has the experience that the corps has to review a permit? >> no. >> i apologize for the fact that i curtailed you in your time. this is going to create lots of

trouble and wind up ultimately with a delay or veto or profound litigation that can go on for years. if that occurs, we will find ourselves in the position to have to re-enter this issue with all of the politics that goes to it and all of the difficulty. or we can begin moving to try to work this thing out. i would like to move in that direction. i hope we can begin working on this in that way rather than getting ourselves in a splendid fight that will generate monstrous ill will and create a situation where there will be more delays rather than less. thank you, mr. chairman. >> thank you, mr. dingell. we have votes on the floor, but we have six minutes left. i will recognize you for 5

minutes. >> i know mr. markey was here and wants to speak, do you want some of my time? i will do it. i come from an area that is energy producing as well, and i am very impressed. i have one image in my mind, you were in charge of blm for the state of california. who escorted me for the first time to see the shangri-la of the west, the eastern portion of san francisco county, a fragile ecosystem that gets the remnant of 300 years ago in which all of the vested interest, the mineral rights, the cattle ranchers, all the stakeholders have found a way to

preserve the natural history. and also make it economically viable area. the oil and gas industry has had their role there. a picture this pipeline going through the plains. i am very concerned that we take the time that is needed to preserve, in the midwest, what i know from my area to be the possibility of protecting the land as well as rendering economic interests. i see this latest attempto short circuit the review process. i want to ask you because i know your expertise and i have a number of army corps projects that have had the pleasure of

working with that agency. would it make sense for the bureau of land management to issue permits for a pipeline with an unknown route? >> i can only speak to the segment in montana that we are knowledgeable of that area. >> for the further part of it, you have knowledge of where it is, is that correct? >> if it doesn't fall in public land jurisdiction, it is not going to pertain to that. >> typically providing permits when the route of the pipeline is unknown? >> we only of the late permits for applications that have been submitted by project applicants in the past.

>> i would like to yield the balance of my time to mr. markey. >> under this bill, are there any guarantees that the friendly canadian oil that is said to the pipeline will be sold here in the united states? no. but let me get this plan right. step one, trans canada was the dirtiest royal and the planet into the brand new pipeline the republicans are giving them. this and the oil to the gulf coast where they can make billions more than where they currently sell its in the midwest -- don't pay any taxes for doing it. the americans that higher tax prices and no increased energy security. and trans canada and saudi arabia laugh all the way to the

bank. that is pretty much what this bill allows. make no mistake, this bill is not about energy security or jobs. it is about oil company profits, plain and simple. this bill turns the united states into a middle man into an international oil deal between canada, south america, europe, and china. grow here, drawn-out, payless. we are letting canada to drill here, ship here, and pre-export. all we have to do is pay more both in terms of money at the gas pump and cost to the environment. today, along with mr. waxman and others will introduce a bill to require her that if this pipeline is permitted, the oil will stay here to benefit americans. if we are going to go to the

extreme lengths of legislating the construction of an environmentally constructive pipeline, to benefit a canadian company, we should be sure that we in the united states can realize the energy security and consumer benefits that we have been told of the project will bring. let's play it straight. without my bill, this pipeline will not do a thing to enhance the security of our country or our men and women stationed all over the world for the purpose of protecting the fossil fuel and rest. -- interest. the ceo sat there and said he would not support that legislation. that is all we have to know about our relationship with this company. i yield back the balance of my time. >> of all the u.s. petroleum

products, we are currently exporting less than 5%. >> the number one export for the united states in 2011 was oil petroleum products. >> we want to increase our exports. >> not of oil. >> all the members are gone, we still have a vote on the floor so i will release this panel. thank you for being here. we will recess for about 35 or 40 minutes and we will come back and began with a panel two. we're in recess. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012]

>> i called the hearing back to order, and before i introduce the witnesses, as we were finishing up with the first panel, there was a back-and- forth about whether or not we were going to release the first panel. in consultation with the majority, a decision was made to release them but i have already told him before he left that he could come back and ask some questions.

since they are not here, i will recognize him for three minutes to say whatever he wanted to say about the corps of engineer or whatever the issue was. >> i appreciate you giving me the time, it is frustrating that you think you have an agreement and i think some of these questions are important. i will raise them with the army corps here because i have a little bit of experience, giving my miranda rights for the potential violation of a 404 permits because i was involved in constituting a sewage break. it is very near and dear. there is a lot of talk here in washington d.c. about certain jobs, aggressive job programs by the federal government. the tennessee authority is one of them that has been cited again and again.

the tennessee authority cost thousands of waterways, never received one 404 permit. when we talk about these great job programs and ways of stimulating the economy in the past, we have to remember just how much regulatory oversight and regulatory obstructionism has occurred since then, there are things that we have done in the past that would not be legal to do under today's regulations. the other issue a wanted to raise, even though it takes a permit to put a pipeline over the waterway, to transport oil, there is no permit required to transport the same oil by truck over a bridge that spans a waterway. the same way there is no requirement for a permit for a train to go across a bridge that spans a waterway.

even though statistically, the risk of having spills caused by truck at train transport into those waterways is much higher. there is also the issue of the fact that no one talks about as they look at the risk of pipelines but don't look at the risk of if you transport the same oil, that 1,700 miles, it is 87 times more dangerous than with transport buy oil. somebody that has worked and environmental agencies have had the privilege of being regulator, i think the environmental impact of the no- project option is one that any reasonable person that really cares about the environment has to understand. the fact that the state department has admitted that the transport of this oil by alternative sources -- it would be many times more polluting than the use of a pipeline. i am shocked that the state department cannot quantify how

many metric tons a year would be omitted by going to the other alternative transports of the truck and the train. coming from california, we would tell you down to the minute of what it is because we use good science to make those decisions. the state department admits that the transport by alternatives are higher than the transport of this pipeline. in all fairness, the adverse environmental impact has not yet been given a fair hearing and has not been identified or quantified in a responsible way. before we start turning down these projects, we will look at what will be the impact of the environment. one of the things i am really concerned about is canada is being treated like we can't trust canada with their environment. their history on environmental issues is something that puts into question why we approve the crossings in mexico but

holding of this one the canada. >> i understand he would like to have his three minutes on our side as well. i hope he can be recognized. >> absolutely. >> this last statement by my colleague made no sense. he is criticizing the different alternatives of bringing these down from canada and saying if it is done by railroad as opposed to a pipeline. the real issue is if they will do these at all. if they can't bring it into the united states, they are not going to develop those things. it is the dirtiest source of coal, they have to spend some

much energy, at some point, it will have to be revised. the energy used to refine it will add to the greenhouse gases. i want people to understand it is not just a question of how it is going to be transported. a pipeline is often away weak transport these things. i am not against pipelines. but any pipeline ought to be reviewed by the appropriate agencies. and the two witnesses that are going to be taken out of their opportunity to review any proposal, this bill is only about one specific pipeline that is going to be given the treatment and that no other pipeline has had. if they review it, they have 30 days and they have to come up with the right conclusion. that is a special interest bill for this one project and it is really troubling.

we will be adding to the greenhouse gases, it not just affect canada, but the whole world. we will be committed to that source of energy where we ought to be looking for other ways to use less energy and make us more independent. i think the witnesses on the second panel will have more to say about that issue. >> i would like to reclaim my time and say that i have an open mind in general about the whole issue of keystone. i am very concerned about this. removing the federal review of oil agencies except for mandating the issues, to me, it doesn't sound like we're really weighing the pros and cons. we are rushing to make a decision. the health and safety of the american people is paramount.

if we are not going to take that seriously, it really troubles me. the other thing that troubles me, i would feel much more comfortable if i knew that the oil that was coming down to be refined from canada and to be refined in texas went for domestic consumption in the united states. i have sat through hearings and i am still not satisfied or convinced that the oil is not going to be shipped to china or some other place. those are some of the questions i have about this. >> i said the word coal, i meant oil. this is the dirtiest oil. i would not want to take you on that issue. >> i would like to introduce the second panel, we have stephen anderson of the united states army. we have mr. randall thompson who as a rancher in nebraska.

we welcome you to the hearing and we appreciate you being here very much. at this time, general anderson, i will recognize you for your five-minute opening statement. the red light will come on 25 minutes is up. >> i am a concerned citizen and part owner of a small business based in knoxville, tennessee. i would like to thank the subcommittee for this opportunity and the thinking -- and thanking my president for denying the pipeline. as a long time registered republican, i don't often agree with president obama. on this matter, he absolutely got it right. it will degrade our national security.

the critical element is this. the pipeline keeps our great nation addicted to oil. it makes us both strategically and operationally vulnerable. as a retired general officer, i believe that i am fully qualified to comment on both of these vulnerabilities. the pipeline will keep us dependent on outside sources to meet most of our general -- energy needs. keystone only addresses the symptom of the illness. it does nothing to cure the disease itself which is the overreliance on oil. as nations like china and india demand more oil, competition will increase. the carbon based energy consumption, it will lead to climate change and increasingly catastrophic weather events. the pipeline keep strategically

vulnerable because the economy will remain petro-centric. providing renewable energy solutions will not grow to capacity and capability as quickly as america needs. i believe keystone will set back the alternative energy industry 20 years. two weeks ago, i d read that -- i read that dubai will invest in alternative energy. their economy is 250 times smaller than ours. yet they are astute enough to see the consequences of an oil- dependent economy and are willing to invest now in renewable energy in a big way. why aren't we? because we are not fully

committed to new energy capabilities, our soldiers are operationally vulnerable, too. serving as the senior -- i struggled with the challenge for providing 3 million gallons of fuel every day to sustain our forces. i saw the huge impact of not having any renewable energy systems and being completely dependent on oil based power generation. in consideration with the burning cost of fuel, taxpayers have been spending well over $30 billion annually. with a b. billion. it will be even higher this year, but the dollar cost doesn't concern me as much as the human cost. over 1000 american troops have been killed in the wars in iraq and afghanistan executing fuel emissions. we should all be outraged. yet to make matters worse, our

supply lines provide thousands of convenient targets and the revenues from satiating our oil habit of enemy the resources they used to kill us. we're fighting a much less capable enemy. imagine leveraging solar, wind, and geothermal technologies to end the war sooner and save billions of dollars in soldier lives. let me comment on the jobs issue. as a former soldier, i am concerned at the high unemployment rates for vets. they need jobs with staying power. careers. america is best served by creating jobs for 100 years, not 100 days. it produces a clean energy

economy, it could be 1000. this pipeline is an addiction that makes us less secure. and now's the time to make the hard choices and put our future economic prosperity in the capable hands of middle america rather than big oil. i stand before you today convinced that a national mission and focus that put a man on the moon 42 years ago can prevail. setting -- stopping the pipeline to they can set the conditions needed for the will to win and the entrepreneurial drive to succeed in breaking our terrible addiction to oil. >> thank you, general anderson. you're recognized for five minutes for your opening statement. turn that on. >> you can tell i'm used to

testifying in congress. i am here as a landowner. i would like to thank the chair for the opportunity to be here today. i will start my testimony by thanking president obama for making the right decision by denying the permanent for the keystone xl pipeline. i like to think that the voices of nebraska and had an impact on his decision. those of us that live and work on the proposed half of this pipeline applaud him for placing our welfare ahead of the interest of big oil companies. i can honestly tell you that i have never witnessed any project that has stirred the emotions of my fellow nebraskan is like the keystone xl has. contrary to what you may have heard from elected officials, i can assure you that the dust

has not settled on this issue. trans canada has built a mountain of distrust among the ordinary citizens of our state. even with the voluntary agreement to move the pipeline out of the sand hills, we remain very skeptical. many nebraskans, including myself, we view them as an overly aggressive company that thought that they could come in and intimidate and believe their way across our state. -- bully their way across our state. witnessing their actions have made us wary of about what they would do if they were empowered by a premature permit. i fear that an early permanent would place a tremendous amount of pressure on the state of nebraska to hurry through its review process. trans canada has been granted

plenty of free passes and they seek another. they want political allies to free them from the tangled mass that they themselves helped to create. perhaps it is time for the free passes to come to an end. if it truly is american, it should be able to withstand a rigorous and comprehensive review that it deserves and has not gotten. if this pipeline is built, thousands of us in the heartland will have to live and work next to it for the rest of our lives. and probably for the rest of my kids and my grandkids lives. it will cost hundreds of our waterways and it will only get riskier with the passage of time. short circuit in the review process would be an injustice, a gross injustice to all of us

that have to live and work along and the half of this pipeline. many of us feel that the approval of this project would strip us of individual property rights. we don't feel any foreign corporation has any right to take our land for their private use and game. especially when there has been no determination that this project is in the national interest. we have seen no evidence that this pipeline is anything other than an export pipeline providing access to the oil market for canadian -- aside from a few months of temporary employment, yields few other benefits. mr. terry himself, in a speech a few weeks ago in the state of nebraska said there would be no more than 30 permanent jobs as a result of the pipeline

project. we are being asked to risk some of our greatest national resources and a lot of folks livelihoods, and we will get 30 permanent jobs. completion of the pipeline would actually increase the price of the oil we are currently importing from canada. this is an undisputed fact. really, does this make any sense? we help them build a pipeline and as a result, we end up with higher oil and fuel prices and the midwest? why don't we take a gun out and shoot ourselves in the flood, that would make more sense to me. perhaps it is just my nebraska logic, but from my perspective, it appears that the united states is getting the short end of the stick on this deal. canada and the big oil companies are reaping all the

rewards while americans are being left behind. thank you very much. >> we appreciate your opening statement. i will defer my five minutes of questions and recognize the representative from kansas. >> i asked to enter a record that appeared in the wall street journal written by ted olson. i understand mr. waxman doesn't like this pipeline. but the incredible political nature became apparent when he had his chance to ask questions. he spent four minutes and 31 seconds testifying. he brought to folks out from the united states government, ostensibly because he was keenly interested. he thought it was absolutely critical that we hear from them.

29 seconds. it did not appear to me that there is anything but blatant politics. mr. waxman has the benefit standard. his notion of legislation, apparently, is that you decide a piece of legislation depending on who benefits. >> i want to make a point of order. i know the rules on the house floor would not permit the gentleman to make such a personal attack. a member's motivations or actions, i am happy to answer it when i get my turn, but if i don't have enough time for questions of these witnesses, you will say i did not ask them enough questions. i think it is inappropriate and i make a point of order that the words be stricken. >> with the gentleman hold for one minute? >> certainly.

>> unless the gentleman wants to withdraw the comments? >> i am happy to withdraw them so we can proceed. >> i withdraw my point of order. >> certainly. we have a standard that is being applied by folks across the aisle. we tried to decide if there is a personal benefit. if a person in order would not benefit. this is a $7 billion private investment. i watched this committee last year as we were debating and discussing. it was different. i watched them on the floor debate obamacare.

there was no discussion about who might benefit from those in taking from the taxpayer. i think it is intellectually dishonest to now, for us, to have a different standard. we should have a standard about policy. not a standard where we look to see who benefits. i yield back my time. >> at this time, we record meant -- recognize the gentleman from california. >> i want to point out that sense it has been commented i am being political, the chairman of the subcommittee raised the issue of whether the president is in the full campaign mode trying to respond to the extremists in the environmental side. he said that perhaps we should

look at mr. soros who has say train it could take this pipeline to texas. my point was never that -- >> it was mr. buffett. not mr. soros. >> excuse me. the other guy you do not like. republican colleagues make several arguments for building the pipeline. they say we need the oil and the lower gas prices. the facts do not support these claims. the energy information agency is projecting that america's oil consumption is not growing. it is no longer growing.

the reason is because we have insisted on more efficient automobiles that have better mileage. the standards for these will further reduce our oil dependence. with growth and consumption in check, i do not think we have to be stampeded into something like this deal. this pipeline will not reduce gas prices. last year, transcanada admitted that the pipeline will raise oil prices in the midwest. there is a debate about how much but it will not lower them. that to leads to national security as a reason why we need to go along with this pipeline. we have the general anderson, could you explain your experience? >> 31 years in the army.

i served in the pentagon for two years as a chief would guess -- logistics officer. i was david petraeus' officer. >> you did not think this pipeline was in our national security interests. you said oil dependence threatens our national security. is this a controversial view? >> i do not think so. i am not sure if i would call myself a national security expert. i am an expert in the operational impact of our oil addiction in iraq and afghanistan. i do work in afghanistan curious i spent a lot of time over there with my private interest and i can tell you we have not changed it at all in 10 years. we are incredibly wasteful and inefficient. we do not have the renewable

technology we need to save soldiers' lives. >> this is a different kind of oil. a car -- comes from tar sands and can have problems in the pipeline. transcanada has one pipeline that has been around for a year and a half and they have had a 14 spills over the last year and half. a lot of people are concerned about the safety of the pipeline. is not carrying this crude oil, if i understand the situation. to get the tar sand ready, there has to be such a use of energy to refine it to look through the pipeline that it will cause us more greenhouse gas and at to climate change problems.

>> that is exactly the way i see it. i think it is detrimental to this nation to continue the co2 emissions we are doing and will no doubt to do with the encouragement of this pipeline. it brings about climate change and global instability. the likelihood that soldiers will have to fight and die in order to protect the stability of the world, it is much more likely. >> the threat of oil spills from the pipeline is another reason why people oppose it. an engineer for transcanada's first pipeline wrote an op-ed in the the linkedin internal star -- lincoln star. he said it cracked when workers

tried to weld it. i also have the letter -- a letter from mr. klink i would ask consent be put into the record. >> without objection. >> thank you for your testimony. i think we should hear another side. not have it ramrodded through the congress. this is a big decision. we will live with the consequences for 50 or 100 years. it is in the wrong direction in terms of carbon emissions and pipeline safety, in terms of danger to the people around the pipeline and the taking of the property for this special interest purpose.

>> the gentleman from virginia is recognized. >> i appreciate you gentleman taking your time to be with us today. we may disagree on some of this but i appreciate your rights under our constitution to speak to your government and commend you for being here. i do have some issues with some of the comments about the jobs. we can argue over the numbers but one thing that i find interesting is that if you accept the argument that the oil is going to come in and go to other countries, you also have to except the argument that before it goes to the other countries it is going to be refined in the united states. to do that, you have to add jobs. you add strength in our economy.

i recognize the situation you have, mr. thompson, the property rights. i have not looked at that but i see a situation where it has been studied for a long time and i believe there are jobs that are created by having that keystone pipeline. others do not feel we should use carbon-based energy. i think that general falls into that category. i do not agree with that. i would be remiss if i did not tell you i think for the foreseeable future we will need to use oil, coal, natural gas. we should be looking at green energy sources long term, i

would not want to put us in a situation where our military had to rely on solar panels to move forward. it is something we should look at but over the next 20 years, we are going to need our carbon based fuels. >> we recognize the gentleman from texas for five minutes. >> i want to thank the witnesses. i agree with my colleagues that if you are exporting fuel from canada, exporting is good. it creates jobs. the real question is refining it. i want to remind my colleagues that we attempted to make sure we did it in a cleaner fashion and a safer fashion and that they opposed us every step of the way.

we got a bill out of the house that we have not been able to conclude. i hope they recognize the necessity of safe and clean for finding in this country in the way we can meet all of the demands. general anderson, is that right? thank you for your service, first of all. thank you, mr. thompson. i and stand what you're saying and i agree with you. >> this is my fear. i still believe in fossil fuel. how much longer will we still require a reliable source of fossil fuel in this country? in many of these studies, it comes from the oil companies. it will tell you that we are going to have domestic the

dentist for some years to come and globally for a longer period than of time. i share your fear that my support of keystone may expand the duration of the time that we may still be dependent. my position is that we will be important because we need it. i would rather get is from canada or mexico for national security purposes. that does not mean we should not continue to aggressively view renewables and alternatives. there has to be a healthy balance to accomplish this. to my colleagues on the other side of the sense, the problem is that you truly just have a 100% dedication to fossil fuels. as much as i understand they have to be part of the fix, i will give you a quote from the former secretary of the

department of pennsylvania natural resources in making reference to how we exploit fossil fuels. we are burning the furniture to heat the house. that is the cautionary tale to all of us. be realistic about our needs in the future. how we wean ourselves from the dependency on fossil fuels. it is a twilight industry. it is a long twilight. we cannot afford to be caught without an adequate supply and be depending on individuals and countries that will be in jeopardy and in a flux for years to come. thank you for your observation. mr. thompson, i have a question about you. there are complaints about regulations that it is onerous

and overburdened. you have made reference to limit domain. have you been approached by -- you have made reference to the eminent domain. have you been approached by transcandada. ? >> we were approached and they told us that they wanted to use our property. we decline to enter into any kind of agree with them. they followed up with a written letter expressly stating that if we did not accept the terms of the agreement that they sent to us, that if we did not accept

those terms within 30 days, they would immediately proceed to take our land through eminent domain. my problem with that -- they were still in the permiting process at this time. yet they are threatening me with eminent domain. they did this throughout the state of nebraska. many, many of the easements land owners find -- fined were due to m&a domain. there were not -- eminent domain. >> my time is up. i hate cutting you off. i think you and i yield back.

>> i will continue with my questions. the gentleman for california -- from california for five minutes. >> i appreciate your concerns about a global and environmental issues. your concern about the pipeline and its short-term and long-term impact is what we want to talk about. do you feel the construction of the alaskan pipeline in the 1970's was detrimental to national security? >> at that time, that was the right thing to do. a much different situation. now the world has changed. greenhouse gases and climate change and world instability are much more in the forefront than they were 50 years ago when we contemplated the alaska pipeline. >> do you think the physics of

environmental reality and the reality of the political instability of places like the middle east have changed dramatically since congress voted on that pipe line? >> i am not sure if i understand what you are -- >> do you believe the physics of the environmental impact and issues like climate change, issues like emissions and everything else, and these situations that have historically been unstable in the middle east -- do you think those issues were not reality at that time? >> i do not think they were as developed as they are today, as apparent as they are today. i do not think we knew the

impact of co2 emissions. >> that is my point. the fact was not known, but they were there. wouldn't you agree? >> i would agree. >> would you agree that expansion of nuclear power was contributes to national security or is a document -- a detriment? >> i think it contributes to national security. >> people use the word renewable as if it is all clean. they deny clean energy across the line. the number one purchaser of nuclear reactors is the united states government. do you believe the mandated use of ethanol aids in the security of this country and its long-

term environmental, economic, and military stability? >> i do not really believe that. >> you go along with those of us to address the issue in california that ethanol is a non-sustainable auction and is a polluting option -- non- sustainable option and a polluting option? >> i am not an expert in that field. i specialize in national security. >> would you agree that giving ethanol the overwhelming majority of benefits like tax credits while denying other environmental option such as algae is counterproductive to be

stated purpose of energy independence? >> i would agree with that. >> i want to thank you for your testimony. i appreciate that we approach the challenges. i would ask that the record show the general is clear about the fact that what some people see as environmentally damaging in washington may not be perceived by the general and myself as being damaging or may be essential to environmental and national security purposes. i yield back. >> we recognize the gentleman from massachusetts for five minutes. >> the keystone pipeline would carry some of the dirtiest oil in the world right through the middle of our country. it is a double barrel threat to the environment and risks oil spilling into our ground water.

we have been repeatedly told that approving this gas pipeline will lower prices at the pump. oil companies' profits will rise because they can choose more -- they can charge more. its oil coming through this pipeline would enable us to reduce our dependence -- we have been told that the old oil coming through this pipeline would enable us to reduce our energy dependence. these benefits may be a complete fiction. many of the refineries where the keystone crews will be sent say they will re-export the refined fuels. they are located in texas in a designated foreign trade zone.

when these refineries re-export the keystone oil yules, they will not have to pay u.s. taxes -- oil fuels, they will not have to pay u.s. taxes on those profits. when the oil company ceo was asked if the oil could stay here, he said no. the canadian prime minister, stephen harper, said, when you look at the iranians threatening to block the straits of hormuz, that demonstrates how critical is that supply for the united states be north american. do you think this bill to legislate a permit for the keystone pipeline is guaranteed to reduce our dependence on oil transported through the straits of hormuz?

if we do not have a provision that ensures the oil stays here in the united states? >> no, i do not think it will guarantee energy security for our nation. >> our friendly relationship with canada has been cited. under this bill, are there any guarantees that all of the friendly canadian and oil that is sent through the pipeline will be sold here in the united states? >> no, i am not aware of any guarantees that will happen. >> you are saying it is a threat because they are extracting the oil from tar and there is a greater likelihood of dangerous warming on the planet and the business is as the pipeline goes through our country are not certain in terms of the oil staying here in our country to

break our dependence on imported oil. what is the benefit out of such a proposal? >> there is no benefit. i believe is a detriment to the american people. it keeps our addiction to oil. our addiction to oil makes us strategically and operationally vulnerable. >> the route that transcanada proposed originally went through sand hills. what is still go through is being -- the ogala area? >> from what i have heard and the initial proposals, it would still crossed the aquifer. there is a risk if that happens. >> what would happen to the

water table? >> i can quickly explain it. the pipeline would be buried or submerge directly in the water. any type of leak will go into our water supply. >> what would the impact of that the? be? >> it would be from small to tremendous. water becomes contaminated and the property becomes useless. >> how do feel about that in terms of the impact it could have on the lives of these small communities? >> i am angry as hell. people want to play political football games with my livelihood. >> we want the university of

alaska -- nebraska to have a great football team. we can see how their public health can be in jeopardy. >> somewhere in this process, we need to take a look at the people of america who are going to be impacted by this thing. it is not all about money and this and that. there are people's livelihoods at stake. and our resources. that needs to enter the debate somewhere in the process. >> thank you for being here. >> the gentlemen's time has expired. i will recognize myself for five minutes. i will read from a memorandum from the deputy assistant for policy and analysis at the u.s. department of energy. in this memo, he talks about the issue that congressman markey

raised, that the oil will be exported out of the u.s. i will read this verbatim. he said, this memorandum provides data and analysis on a number of issues. it concludes that we find -- refiners would include all oil sand in excess of what would be provided by the keystone pipeline. export of canadian oil is highly unlikely. the president stated one of the reasons he would not make a decision is because he did not have sufficient information to

make a decision. congress did not give him enough time. as i stated in my opening statement, this pipeline has been in the works for 40 months. in the fall of 2011, a supplemental draft an impact statement was issued. after months of public hearings , the state . they indicated the option was to build a pipeline as proposed. a person on the outside not paying attention to this --

everybody expected the state department to make its final decision sometime in the fall of 2011. all of the sudden, unannounced, they decided they would seek a new route through the state of nebraska and go through another round of studies that would not be completed until the first quarter of 2013. that was the stated reason for president obama not making a decision, because of this new route through nebraska. when some of the political leaders in nebraska realized their concerns were being used by the president to stop this project, they had a special session of the legislature called. a new law was passed to give the nebraska department of environmental quality the ability to site and evaluate a

new route for the pipeline within nebraska also borders and have the time frame that the state department envisioned. the keystone provision put into the temporary payroll tax cut six digit act allows the president to approve the pipeline -- carol tax cut act allowed the president to approve the -- payroll act allowed the president to approve the pay = = the -- pipeline. because of the route modification of this long pipeline, it is not an interstate modification. there was no federal role. since the rest of the pipeline route outside of nebraska and

its environmental impact remains unchanged, there was no reason for the white house or state department to believe there was not enough time to make a deception -- a decision about the pipeline by february 21. when certain people here the route has been changed and that is why we do not have enough time, there was a clear explanation of all of this. i clearly stated it. in conclusion, i will say that general anderson, we appreciate your being here. i would also like to thank you for your support and service to our country. mr. thompson, i appreciate you being here and speed up on your personal use -- personal views on this issue. nebraska is in the big 10 now. we know they will continue to do

well. we will keep the record open for 10 days for any additional material that might want to be submitted. with that, we will conclude the hearing. with that, the hearing is concluded. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] >> according to the associated press, 70% of the votes have been counted in the nevada caucuses. results from the state's most populous county are still being tallied. right now, mitt romney is at 47%. newt gingrich has 22%. ron paul is in third place with 18%. rick santorum has 11%. we will continue to update you with the latest results. tomorrow, house majority

leader eric cantor will discuss how to grow the economy and create more jobs. we will also speak with aol founder steve case. >> by 2020, at least all of half energy --half of the energy will come from non-fossil fuel sources. >> the navy secretary on the reason for a new energy standards for the fleet. >> we are too dependent on volatile places to get our energy. we are susceptible to supply shops. even if we have enough, we are susceptible to price shocks. when libya started, the price went up. that was almost a $1 billion of additional fuel bills for the

u.s. navy. the only way we have to get that money is through operations and training. our planes fly less. we train our sailors and marines less. >> more with the navy secretary a."ght on c-span's "q & >> ben bernanke defended the decision to keep interest rates low. he talked about the federal deficit and the european debt crisis. this is about 2 1/2 hours.

>> thank you for coming to our committee to talk about the state of the economy. we will proceed quickly so we can get you back on your schedule. nothing is more critical to today oppose the economy than restoring real business growth in america. yet for almost three years, the u.s. economy has remained mired in a slow-growth high unemployment trap. the president and his party leaders say things are getting better. yet we continue to hear from families and businesses in our district and says this talk is disconnected from reality. this administration said the stimulus plan would keep unemployment from ever rising above 8%. unemployment climbed as high as 10% and today stands at 8.5%. the cbo confirmed it is predicting economic growth to remain sluggish and the unemployment rate might hover around 9% through 2014. the obvious question is, why did these policies fail? i think when you get out and talk to families and businesses

the answer becomes clear. the policies added hundreds of billions of dollars to the annual deficit. the explosive growth of our debt created tremendous uncertainty of our fiscal and economic future. when government sews doubt about future tax rates, interest rates, and tax stability, it undermines the security that families need to plan and invest. this puts a drag on economic growth. there is a monetary side to the uncertainty as well. the fed announced it will hold interest rates at extremely low levels through 2014. i think this runs a great risk of fuelling asset baubles and eventually eroding the value of the dollar. the prospect of all three is holding the economy back in many of our judgments. the fear that it will be incredibly difficult, not just technically difficult politically difficult as well. the fed recently announced it would be -- it would accept higher than desired inflation to promote employment.

this is not because unemployment is a lesser concern. the fed's tools for promoting employment are limited and can have unintended consequences. by contrast, the fed is uniquely positioned to protect the currency, the value of our money. i would find it very disturbing if that role were to be diminished. the inflation dynamic that can be quick to materialize and painful to eradicate once it takes hold. for the sake of our economy in particular and the global recovery as a whole, it is vital that we focus on stability and certainty, especially when it comes to the value of the dollar. i firmly believe a course correction in washington is needed to help us get back on the right track. americans have risen to greater challenges and prevailed in the past. we hope to provide a plan to judge -- to do just that.

>> thank you. welcome, dr. bernanke. we must use all the tools at our disposal to help people go back to work. i commend you and your colleagues of using various forms of monetary policy to promote stable prices and higher levels of employment. i do find it troubling at a time when millions of americans are still out of work, many of our republican colleagues want to strip the federal reserve of that mandate that focuses on full employment and putting americans back to work. obviously, the federal reserve must not waver in its commitment to price stability but to deprive you of the tools necessary to boost employment would be a big mistake. without those tools, the economy today would be in much worse shape. as you testified previously before this committee, the

measures taken by the federal reserve, the politically unpopular but not economically necessary tarp legislation engineered by the bush and administration and the recovery act by the obama administration averted an extraordinarily severe downturn, perhaps a great depression. indeed, we have averted a great depression. it is important to remember the day president bush left office, the economy was collapsing at an even faster rate than originally thought. the gross domestic product was plummeting at a rate of 8.9%. in other words, -8.9% gdp. we were losing 840,000 jobs every month. three years later conditions have improved. the economy grew at an annual rate of 2.8% in the last quarter and 3.2 million private- sector jobs have been created since march 2010. reports and findings by the

congressional budget office confirm your earlier assessments. the passage of the recovery act coupled with the actions by the federal reserve and others did help end the free fall and have helped began the climb upwards toward economic growth. indeed the congressional budget office has told us the recovery act helps save or create up to 3 million jobs and enter the year 3000 -- 2010 and lowered unemployment in 200011 compared to what it would have been if congress had not acted. those are not my facts, those are from the congressional budget office. it is clear we are on a huge fast downhill slide and action taken by the federal reserve, president obama, and congress at the time helped and the

economic freefall and help us turn the corner. while we know the economy has improved, millions of americans remain out of work. unemployment remains unacceptably high and american families around the country are still hurting. the economy is still vulnerable to outside shocks whether it be the japanese see money to the brewing european debt crisis. that is why our first priority has to be nurturing the economy and making sure we do what we can to help small businesses and other businesses help put people back to work. i commend you in articulating in your prepared testimony that in pursuing median and long- term fiscal sustainability which we must do, we ought to take care not to 2/investments to quickly because of those would impede the economic recovery. some policy makers in europe are coming to the notion a

little late. the british economy, for example, contrasted by 0.2% the last quarter due in part to the severity of government spending cuts according to the january 31 article in the wall street journal. the british model was much heralded a few years ago by some of our college by an example of how austerity could work. severe austerity is coming back to bite them. christine a la carte was quoted by bbc recently by saying that the imf is not suggesting there should be fiscal consolidation across the board. they say you need to look at this on a case by case basis. standard and pour in a " explained the rationale between

-- a downgrade of nine eurozone nations. domestic demand falls in line, falls in line with consumer rising concerns about job security and a disposable incomes eroding the national tax revenues. then also contributing to long- term deficits. there are reasons -- these are reasons why we should take immediate action. we should take up the president's joplin that he presented in september including important investments. we should also finish the job with respect to the payroll tax cut. we should make sure unemployment assurances are there for millions of others who are out of work through no fault of their own. dr. bernanke, i apologize for you in advance. the conference committee also begins at 10:00. i will have to leave before i want to. let me close by saying as we nurture the very fragile economy, we should also take immediate steps to enact a plan

to reduce our deficits and debt. we should do it in a stable, predictable, and balanced way. the question is not whether we should do that, the question is how we do that. i believe are rigid bipartisan commission's provided the overall framework to the approach is not every specific recommendation they make. with that, thank you for you and your colleagues work. >> the floor is yours. >> i appreciate the opportunity to discuss my views on the economic outlook, monetary policy, and the challenges facing federal fiscal policy makers. over the past two and a half years, u.s. economy has been gradually recovering from a deep recession. conditions have improved, the

pace has been frustratingly slow. particularly from the perspective of the millions of workers remain unemployed or underemployed. the sluggish expansion has left the economy vulnerable to shocks. last year supply chain disruptions stemming from the earthquake in japan, a surge in the prices of oil and other commodities from the european debt crisis, the risk derailing the recovery. over the past few months indicators of spending and job market activity have shown signs of improvement. economic projections just released, committee participants said they expected somewhat stronger growth this year than 2011. the outlook remains uncertain and close monitoring of economic developments will remain necessary. as is often the case, the willingness of households to spend will be an important determinant of how the economy expands. real consumer spending rose

moderately, house will continue to face significant head winds. growth stagnated in 2011 and access to credit remained tight for many potential borrowers. consumer sentiment remains improved but remains at levels that are still quite low by historical standards. household spending will depend on developments in the labor market. over all the jobs situation does appear to have improved moderately over the past year. private payroll employment increased by 160,000 jobs per month in 2011. the unemployment rate fell by 1% and claims for unemployment declined somewhat. we still have a long way to go before the labor market can be said to be operating normally. particularly troubling is the high level of long-term unemployment. more than 40% of the unemployed

have been jobless for more than six months. that is roughly double the fraction of the economic expansion of the previous decade. uncertain job prospects along with tight mortgage credit conditions continue to hold back the demand for housing. although lower interest rates on conventional mortgages and the drop in home prices have greatly improved the affordability of housing, both residential sales and construction remained depressed. dow would pressure and limiting the demand for new construction. in contrast to the household sector, the business sector has been a relative bright spot in the current recovery. many u.s. firms have benefited from strong demand from foreign markets of the past few years. more recently the pace of growth has slowed likely reflecting concerns of both the domestic outlook and developments in europe. however there are signs of the

concerns are evading someone. confidence continues to improve, u.s. firms should be positioned to increase capital spending and hiring. larger businesses are able to obtain credit and historically low interest rates and corporate balance sheets are strong. many smaller businesses continue to face difficulties in obtaining credit, credit conditions have began to improve modestly for those firms as well. globally economic activity appears to be slowing restrained in part by spillovers from fiscal developments in europe. the combination of high debt levels and weak growth prospects in a number of european countries has raised significant concerns about the fiscal situation is leading to

substantial increases in borrowing costs, concerned about the health of european banks, and associated reductions in confidence and the availability of credit in the euro area. resolving these problems would require concerted actions on the part of the european authorities. they are working hard to address their fiscal challenges. nonetheless, risks remain and may unfold and favorably and could worsen prospects here at home. we are in frequent contact with european authorities and will continue to monitor the situation closely and take every available step to protect the u.s. financial system and the economy. let me turn to a discussion of inflation. as we had anticipated, overall computer price inflation moderated considerably. in the first half of the year is surgeon the prices of gasoline improved along with a pass through to higher prices had pushed consumer inflation higher. around the same time supply disruptions in japan put

pressure on motor vehicle -- motor vehicle prices. this faded in the second half of the year leading inflation to decline to about 1.5% in the second half close to its average pace in the preceding two years. in an environment of well anchored inflation expectations, more stable commodity prices and a slack in labor and product markets, we expect inflation to remain subdued. against that backdrop they decided to maintain their stance of monetary policy. the committee decided to continue its program to extend the maturity of its securities holdings to maintain an existing policy of reinvesting principal payments on securities and to keep the target raise -- the target rate at 0-0.4%. economic conditions are likely to want low levels of the fund rate at least through 2014. as part of our ongoing effort to increase the transparency

and predictability of monetary policy, following the january meeting the released a statement intended to provide greater clarity about the longer-term goals and policies strategy. the statement begins by emphasizing the federal reserve's firm commitment to its congressional mandate to foster stable prices and maximum employment. to clarify how it will achieve the directives, and they stated their collective view that inflation at the rate of 2% as measured by the annual change in the price index is most consistent over the longer run with the federal reserve's statured mandate. it indicated the current estimates of the longer run normal rate of unemployment is between 5.2% and 6%. when they are not complementary the committee will take a balanced approach to return inflation and employment to

their desired levels. in my remaining remarks i would like to briefly discuss the fiscal challenges facing your committee and the country. the federal budget deficit widened with the onset of the recent recession and has averaged around 90% -- 9% of gdp over the past three years. this exceptional increase in the deficit has had a weak economy as well as fiscal actions to aid the recovery. as the economy continues to expand in stimulus policies are phased out, the budget deficit should narrow over the next few years. even after economic conditions of return to normal, the nation will face a sizable budget gap of current policies continue. using information from the recent budget outlook, one can construct a projection to the federal deficit assuming most tax provisions are extended and the position payment rates are held at their current level.

under the assumptions the budget deficit would be more than 4% of gdp in fiscal year 2014 assuming the economy is close to full employment. lot return projections based on plausible assumptions about the evolution of the economy and the budget under current policies show it increased significantly over time and the ratio rising rapidly. this dynamic is clearly unsustainable. these structural imbalances did not emerge overnight. an aging population and fast rising health-care costs, both which had been predicted for decades. the cbo predicts that federal outlays for of entitlements which for 5% of gdp in 2011 could raise by 2035. although we had been warned of such developments for many years, the time for projects is to become reality are coming closer.

it runs the risk of serious economic consequences. over the longer term, the current trajectory of debt threatens to crowd out and reduce productivity growth. a growing share of our future income would be contributed to interest payments. high level of debt impairs the ability of policymakers to respond to future shocks and events. even the prospect of unsustainable deficits has caused an increased possibility of a sudden fiscal crisis. as we have seen in a number of countries, interest rates can soar quickly if they lose confidence in the ability to manage fiscal policy. we can be sure that without corrective action our fiscal trajectory will move the nation ever closer to that point.

to achieve economic and financial stability, fiscal policy must be placed on a sustainable path that insurers' debt to relative income is stable or preferably declining over time. attaining the goal should be a top priority. even fiscal policy makers should take care not to impede the current economic recovery. the two goals of achieving long-term sustainability and avoiding headwinds for the current recovery are fully compatible. they are mutually reinforcing. a robust economy will lead to lower deficits and debt in coming years. a plan that clearly puts fiscal policy on a path to sustainability could help keep longer-term interest rates low and improve household and business confidence by supporting improved economic performance today. fiscal policy makers can also promote stronger economic

performance in the medium term. to the fullest extent possible, our spending policies should increase incentives to save, anchorage our work force, stimulate private capital formation, premier research and development, and provide infrastructure. although we cannot expect the economy to grow its way out of the fiscal imbalances, a more productive economy will ease the trade-offs that we face. it will help us lead a healthy economy to our children and grandchildren. thank you mr. chairman. >> thank you. we agree completely with the last part of your statement which is if we do not get the house in order it will get ugly fast. also, i want to sully you to have a more transparency on operation of the federal reserve.

the latest statement clearly was an attempt to put your policy on the table and let the country see it. it is in the policy i have a couple of questions. early on he put an inflation target rate of 2%. that puts more clarity. but at the end of the statement, i will quote it -- in setting monetary policy, the sea to mitigate inflation from its longer-term goal. these objections are generally complimentary. under circumstances under which the committee judges objectives are not complementary, it follows a balanced approach and promoting them taking into account the magnitude of deviations and a different time horizons under which employment, inflation are projected to return to levels in just consistent with the mandates. here is what i do not get. it seems as if you are moving away from an inflation target with that kind of a statement.

at best it is ambiguous, at worst it says if the deviation is higher than unemployment, it follows my interpretation is that the fed is willing to accept higher levels of inflation than your preferred rate in order to chase your employment mandate. is that we should interpret out of this? >> know, i would not say that is correct. 2% is our definition of price stability. as part of our mandate we want to achieve 2% inflation rate in the medium term. monetary policy works with a lag. we cannot achieve it every day or week. over a period of time we want to move inflation back toward 2%. we are not seeking -- we will not actively seek to raise inflation. we will not seek to move away from the target. we are trying to bring inflation back to the target. the only sense in which there is a balance -- looking at the two sides of the mandate, the

rate of speed, the aggressiveness may depend on some extent to the balance of the two objectives. we are always trying to return both objectives back to their mandate. we are not seeking high inflation. we do not want higher inflation. we are not tolerating higher inflation. the core mission of every central bank is stable prices. it is a necessary precondition for economic growth. you and i talked about mandates single versus double a lot. if we were going to say we will not look at the deviations between the two. if we are saying that we think full employment is 5.2%, we're clearly above that. at your pc e we are closer to where your inflation target is, i do not know how else other to interpret this then the result of this balanced approach is that higher inferred inflation will tolerate -- not that it is desired but it will be tolerated. i will simply just " paul volckler who said central bankers who are willing to

tolerate a little bit of inflation and at getting more than expected. my concern is that this appears less to be an inflation targeting statement and an inflation equivocations statement. we are now targeting deviations. that is the concern. with this statement was released we saw a buildup of commodity prices, even though i think you said recently that demand is down. therefore, commodity prices should be low. my basic question is, if this is our interpretation and we have a spike in commodity prices that occurred after the statement was released, is that not the market's interpretation of this? >> first of all, as we say, the

two size are basically complementary. we agree that low inflation is good for the economy. is good for growth and employment. we think most of the time there is a complementary relationship between those two. the actual results you mentioned -- you discussed earlier, the responsibility of the central bank for the dollar and for the price level, inflation currently looks to be very well controlled. our expectation will adjust policy as needed. our expectation is a flexible be below target over the next couple of years. unanticipated events can happen. the dollar has been pretty stable since the crisis. i do not think you should read into this and the unwillingness to keep price stability as a critical goal of the central bank. all central banks take into

account to some extent the overall state of the economy. over the medium term they seek to return inflation to the -- to its objective. that is what we are trying to do. >> let me turn to quantitative easing. the federal reserve has applied an unusual and unprecedented amount of monetary easing for a long period of time, not just during the crisis moments but well after that. now apparently through 2014. by buying down treasury rates, is it your view that this is putting an artificial cap on price discovery and the treasury market's? is that not lolling fiscal policy makers into a false sense of security when true price discovery might give us the with a call we need to get our act in order to fix our problem. are we calling ourselves into a false sense of security by this

intervention in the treasury markets? >> first, quantitative easing the is very analogous to the usual policy of cutting short interest rates. that also lowers longer-term rates. it is a way of trying to provide more support to the economy. our policies are hardly unusual. at this point, almost every major industrial central bank excluding canada which had less of a recession that we did has a large balance sheet and low interest rates, including the ones with a single mandates. again as i mentioned, we not having any signs of higher inflation or a declining dollar, in terms of the issues relating to distorting the bond market, the objective of the policy is to give rates lower to

provide more support for the economy and to bring inflation up to target if necessary. i think the basic reasons for long-term rates, which are also a feature of every other major industrial economy, are low inflation, slow expected -- slow expected growth, and the fact that the dollar is a safe haven. with problems in the world, people are investing in u.s. treasurys because they are attracted. it is important for me to say that if congress is being lulled, they should not be lulled. the attention is to be paid to these issues as is the case to some of the countries are referring to like greece and portugal suggest, if investors lose confidence the rates will go up. there is nothing the central bank can do about that. it is important for congress to address these problems. i have spoken out about it quite consistently.

>> i think we would agree that we think sustainable long run economic growth to rise from savings and investment. i knew you well enough to know that we more or less agree with that. do you measure the effects that these policies have on savers -- on people living on fixed income, on cds? are you concerned at all about the very low interest payments that these savers are getting from these kind of fixed income assets which are hitting our savings and investment side of the economy in exchange for helping the borrowing and consumption side of the economy? >> we are quite aware of that issue. we hear a lot about it. we consider and think about it. i recognize that for people on a fixed income or people who has a meaning come interest on cd, i recognize that imposes a hardship.

the purpose of our policy though is to create a stronger economy. savers' collectively hold all of the assets, all of the capital in the economy. if you do not have a strong economy, if you have a weak economy you will not get good returns on all the other assets. >> my time is running out. let me give you a sense of this. a lot of us believe that the federal reserve was to lose for too long and enter the 2003- 2005. -- in the 2003-2005 period. i know you do not agree with that, but because you do not agree with it our fear is you will create the same mistakes again but buy orders of magnitude we cannot comprehend or not. the federal reserve preprimary goal is to manage the money is involving itself in fiscal policy.

it is bailing out fiscal policy because the branch of government in charge of fiscal policy is not doing its job. a budget has not passed congress in two years. we're going to pass the budget, we did one last year. there is nothing in the senate. fiscal policy is not being done away needs to be done. that is not an excuse for the federal reserve to step in and try to bail us out. that can be done at the expense of the priority which is unique to the federal reserve of maintaining our currency as a reliable store of the value. we fear that these exercises and these new ambiguous statements will compromise that. that is the point i'm trying to make. >> thank you. thank you for your testimony. you laid out what i think is a very clear two track strategy.

the first is recognizing the fiscal and budgetary challenge that we have. i think there is agreement on this committee that we need to come up with a predictable stable way to reduce our deficit and debt. we have had disagreements over how we do it, but not whether we do it. there are two lessons i think from what we see happening in europe. one is the debt crisis that if you wait too long to address the issues, you are right. you're borrowing costs are going to go up. you're going to lose faith. we should heed that as an early warning and not to delay putting in place those predictable changes. but your testimony also pointed out there is a danger in over reacting to that in the near term in terms of the negative impact that could have on economic growth. the other strategy that you

have laid out is the need to nurture this very fragile economy we are in right now. if you could just briefly talk about some of the lessons we have learned from the european experience, recognizing the that the debt crisis and early warning system, but the austerity only and immediately approach, some countries cannot avoid it like greece because they have themselves in a fix. talk about the fact that an austerity only and immediate deep cuts, whether or not that can have an negative impact on the very fragile recovery that we're having. >> the european situation is complicated among other things. they have monetary union and a fiscal this union. they do not have the same kind of situation we have here. you are correct also that there are some countries like greece and others that have very difficult fiscal sustainability issues and they have tried to address them in the near term.

i hesitate a bit to advise my colleagues and enter europe. i cite to the imf and others very slow growth that makes fiscal growth more difficult. it is important to try to figure out what the right balance is there. i want to be very clear. i do not want anyone interpreting me saying anything other than the this congress has a very difficult and important job to address the long-term fiscal sustainability of of our federal budget. that is a critical thing. i think even more aggressive strategies that had been pursued recently are warranted over fiscal sustainability of our federal budget. that is a critical thing. i think at even more aggressive

strategies that have been pursued recently are warranted over the longer-term. i cite to the imf and others very slow growth that makes fiscal growth more difficult. it is important to try to figure out what the right balance is there. i want to be very clear. i do not want anyone interpreting me saying anything other than the this congress has a very difficult and important job to address the long-term fiscal sustainability of of our federal budget. that is a critical thing. i think even more aggressive strategies that had been pursued recently are warranted over the longer term. i thing that can be done in a way that is persuasive to markets. it is not quite a jolt the recovery -- it does not do it all at once. i think that as long as there is a credible strong plan over a long period of time and we move into that plan, we will achieve most of the objectives of fiscal sustainability. we need to avoid doing harm. doing no harm is an important piece of advice i would offer you. there is a balancing act that i think is important for us to pay attention to. >> thank you. as you pointed out, those two goals are totally consistent. sometimes the get modeled in the message.

sometimes people here and interpret the need to prevent doing harm to the fragile economy now as meaning we should not move ahead on long- term deficit reduction. of course we should. you can do things at the same time. if you undermine the fragile economy as the imf has warned is being done with certain fiscal policies at enter europe, that creates an even bigger hole. i apologize, i have to leave to go to the conference on the payroll tax extension, if you could comment on whether or not fair to extend the payroll tax cut for 160 million americans and whether to extend unemployment compensation -- whether failure to do that would be a drag on what is already a very fragile economic growth? >> congressman, i know you

appreciate that i do not endorse individual tax and spending policies. i think that is a good approach for me to take. obviously, you need to look at the whole picture. i agree with what you said before. you cannot do one and not the other. you cannot say, well, we have to protect the recovery. we completely put aside all fiscal -- approaches to fiscal sustainability. you have to do both simultaneously incredibly. i think it is a question of balance that is important. >> just a follow up. as i look at your gdp grumblers -- your gdp numbers, it seems pretty clear to me that they assume some extension of current policy. i am not saying specific numbers, but there are differences between those and cbo. cbo had to assume current law and assume we do not extend the

current payroll tax cut. all the tax cuts at the end of the year including middle income tax cuts laps. that is one of the reasons the cbo economic projections are lower than yours. >> thank you, chairman. i will yield the time. >> we are going to allow mr. dogget to continue and it will go forward. >> thank you for your testimony. just continuing along the same line of questioning -- chairman brian has expressed some concern that under certain circumstances the fed has a balanced approach. do you believe that the fed is having any difficulty in a cheating the growth of employment and price stability? >> i think there is evidence on the employment side we like to see greater progress than we

have seen. on the inflation side, i am very confident of chairman ryan's concerns. at least for now we appear to be pretty close to target. i think what i would say about that, of course we will have to continue to evaluate monetary policy as new data comes and and so on. i said before and i think it is important to emphasize monetary policy cannot do everything. this body and others who need to think about troubling parts of the economy and places where improvements can be made in tax code or in other areas. again, to answer your question, we are not satisfied with where we are. we look to ny we will continue to do what we can to meet our dual mandate.

we hope that all of you and the administration will look for alternative ways to strengthen our economy. >> you have the capacity to recommend to the congress to alter that mandate if it was interfering with the objections. >> i think the dual mandate has worked fine. we have as good an inflation record as any other central bank. i do not think it has been a major problem. i think it served us well. with that being said, congress created the fed. congress gave us our mandate. if you determine you want to change it we will do whatever you assign us to do appeared >> to determine how to implement the mandate.

he said with reference to price stability, a goal of 2% is your goal. with reference to unemployment, did i hear you say 4.5%-6%? >> the difference between inflation and unemployment is the fed can control inflation in the long run. we cannot control unemployment in the long run. that is determined by many other factors and policies that we do not control. we cannot set an arbitrary targets but we can try to make our best guess on the what levels of unemployment the economy could sustain over a period of time. 5.2%-6% is our best estimate. >> while we would certainly be delighted to be at that range today or at the end of this year, that still is a substantial amount of unemployment, is it not?

>> certainly. we have very high levels of unemployment. we have not come remotely close to replacing jobs lost in the recession. i think we all agree that unemployment and underemployment and people leaving the labor force and all of those things are serious problems. >> all i am saying is that the objective that you have set in implementing the goal -- >> you will have another five after -- >> let me just finish on this one. . the objective you said is not an overly demanding objection as far as unemployment here >> will let you answer that another five minutes. >> so i heard your answer, you said you normally do not like to give a comment with regard to fiscal policy. i thought, really?

is that still your opinion? i was really taken aback recently when the fed issued an unsolicited white paper on housing policy. you certainly mirrored much of the positions of this administration. i dunno how the two go to get it. here you had a white paper that was not solicited. i know you are protective of your independence. would you advocate for a position like that, why would you issues such a paper? >> is important for the economy and monetary policy. we are being supervisor so we are -- >> let me ask you this. congress has a lot of interest in monetary policy.

is this an invitation that we should be issuing resolutions to what the monetary policy of what the fed should be doing? >> i hear lots of advice from congressman. can i say the bottom line here. we have got a lot of requests for our views and analysis. it was not the intent of that white paper to provide a set of recommendations. it was not a list of recommendations. we were trying to provide pros and cons, analysis backgrounds. i am sorry if you think we went too far. >> within 24 hours after that, gov. elizabeth duke was advocating those positions. you cannot be on both sides of an issue. saying this is what we think and then the governor's coming out saying they are advocating.

if it is because you are saying members are asking your opinion, we were asking your opinion -- we would like to have seen a white paper back when the presidents colossal failure with the stimulus was going through and we would have liked a white paper to say or how that would have worked out. why do we not see a white paper at that time spelling whether this would work? >> again, i know you are skeptical but we are trying very hard to avoid encroaching on congress's fiscal responsibilities. with respect to what you said about gov. duke, they are not representing any official member of the board. there are speaking on their own recognizance. if you pay attention to the speeches they give, there is a wide variety of opinion even on monetary policy. there was no official endorsement of the positions. we are trying to provide useful

background. i apologize if it was misinterpreted. our goal was to be helpful. >> i guess i would just take off with the chairman was talking about. you have two mandates in the area of employment and monetary policy. we have a mandate in the area of fiscal policy and we would like to retain that. let me go to another area. you do have a responsibility -- you are the owner of about one trillion dollars write-down of mortgage-backed securities. wearing that hat, can you comment on the presidents proposal of the 35 plan. what have you looked into that? >> we have not been the specific calculation. i am not going to endorse or not endorse -- >> do not endorse the program, what is the cost to do that? >> there are costs as the president acknowledged. there are costs to it. it would have to be raised some

how whether from a bank tax or some other way. he mentioned $5 million or $10 million, we have not looked at that and we -- >> your the investor in this situation. you bought these at a premium. have you begun to look at what your cost would-be? >> i think it should be acknowledged that although the rates have been refinanced -- extremely low over the last couple of years, it is reversing the game that we got. you are right. there are costs to the program. there costs to investors. their costs to the government potentially pierre >> that is one area we would like to have specific for mission back on. also, as a regulator what the impact would be to increase the fees on them. >> let me just returned to the last question. many in congress would think unemployment of 5.26% leaves

many people out there hurting badly in an economy. is much better than where we were today. and setting your goals of trying to avoid excessive price instability and inflation, you have not taken a drastic position on unemployment. you tried to have some balance between the two, have you not? >> and there is nothing in our statement that suggests we think 5.2%-6% unemployment is desirable or a good outcome. which is a given were the economy is today, that is what it can sustain under more normal conditions.

there are many policies congress could consider with work-force skills and other things that might affect the long-term unemployment. >> under your estimates on what type of growth you will see in the near term the are in your testimony and reports of the fed, what assumptions to those estimates make concerning fiscal policy and where the congress will be? i understand you are not getting into specific bills. >> in order to make forecasts, we make guesses about what congress will actually do. there is no endorsement or non endorsement involved in that. basically the cbo presented to the kind of extreme proposals. one is the current law proposal which assumes all the tax cuts are ended. there was an alternative scenario which took the most --

>> we had testimony by both yesterday. >> all the tax cuts were extended and -- sort of the opposite approach. our numbers are based on an intermediate level that assumes some of these policies are undertaken and not all of them. we try to make our best guess. it is only staff guesses about what they think congress may do. i do not think the forecasts -- the details are particularly helpful to you. you're going to be trying to figure out with the right thing to do is. >> with regard to an issue we discussed when you were here in the committee before on whether the policies of the financial community concerning the rest rewards and compensation for taking excessive risk remain a problem, you finally issued a report in october dealing with that. it indicated that there had been some improvement, but among the largest banks there continue to be a number of problems with

regard to risk taking and how that leads to rewards from some of those taking the risk with other people's money. can you give us an assessment of what is happening since the report came out in terms of what progress is being made to deal with the issue that many of us are concerned could lead to another financial meltdown? what's the federal reserve undertook even before financial reforms passed by the congress, we undertook to look at this as a safety and soundness manner. early on we began working with the boards and the compensation committee's of the major institutions to try to structure their compensation in ways that did not lead to more or excessive risk-taking. i think as the report suggested, we made a good deal of progress. it really is about that time of the year when a lot of the information is finalized in

terms of what the compensation packages are going to look like. we continue to make progress on that. we continue to work with the banks. as i said, i think a lot of the major institutions of taken serious steps in this direction. i would point out in addition to that to beyond the actions of the federal reserve took independently,dodd frank requires other regulators to establish incentives can -- standards and that role making progress -- process is underway.

that will eyed -- add to the guidance we have already provided. we have seen progress and we continue to work actively with the banks in everyone's interest to make the banks safer and reduce the risks to the taxpayer. >> does more need to be done? >> will continue to work on it. as we said in our report, we do not think we are where we need to be necessarily. there is a lot of interesting questions. this is an active topic of academic research about how best to structure pay packages,

what kinds of -- what role should stock options play. >> we are in a situation where there are consequences that no one will be willing to attack. the sad thing is that both parties sit and demonize each other, no matter what we try to do to address this problem. we called the democrats' tax- and-spend liberals. they try to show us pictures of paul ryan pushing granma off a cliff. unfortunately, that does not solve the problem. when everyone in this room and everyone in this committee knows what has to be done. we have had several commissions that have looked at what need to be done. they almost universally say that we have to get to $4.60 trillion in savings to impact the long- term debt in this country. we all know that we have got to restrained discretionary

spending. we all know that we have to get entitlements under control. and we all know that we need a pro-growth tax policy in this country. one that fits the 21st century. we all know that. we might have some differences as to how to do these things, but we all know that the problems exist and we have to come together. we need an armistice to solve this problem. if we do not, all of these other things that we talked about are not going to matter, are they? >> that is correct. it is striking that when the u.s. debt was downgraded by s&p last summer, it does more about what they cited as the political concerns about the ability of the congress to make progress. it is easy for me to say, obviously recognizing that politics is a tough game and there are a lot of disagreements

in congress, but the more that can be done to show cooperation and collaboration on this important issue, i think we all agree. >> i was surprised, this first of january, when i was in new zealand and the philippines, talking with business officials there, i was surprised that they were watching congress. they are worried about our inability to get together and solve this problem. they're worried that the problem with extend to them. i was surprised that they followed us as close as they did. let me ask, do you believe that -- believe the general assumption that we need the four to $6 -- $4 trillion to $6 trillion in savings to give us headed in the right direction? sometimes it is hard for us to explain to the public what could potentially happened.

paint a picture for us of what you think could happen if we do not take the steps necessary to stabilize our debt. we have been kicking that can down the road forever. >> the $4 to $6 trillion was talked about over the next decade. maybe achieving progress there, i was supportive of going big, when we the country discussed these issues last summer. the initial attack on the deficits was needed. the $4 trillion to $6 trillion number, the biggest problems that we have were beyond the next decade. they stretched out through the

entitlement costs and big game -- began to rise. some would say adversely. one thing that i would urge you is to not just focused on the family, but the 10-year budget issue. this is not even all phased in yet. the more time the you give people, the slower the process, the more warning, the more likely it will be successful politically and economically. in terms of the implication for the economy, the scenario that we have, when the economy recovers with higher interest rates and higher borrowing abroad with a slower growing economy and productivity gains,

the bad case scenario that will ultimately happen if we do not change trajectory, based on countries in europe, investors will begin to lose confidence that we can manage our long term fiscal situation. we will see sharp movements in interest rates. changes would have to be made. but in a much more chaotic and destructive way than by doing a in a long-term fall away. >> thank you. >> i cringed a little, with my good friend from new jersey. he managed the monetary system

and were purposefully an independent agency trying to invent -- insulate the notion that you were at the beck and call of congress. my understanding is that that is the structure in place to give you that independence. am i missing something? >> congress set us up in a way, through governors and so on, to try to create independence through monetary policy decisions. we had a number of supervisory roles and so on, but i want to be clear to this committee that our intention was to try to provide useful backgrounds on both sides of the issue. we recognize and have no doubt that this congress that has to make those decisions. >> having been here through the

stormy weather, looking at these events, the notion that somehow you might ask the fed to come up with a report on the recovery act, there is an independent agency called the cbo that we set up to give us that who produced such a report. they said that it raised real inflation adjusted gdp, that it lowered the unemployment rates, that it increased the number of employees between 400,002.4 million, increasing the number of full-time equivalent jobs by between half of a million dollars and 34 $3 million.

you may not like the answer, but asking an independent agency to do this is not going to give us any further down the line. i was personally struck by what my good friend from idaho said. as usual, he is making sense -- it to a and that it is not that hard that we could do things to rein in military spending after this. we could, in fact, moved to have a health care system that rewards volume -- value and set a volume that meets the test. the real test is 20 years to 30 years.

able toeful that we're focus on this, looking at things that actually enjoy bipartisan support that make a difference over the next quarter-century, without having the picture that was being portrayed today and yesterday by independent experts. i just feel from the bottom of my heart that this is something that we should be focusing on. particularly the notion that we're looking at the longer term. the real challenges are beyond that. that is where the savings have to occur. that is where it's easier, not harder. i think you have done an extraordinary job trying to

balance being more transparent in what you're doing without adding fuel to one fire or the other. i appreciate your continued patience coming here. you do it with good humor. i do not know the we have subpoena power, but we could focus on the lessons that we have learned, or should have learned, in terms of getting to it. >> [inaudible] [laughter] >> the gentleman's time has expired. [laughter]

>> thank you, mr. chairman, dr. byrne anke. you do make policy pronouncements on housing. i am deeply involved in trying to restructure the housing market. as much as i wish that he would weigh in on the side of the proposals that i have made, you and the fed have been quite judicious in not doing that. what you have opined on, and what i would ask you to say in your own words, is the importance of the housing market and housing recovery, if we wish to have a robust economic recovery with job growth. would you care to comment? >> this is the reason that we have housing committees and a bunch of staff and governors

that are looking at this all the time. i would say that one of the main reasons that the recovery has been as disappointing as it has been, usually housing provides an important amount of the impetus to growth. all of the related industries and services are tied to housing. in this case it has been very weak. we have seen a few small, positive indicators that a regular level. so, the housing recovery would be a very important boost to the overall recovery. it works in a number of different ways, by affecting the wealth of consumers and their financial well-being. the mortgage market, with problems to access credit, for example, being the federal reserve monetary policy, not as many people as could be are

taking advantage of the low mortgage rates that we are trying to create. there are a lot of other implications for borrowers and lenders. clearly, continued bad conditions in housing markets, with implied foreclosures and people that cannot move or sell their houses. there are a lot of costs on the household level as well. i do think that the lack of housing recovery is one of the reasons that recovery has not been stronger than it has been. >> without advocating specific solutions, kind of like on the budget deficits, something that which something to which we should be paying policy attention -- >> it would repair -- repay your efforts to remove the barriers to housing. i think that there are a number

of legal and administrative, regulatory barriers to housing being as strong as it should be. >> speaking of, what you have commented on in the last 30 to 60 days, this recovery or positive solution in europe, is it closer or farther away, in your view? we cannot control this, but if what they were to have a failure of some sort over there that was not well constructed or whenever, could you comment on where you think europe is today and the impact you think it would have on us, and if we could not control it if there was a failure implied? >> there have been a couple positive developments. european central bank has provided extensive financing to

the european banking system and will price another round of financing at the end of this month, which has had the benefit of reducing some of the stress to the banking system, even going so far as to break down the borrowing costs for the more fiscally troubled countries as well. it has taken away the financial stress. there's also progress made in terms of the international agreement in the eurozone, with fiscal policies to give long- term agreement in individual countries. those are positive things. there is an awful lot that remains to be done. we do not know how those will come out. the banking system remains under-capitalized.

credit has been contributing to a weakening economy in many countries in europe. i think that the backstops that are needed to protect one country that has problems, to protect others from contagion, the europeans have been setting up financial backstops to do that. more work needs to be done there. it is important to conclude that there are some deep, fundamental problems. not just fiscal issues, but issues of competitiveness. greece and portugal is not of all competitive. they cannot change the value of their exchange rate. it will be a difficult process to get to this more competitive

situation. there will be slow growth for quite a while. >> thank you, mr. chairman. >> good morning. doctor, the economy is creating jobs. we have had 22 months of private sector job growth. it is very noticeable at home in florida. 2007-2008, the headlines were devastating about companies closing and people losing their jobs. it was noticeably different last year, with stories about companies hiring. it is pretty steady right now. it is obvious that we can do better. in your testimony you said that

there was a more robust recovery that would lead to more deficits and debts. there are ways to reduce the debt and the deficit. it was noticeable, doing that in the budget control act, that we needed to do more. there was common ground we could find there. the doctor from the cbo testified that we would have a lower deficit. using technical language, the under-utilization of capital and labor in the economy. if we had better utilization, we would have more people working. the projected federal deficit

in 2012 would be one-third lower. the deficit would be equal to 4.0% of gross domestic product compared with 6.2%. if the economy were operating its -- at its potential, income and revenue would be higher while the rate of unemployment, therefore the outlays for certain government programs would be lower. the frustration of the folks back home, reducing the deficit and putting people back to work, they have not been able to get off the dime to come to a common agreement. give us some words of wisdom on this. what do you believe is the most effective policy option, thereby

lowering the deficit. >> glad to hear that the town is better in florida. that is good. obviously there has been some progress, although slow. the first is that whenever we do, for long run sustainability, we have to keep our eye on long- term, with a credible plan in place that moves us toward stability and sustainability in fiscal policy over the next few years. we have to keep that on the table. that is always important. secondly, we have to avoid, if we can avoid, unnecessary disruption to the recovery. that is important.

without addressing any of the specific policies involved, i think the congress should be aware of that, trying to avoid having too big a hit on the recovery. finally, without taking specific policies, my third point was that fiscal policy was not about total spending. are they want to help our economy? do they support are in d? other things that will help the economy grow in the long run. are we heading towards a more efficient tax code that is simpler, fairer, and light?

if you want to look at the top lines, and this is easy for me to say, but it makes a different in the policy of the programs. it makes a difference in terms of jobs and growth. >> i wanted to thank you for the role the played in the tarp situation, as well as the transparency efforts to restore public confidence in the fed. i think that a lot of people, the fed, the sec, congress would have a lot to answer for. in a moment of crisis, i think you did a terrific job for this country. thank you. you laid it out, pretty

compellingly, the fiscal challenges that we faced going forward. that is what we wrestled with in this committee, more than anything else. let me try to get your opinion as to whether it is appropriate. first,ou mentioned spending restraint. that is beginning to happen. year, the budgetet years in a control act going forward, it will be let out a little. we can argue about whether it was good policy or not. but we did have long-term spending cuts in some fashions. there are lots of signs on the discretionary side where we are beginning to see some discipline that is likely to stay here for a while. second, on the revenue front, the president obviously extended tax cuts for a few years.

he had the authority in january to do pretty much what he wanted. and he thought that we needed those tax cuts for another few years. the board in exchange for unemployment, obviously the payroll tax holiday -- he signaled, come january next time, we will have a revenue increase for high income. he will have the ability to choose that. i hate to do this, as a republican, but he is in the position to do that. that will be a revenue increase, of sorts. will it be the kind we are talking about, the long-term structural deficits that you described?

>> i do not think that standard calculations would support that. discretionary spending is not particularly high as a share gdp relative to history. i think you can cut it pretty close to zero, focusing only on discretionary spending, not by itself. only on the revenue side, not the tax side. there are many arguments for and against changing the taxes. by itself, that has not close the budget deficit either. we need a much broader set of policies. i think that the elephant in the room is really health care

costs. as i mentioned in my testimony, we are headed towards 9% or 10% of gdp, with another 8% or 9% in private health care spending. that is a broad issue that affects the budget and the efficiency of our economy. i do not think that we will get a real solution without addressing the problem. >> obviously, we have had the ability in this congress to do exactly that. i suspect we will do something similar this year. that decision has not been made. we have a lot of commissions that put out a lot of ideas. were you aware of any other elected officials that passed or proposed, as the president proposed, long-term entitlement

spending? >> i do not know of any comprehensive plan. as you pointed out, there were a number of commissions, but even those commissions were not fully detailed. i do not think that bowles simpson had a lot to say about health care. that is where a lot of the serious work has been done, in think tanks and the like. >> thank you. >> i can appreciate that this is not an easy task.

it is not an easy task for this committee. the first chart, mr. chairman, we have heard a lot about how some people can pay 16%. lower than firefighters, teachers, and police officers, as an example. i understand. using it on investment income, rather than hiring 35% in wages. we have been told that increasing the rate on capital gains will discourage investment. warren buffett said that he had worked with investors for 60 years and is yet to see anyone, not even when capital gains rates were 39.9%, back in the

mid-1970's, he has never seen someone shy away from a sensible investment because of a tax rate on the potential gain. people invest to make money. potential taxes have never scared the mall -- scare them off. according to the product account tables, the top tax rate on investment income significantly changed over the past 80 years. i have heard you speak about this many times. it was as high as 39.7%. in 1976. today it is 15%. yet, investment grows with the cycle. chairman, in your opinion, the changes in the cap -- capital

tax rate mainly affect investments already made, rather than new investments being considered? the latter is what drives growth. what is your opinion? >> well, you are pulling me into a complex topic. so, the economic theory says that you should tax consumption rather than saving and investment. that is the rationale for lower rates on capital gains and capital income. that is a theoretical results with a variety of investments that you are alluding to. it is hard to pin it down, exactly. there are many other issues

related to this. on the one hand, the low investment tax income, as i said, can be invest -- adjusted by investment theory and personal tax integration, and so on, but i think that congress has the appropriate tax to try to balance the lower taxes on capital income against considerations of equity. against considerations of limb -- of the implementation. there are some complex issues on both sides. to try to answer your question, i think that there is certainly , while there is disagreement in the literature, there is some affect on the rate of return, after the tax rate of return on investment decisions, there was

a lot of disagreement about how strong it is. >> d.c. it not just being the rate on capital gains being so much lower than the rates on earnings -- we could discuss that at length, because we have seen so little turnaround in the last 57 years on what we do tax, as well as one that feeds income earners in terms of income tax and the profits for investments. the problem, amplified and debated to carry interests, encouraging tapping the difference. what is your opinion on that? >> the time has expired -- expired. >> can he answer the question? >> i would punt anyway, i think. [laughter] it is a complicated question.

>> i do want to comment on warren buffett. a financial guru making recommendations, for some peculiar reason that i am not quite certain of. a gentleman who pays himself in income of $100,000 and has never contributed anything, doing that each -- with every can not to pay taxes. i want to turn our attention to the european situation. with concerns about the health of european banks and the availability of credit in the euro area, resolving these problems being quite a concerted action on the part of european authorities. do you believe that loans to european countries today create

greater risks than they did two or three years ago? >> when you say countries, do you mean to the government? sure, they do. and you can see it in the interest rates that they have to pay. >> please explain the exposure of the united states and what it is to that credit challenge. >> in the official sector, the united states is a 15% shareholder of the imf. the imf is involved in programs for the three small countries -- greece, portugal, and ireland. the imf does have a very good record of being paid back. they have a senior position in

the debt of those countries. they are engaged in making sure that those countries have perfect policies. as i have explained in previous venues, there is a swap line with the european central bank. the european central bank is highly creditworthy, and is owned by the central banks through all of those countries in the eurozone. it is a swath of currency, -- swap of currency, rather than a loan, perce. they lend the proceeds, and from an exposure point of view, they take all the credit risk and exchange-rate risks.

>> are you able to quantify the exposure of the u.s. taxpayer through the imf? >> i do not have the number, but it may be in the tens of billions? do you believe that it is appropriate for the fed, hence the united states taxpayer, to have a greater exposure through the imf? or are we about where we should be? >> i think that the imf plays an important role in helping to stabilize these countries. the administration, the treasury secretary is our director. he has the most responsibility for the imf and he has been clear that he is not supporting an increase in u.s.

contributions to the imf. his view, as i understand it, and you should speak to him of course. it is up to the europeans to take the necessary action to stabilize the situation. >> the comments that she made about health care, medicare, medicaid, our discretionary budget is about $1 trillion. the model deficit is greater than $1 trillion. all discretionary spending, they cannot even get to a balanced budget. >> part of the trillion dollar deficit, cbo's suggesting that

if the economy returns to normal by 2015, the debt will be more in the order of 10% to 5%. what i said before is true. discretionary spending, it is not arithmetically possible. >> thank you. chairman burning key, thank you for the hearing before the committee. i represent a part of upstate new york that hosts the third fastest growing high-tech jobs in the country. we have a higher share of our workforce, these are not just talking points, they are

realities of paying bills for many families. i am providing the cluster that is currently under way, i am interested in your comments about these things that need to be part of a response to a troubled economy. in the development of skills in the labour forces consensual -- of labor forces in a public infrastructure, with more work in the policy development, we saw what happened when people brought it all together and enabled us to experience this comeback. interestingly, when i arrived here, in these given dynamics

that you mentioned, could you develop further for us the benefit, the value added that comes with this focus on r&d, skill sets, and infrastructure? >> there is a lot of evidence of clustering that could be beneficial issue, as described, with a number of high-tech issues in the industry. they could share ideas in the workforce and the like. the public sector has a role there. one of the great strength of the united states is the university system. many of these high-tech there is a lot of exchange between scientists and professionals in the private sector. the u.s. government has many --

supports university education in direct and indirect ways. it supports public indication for younger people. high-tech industries require skilled workers. people who are conversant with math and science are important. there are some important roles. infrastructure is a topic of debate. most people agree that there is certain kind of and for stricter that the world -- the government has a role in providing from roads and public crime and firefighting services and a pariah to of things. to the extent that can support activities, -- and a variety of

things. to the extent that that can be supported, that is an important thing. i spoke to some people about the role the government can play. it is an issue debate among the economists. without any government intervention, basic research may be under provided because people doing that do not share in all of the benefits of that. there may be some case for government encouragement for basic research. you have research and development tax credits. that is one way. there are other ways as well to support research and development. the lesson of experience is that industrial policies tend to dictate what products are not generally successful. there is often a role in

government partnerships to create the basis where private sectors can be productive, particularly in high-tech areas. >> do you have a sense of how we might fare with the international community in terms of r&d investment? >> we do pretty well, including public and private. we are the biggest absolute amount -- we have the biggest amount in absolute terms in research and investment. we have a high percentage of gdp as well. some emerging markets like china are beginning to approach us. we remain the r and d leader. >-- we remain the r & d leader. >> talk about policy responses.

you are worried about the federal government's fiscal responsibility. we do not have to reinvent the wheel. if you look at this chart we have on the screen, you can see the difference in recoveries during the 2007-2011 timeframe. there was an op-ed in the wall street journal this morning that said if we had just follow the same policy that reagan's fault when he inherited a bad economy, we would have 17 million more americans working today and our gdp per family would be $23 -- $23,000 higher. the constitution says the federal government has certain basic responsibilities. we have to provide for national security. some people feel we have to provide for basic research.

everything else is on the table when you look for it. my questions are simple. can you give me the abbreviated reader's digest response if you can. who is the better allocator of capital to the greater public good? is it the private sector or the federal government? >> as i was saying earlier, there are some areas where the federal government is the only provider. for innovative industries and those sorts of things, it is generally agreed that the private sector is better. china is an example of a country that has a communist party running the show. they allow private sector activity a large role in the development of new industries. >> you have the difference between private sector investments like the keys don't

pipeline versus public-sector investments like solyndra. that one is pretty obvious at face value. the federal government does a pretty bad job at allocating resources. do you think it would be better for the private sector to allocate resources instead of the federal government? >> because of the profit motives, the federal -- the private sector is often better at innovating. i do not want to get into the keystone situation because they do not know much about it/ it in -- it. >> i was not trying to get into the weeds. you have a private investment of $17 billion and thousands of jobs created. then you have $500 million in tax payer money spent and no jobs.

>> you could point to situations where government investment in the space program or the internet were paid off for the public. we have a market economy and we want to use the market wherever appropriate. >> looking at the stimulus plan, if you use the most aggressive, optimistic numbers that job creators have been promulgat ing, the number of jobs is $400,000 per job. should we have said, private- sector, we are going to leave those stimulus dollars in the hands of the taxpayers instead of cycling them through washington. would that have created a better economic outcome for the united states? >> it is hard to say. we were in a deep recession. one of the differences between this recession and the 1982-1986

is that the fed's tightening to reduce inflation was one of the reasons for the 1982 recession. rates are 0 and we cannot do as much as they did in the mid 1980's. i am sorry. the other thing i would comment on is, dividing the total cost by the number of jobs is not exactly the right way to think about it. the total cost provided the provision of what was constructed. >> at a macro level, what would have been a better policy response? what would have produced a better economic benefit for the average american? $800 billion in the hands of the

taxpayers? >> there are times when monitoring fiscal policy can help create better employment. the private sector is where the decisions about what industries and what products should take place. >> back to the chart that we just had, can i ask that it be put up again even though it was not my turn? chairman bernanke, some of my colleagues are talking about the reagan recovery a lot more. when you talk about recoveries, he also have to talk about how you got in the position you are in. they said had interest rates to work with during the so-called recovery. not so called. we did recover during the recession. it is important historically to point out that what we are facing right now -- we had two

wars that went on credit cards. we had a housing collapse, which roiled into housing being the last leg of this recovery moving forward. you cannot compare the two saying the same solutions would have worked for this recovery. the other question i might ask you, would you say that 2007 is a fair starting point for talking about where the recovery started on this chart? >> no, december 2007 is the beginning of the recession. the recovery began in 2009. this has been a unique experience, this last crisis. we have never had a housing boom and bust that had such an impact on the financial system as this

particular example. the financial crisis was extraordinarily severe. we can close to a total global meltdown. people can disagree about how much that has held back the recovery, tight credit and mortgages and other areas have been part of that. the policy issue is an important one. mortgage rates in the early 1980's were 18%, or something like that. letting interest rates come back as inflation came down was certainly part of why the economy bounced that quickly as it did. housing was one of the areas that bounced back. there is some comparability with all the sessions. >> thank you, mr. chairman. in my remaining time, i'd like to go back some of the discussions we had about our weak interaction -- our interaction on the international

market. i believe we need a balanced package of revenue, spending cuts, and that as a robust discussion as how -- as we move slower. some of my colleagues want to implement deep cuts -- as we move forward. some of my colleagues want to implement deep cuts. i had a meeting with ford motor company couple of weeks ago. they said, if we had an interest the -- an energy plan that would determine that ford would go gangbusters, if we have an energy policy that countries like japan have an energy policy, the eu came out and decided to go diesel, that would help our business sector be part of global competition and the way forward that was competitive. can you talk about energy policy

as a determinant for our country to embrace one and to allow our businesses to move forward together? board said when they knew they had to build diesel, they could build the but -- ford said when they knew they had to build these up, they could build the best diesel cars. we left them up in the air. >> companies would like to have clarity about what energy sources are going to be used and how the government is going to tax or subsidize different types of energy. the main issues there are environmental as much as anything else. japan has decided to phase out its nuclear power because of the safety concerns. the eu decision on diesel was

generated by environmental issues. those are the kinds of issues, that is an area where government may make a decision about energy policy because certain types of energy may be just better for the environment. putting that aside, we need to keep maintaining a role for energy markets. there is a remarkable increase in the supply of natural gas in the united states. it is a good thing as long as we can manage it in a safe and environmentally sound way. >> dr. bernanke, i want to drill down on something you have talked about in general, which is europe. i want to talk about the dollar swap agreements. since you were here last time, it has grown from the agreements of $2.80 billion to

$103 billion. my first question is, where does that money come from? where does that $103 billion come from with which we participate in those agreements? >> it becomes a liability and an asset on the federal reserve balance sheet. it is paid for by greater excess reserves in the banking system. on the other side, we have an asset, the money given to the exchange of the european central bank. >> that would be new money. it is not money you took out of a maturing treasury. this is money set aside. >> we chose to do it that way because monetary policy is close to zero. it would not be difficult to sterilize that to a number of different methods. >> you stated earlier that it is your current intention to

reinvest. as the securities mature -- 9 2% of them are less than 90 days -- are less than 90 days -- it -- is it your intention to reinvest those? >> the counterparties would determine what their request is and we would decide whether or not to grant the request. we are not looking to invest there. if the swaps run out, that would be extinguished. it would mean a comparable drop in our liabilities and our assets. >> $103 billion goes over to europe and comes back in terms of the agreements and are reinvested in domestic securities. does that have an expansionary effect? >> it increases the high-powered

money supply a little bit. in this case, it would be about 4%. in practice, it does not have much effect on money in circulation. it does not affect interest rates. we see it as strengthening the role of the dollar in international markets, improving funding for u.s. and foreign banks. we do not see it as having any major implications for inflation. >> how is that different from what you were trying to accomplish with qe 1 and qe 2? >> with qe 1 and qe 2, they were much bigger. secondly, we were buying medium to long-term security in the open market. the money is going to the cd, which is our counterparty and

taking all of the risk -- going via the ecb, which is our counterpart and is taking all of the risk. >> when the money comes back from europe, how was that different from qe 1 and qe 2? >> this does not involve any change in our holdings of security. we at an asset, which is our obligation of the oecd. we have an obligation in -- which is our obligation of the ecb. >> you got the option to lend this money directly to the european banks. you could do it to domestic subsidiaries of the banks. why earned you lending directly to domestic subsidiaries? >> domestic subsidiaries of overseas banks have to be treated on an even playing field

with u.s. on the banks. we do not have any lending to the discount -- through the discount window. from our perspective, doing it through a swap is much better. it is the responsibility of the you see being -- ecb to decide who can qualify for the loan and to decide how much is needed to address the money market problems. we are totally protected. we are also protected at the discount window through collateral. this is a better way to do with 0-- do it. >> my colleagues in south carolina were told by you that you have needed the a -- needed the intention or the authority to bailout european banks. >> in that off the record, a

station, i said i explained -- and that off the record conversation, i explained that we were not going to buy loans from the imf. >> thank you, mr. chairman. chairman bernanke, it is good to see you. all our friends on the other side of the aisle, since the debate over the recovery at have ensued, insisted that it had no impact and created new jobs and it was not necessary. according to the cbo, the recovery act lowered the recovery rate -- the unemployment rate up to 1.4 percentage points in 2011 relative to what it would have been if congress had not acted at all. since that time -- since 2005,

we have created more jobs last year that we have since 2005. since march of 2010, 3.2 million jobs have been created in the private sector. my question to you is, had we not acted and passed it recovery act, with that recovery had happened as soon or even at all? mr. flores seems to be pressing the notion that only private market investments should be used to help an economy or a recession turnaround. are there times when you think public investments like the recovery act are necessary? >> to answer your question directly, the cbo calculate the effects on unemployment and gdp. that requires assumptions about what would have happened otherwise. in our analysis and our

modeling, we are comfortable with the cbo's conclusion. we believe it had some positive effects on growth and employment. so, yes. >> thank you. shares the gears, -- shifting gears, there has been a raging debate over what is the best way to reduce the deficit. we all share the goal of reducing the deficit as significantly and quickly as possible. our friends on the other side of the aisle believe and have tried to enact only spending cuts that they think are wasteful as a strategy toward deficit reduction. would you agree that wasteful spending also exists and is created in the tax code? >> you are pushing in areas that

are the province of congress. i would support the law of our arithmetic. if you believe the government should be doing more and spending more, you should be willing to collect the taxes to do that. if he wants to cut taxes and keep revenues low, you have to find the spending cuts to match that. that balance is what is critical. people have different visions on the role of what government should play. --the role government should play. -- the role government should play. >> would you agree that the 2003 tax cuts for the wealthiest provided the least bang for our buck in providing help for

unemployment? >> the other issue is how do they play into the long run it efficiency of the tax code. there would be a lot of benefit in thinking about our corporate and personal income tax code and improving those, reducing inefficient exemptions, broadening the base and so on. from a purely demand side perspective, tax cuts provide income and provide a source of spending. they may be less in some cases. you also have to think about the role of the tax code in promoting growth in the long term. >> would you say deficit finance tax cuts tend to pay for themselves?

>> except in rare circumstances, i do not think many people, including good friends of mine on both sides of the aisle, would argue that tax cuts fully paid for themselves. the question is whether they approved -- and improved efficiency and growth and whether they pay for themselves. >> mr. young? >> thank you, mr. chairman. thank you, dr. bernanke, for visiting with us today. this economic recovery is long delayed and remains fragile. my constituents remain frustrated and so many of us serving them that we are not doing something on the fiscal side of the ledger to get the economy moving more quickly. 2011 real gdp growth was 1.7%. the private sector forecasts indicates we will be at 2.2%. that is well below the 3% growth

that trends in recent history. 8.6 million jobs lost in the 2008-2009 recession. less than 1/3 of those have been recovered. i am concerned that our country will tip back into a recession. in your interactions with ecb officials, i would like to hear from you what preparation have been made -- preparations had been made for a disorderly default by greece or these other countries? you have indicated the fed was prepared to use all the different levers that you have, all policy options. that is the general question. specifically, i would like you to speak to the money market mutual fund market. right after them brothers, there was a bailout of the money

market mutual funds -- right after lehman brothers, there was a bailout of the myanmar -- the money market mutual funds. there was an intervention by the united states into that market. could that be something people begin demanding right here in washington. we bail out the money markets as a result of a disorderly default in europe. >> in terms of preparations, other than beyond the swaps, which we just discussed, the federal reserve has been operating as a supervisor working with other banks to understand the exposures of other banks to european nations, to european banks, european economies. we have been trying to help them manage the risks and reduce the

risks however possible. the other set of tools we have in the event of a crisis, it it was severe enough, would have adverse affects for our economy and our financial system -- in the event of a crisis, which -- crisis which, if it were sincere enough, would have severe effects for our economy and financial system -- we can land to other institutions that are underfunding pressure. we would try to -- we can lend to other institutions that are under funding pressure. we play close attention -- we pay close attention to the money market.

they have been working to reduce their exposure to europe. they have reduced their exposure to the eurozone countries. >> is there a reason why the financial stability oversight council created by dodd-frank to modify systemic risk is not -- has not characterize the money market mutual fund as a systemic risk in this case? >> in july, it pointed to money market mutual funds as an area that needed work. the things done in 2008 such as the treasury using the exchange rate funds to guarantee it will fund deposits have been outlawed. those things are not available. it is important that the money market mutual funds take the necessary actions to be safe in the event of some kind of problem.

they are reducing the risk and their exposure. the sec has already started to consult with the federal reserve. more might need to be done in order to ensure that we do not see another run like we did in 2008. >> i will yield that my remaining two seconds. >> mr. chairman, thank you for coming back again. it is good to talk to you. as i said yesterday to the other witness, it is about this time of the day we always seem to talk to each other to synthesize everything that has been said. i have several distinct questions -- several sink questions. if we can be extinct in our -- succinct questions. with respect to inflation, when

you say you are not worried about the increase in inflation, my laymen's way of looking at this is that, when you are effectively printing money for quantitative easing and the money is piling up, the inflation may be measured by the lack of the velocity when that money changes hands. it is my perception that the banks are holding onto the money because the sheets ballots for the regulators and for the fiscal soundness. people may be stuffing money in their mattresses. they are not using the money. are you worried that when they start, when we get this government believes in a true free-market system and the money starts picking up velocity, are you worried that you will not be able to stop the financial drain? >> no.

we have two tools to remove the money at the proper time. we can use a variety of tools we have developed to sterilize or remove those excess reserves from the market system. we have to raise interest rates to fight inflation. we have made explicit what our inflation goal is now, 2%. the markets seem confident in our forecast. private-sector forecasters and surveys of consumers feel inflation is well controlled and will be well controlled. we have the tools to withdraw that money. >> thank you, mr. chairman. many baby boomers are retiring. 10,000 per day. it has been the strategy to have the more elderly in our society be able to rely on less risky investments like bonds interest and things like that. would be interest rates so low,

it seems we may be forcing our most vulnerable citizens into more riskier investments. do you have a comment on that? >> we take that into account. we understand it is an issue for many people. our sabers have to hold all the assets in the count -- our savers have to hold all the assets in the economy. >> a former federal reserve governor wrote an article in the wall street drum -- wall street journal on december 6, 2011. i will quote from it and have you comment. however well intentioned the federal reserve also continued purchase camouflaging the country's true cost of capital, private investors are crowded out of the market with the fed shows up as a large and private -- powerful bidder.

>> bond markets are open. the people who are in trouble are small businesses and its people who cannot access bank credit. -- and the people who cannot access bank credit. >> you mentioned canada has less of a recession than we do. why you think that is? >> they have a small number of large banks, which has pluses and minuses. the probably have better regulation. the bank did not get involved in mortgages. some of the things that created our financial crisis were not as severe. that is why they did not have as deep a recession.

>> would you favor a model more like canada? >> i did not think i want to go to a small number of large banks. medium-size makes play a large role. they were right in being tougher and making sure banks do not take excessive risks. our system is much more complicated. some of the steps have been taken to provide a more systemic approach. it was less necessary in canada with a less complicated financial system. >> if you had to choose between one of the mandates, which would you rather pursue? [laughter] >> you said you had subpoena power? in the long run, they only control inflation. price stability is a critical function. that provides a healthier economy for the long term. that being said, in the short term, in terms of supporting a weak recovery plan, like we have now. >> thank you. >> to tack on, with the statement, we know there would

deliberations. you referenced -- in the next paragraph you focus on deviation. we have an expansion of the monetary base. when velocity turned back on, that is one paying higher interest on reserves must occur. what is your plan? i would argue this is made more complicated. whether that is going to occur on time. what if the deviation is greater than the inflation deviation? with that monetary base running through a system, it is like putting a cruise missile through a goal post. how are you going to do this? how are you going to lock up on time, now that you have more emphasis? that is why these things and made more ambiguous. >> i am sure we can do it. we have the technical ability. in any situation, there is always the question of whether you tightened too early or too late. technically, we have no

difficulty. i point of, the bank of england and the ecb have a larger balance sheets than we do. >> thank you mr. bernanke. i want to turn to your speech. you say, having a large and increasing level of government debt runs a risk of economic consequences. i will start out here with increased debt. therefore, it reduces productivity growth.

that results in more borrowing. from foreign governments, which then increases our future income devoted to interest payment, which comes back to increasing the amount of debt. i think that in a diagram will help my constituents to see why this is so important. i am intrigued by your results. impairs the ability of policymakers to respond affectively. it is our role and our responsibility. unsustainable deficits, increased the possibility of sudden fiscal crisis. it can happen here. i think you have diagrammed that well. my point is, investors lose

confidence. in the ability of the government to manage its policy. the fiscal policy piece of that is our role and responsibility. would you agree the economic growth from investments and savings -- not borrowing? >> sometimes, you have savers who want to provide funds to invest. if you are a firm, you do not have a net of your own money to invest. you have savers. borrowing could be part of the progress. i do not think you want to get rid of borrowing in general. mortgages are how people own homes. from the federal point of view,

if borrowing is so large that the deficit relative to the economy continues to grow, the feedback loop, higher interest rates, bigger deficits, bigger debt, it is a concern. markets can bring that forward. it is a question is, should the federal government have a long- term plan, the answer is, yes. >> can you help me with how the policies of the fed on setting the interest rates -- how will they in fact affect investors? >> my comment about investors having access to capital, currently, the economy is far from full employment. there is plenty of the unused resources available to be put to work.

we are not seeing any evidence that policy is crowding out private sector activity. to the contrary, to the extent we can secure growth, we can facilitate investment spending. clearly, when the economy is at full employment, deficit raise interest rates, they've reduced investment. monetary policy was too easily. it leads to inflation pressures. it is a function of with the economy is. >> does a zero interest rate anchorage savers to save? >> it may. there are substitution effects. you may need to save more to get the same return. >> i am not sure putting my

money into accounts where i get a zero return is what i want to do. >> suppose the fed raised interest rates. that would 30 economy back into recession. it would mean the stock market would decline. other investments would go down. it might mean increased deficit would lead to more concerns about our federal government. we are trying to deal with the bad situation. this is one of the tools we have. >> i am not advocating a sharp increase. i am just saying there is not an incentive. >> there is normalizing policy. >> thank you for being here.

i appreciate your open communication you have started. more press conferences, more communication, it is helpful. i know that is part of your strategy. i appreciate you taking that on. you mentioned about small business access to capital. that is a concern. you mentioned bank examiners are becoming more conservative in this time of instability. that is an issue. i represent oklahoma. community bankers are concerned with the approach on compliant. the safety and soundness they have no issue with. compliance becomes a big issue. let me give you one example. the new volcker rule, that was intended to only affect big banks. our community banks have to prove they are exempt from it. you have a bank of 40 people going through pages of documents to prove they do not apply. it is adding a tremendous amount of work load that is forcing them to second-guess.

when we talked about this, you said there had been some modest improvement. what improvements can we still expect? the community bankers are still not lending. they of second-guessing every bit of risk, not sure if anybody is going to come in and second-guess them. >> i will not go into safety and soundness. your question is about compliance. many of the provisions of dodd- frank are aimed at the biggest banks. small banks should be stated the need. >> they do have to demonstrate it. >> what we are doing, we have a subcommittee of two governors, governor duke and governor raskin who was the head of supervision in maryland.

they are very knowledgeable about small banks. their job, working with staff, is to try to first make sure rules that it not apply to small banks are not put in force. to provide as much clarity as we can to what the small banks need to worry about. to help us on that, we have created an advisory council. we get their feedback. i appreciate your point. i think it is progress that we are moving away from the safety and soundness. >> the think it is getting better in the next year? it is the frequency of how many small pieces. with a bank of 40 people, they cannot keep up with the frequency.

>> we have a process whereby we will try to provide guidance to small banks about what parts they can throw away. >> it would be very helpful. obviously there are a number of banks out there. they are getting the brunt of this. a separate question. it is a broader question -- issue a struggle. we have so much sovereign debt. we are continuing to add more and more sovereign debt worldwide. at what point do we reach an sustainability? that we do not have enough capital sitting out there? there have to be some point that would be defined as

unsustainable. >> at the moment, a private borrowing is way down because of the weakness of the economy. there is money out there. you are going to start seeing the crowding out. people are going to have to pay higher rates. that will have adverse affects on capital formation and productivity. i do think that from our perspective, we are the premier economy. we are the safe haven. we have a strong interest in maintaining that. i worry less about global supply of capital and think about managing our own need for capital going forward. >> every country is competing for it at a higher rate. >> there is a supply and demand. interest rates will go up. the money will be there. the rate is so high, that will be bad for the fiscal borrower. >> that would be the definition of unsustainable, we cannot get the money of the rate we need it for.

are we even close to that kind of point? that is crystal ball type stuff. you have to be watching that as well. >> for countries like the united states and the u.k., rates remain low. the bond market is very forward-looking. a lot of this depends on what the bond markets expect soveriegn financing to be over the deacdes. it is a country-by-country issue. if we can take a strong set of policies to inshore the sustainability of our fiscal

situation, i am sure the funding will be there. >> thank you. the last question. >> thank you. i appreciate your time today. i remember our discussion last year. one thing i ask my staff, to read through transcripts of the 2006 committee meeting and look at the comment. is it fair to say the fed did not see the severity of the housing crisis? >> i think the mistake was a little different. house prices were already falling in 2006. what we did not know was what is the impact going to be? we did not have a sufficient understanding of how the fall of house prices would affect the financial system. that was the linkage we did not see. yes, we did not see the prices come in.

we were aware that the housing market was pulling. i talked about it in testimony. we have learned a lot of lessons. we have changed the way we do our supervision and will now focus on the interaction between different parts of the system, looking at it from a systemic point of view. >> looking at the economic projections from last january, you projected growth at 3.4% to 3.9%. why were you so far off? will you be that far off for the coming year?

>> i would like to look at those numbers. there would two glasses of things. there were developments that were impossible to anticipate, like a tsunami in japan. the affects of the arab spring. i think, more generally, it is fair to say that since the recession ended, we have been too optimistic about the pace of recovery. as i go back and look at the reasons, i think the two main areas, the housing sector it has not recovered the way we hoped and expected, and continued pressure in financial markets. we did not fully anticipate in 2010.

>> you believe those factors were the primary reason? it was an anemic 1.7%. your figures, 3.4%. for 2012, he projected 3.4%. now you are back to 2%. pretty far off. how comfortable and confident are you on how long we will stick at this growth? >> for testing is very difficult. we do not pretend we have a

crystal ball. quote we try to do is set out projections at a level where being too optimistic is equal to being too pessimistic. >> that is the range. >> we could be better. >> i would hope it would be. we have such an anemic recovery. the worst one since the war. we are millions of jobs short. i had not seen this coming out. one of the thing i want to mention, the transcripts, a big supporter of transparency, is there a reason you have to wait five years? >> i think it is a reasonable compromise. no other central bank releases transcript. the bank of japan does after 10 years. no other government agency to release the transcripts of confidential meetings. it has a cost to of deliberation process. the meetings became much more scripted. i think it would inhibit the discussion process and the free

exchange of ideas. five years does seem to be an appropriate compromise. it is a more aggressive policy and other agencies or other central banks. >> 15 more seconds to close. this is america. there is a bigger role than in other countries. i would appreciate it if he would step up. >> you have indulged us for two and a half hours. the hearing is adjourned.

[captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] [indistinct chatter] >> the house returns monday and gets to legislative business at 2:00 p.m. eastern. they will consider amendments to a bill that will create a centralized process for recommending federal property to consolidate or sell or change.

the senate is back on monday at 2:00 p.m. eastern. after an hour of morning business, they will consider a measure authorizing $16 billion annually for federal aviation programs through 2016. they will hold a vote on that bill. why to gavel to gavel senate coverage live on c-span 2. tomorrow, the house majority leader, eric cantor, take part -- takes part in a discussion to grow the economy and create jobs. you will hear a discussion with venture-capital firms. that is live at 9:30 a.m. eastern on c-span 2. >> by 2020, at least half of all energy the navy uses will come from non-fossil fuel sources. >> the first to use nuclear

transportation, the reason for a new energy standards for the naval fleet. >> we are too dependent on potentially volatile sources to get our energy. even if we got enough, we are susceptible to price shocks. when the libyan situation started and the price of oil went up $40 a barrel, that was almost a $1 billion additional fuel bill for the navy. the only place we have to get that money is from operations or training. our planes fly less. we train our sailors and marines less. >> more with ray mabus tonight on c-span's "q & a."

the payroll tax cuts expire at the end of the month and all sides agree they should continue. the discussion focuses on how to pay for them. >> if people get a g.e.d., that enhances their lives and their ability to get a job down the road. i hear an excuse as to why not to do its and the fundamental philosophy to try to harm people with an education so that they have an additional tool in the work force. >> to link a social insurance program designed and for 70 years to function to provide financial support when you lose your job to a requirement that you have to be in training will not work for some of the practical considerations. secondly, it contradicts the notion that the more education you have today, the better off

you will be in this economy. >> watch the rest of this meeting online at the c-span video library. >> this week on "newsmakers" we have democratic congressional committee chair dougs elmendorf. -- steve israel. >> the wall street journal had you up 6% -- six points. the 25 seats you need to gain back the house, we have it at about 12 right now. how do you make this calculus work in more competitive districts, ones that may not have