about, they dropped my insurance. and we would get it from business. they dropped my insurance. why did they drop my insurance? you said it right on target. suddenly one of the members of the work force, a small group of people, had a significant illness and came time for the annual renewal, the insurance is an annual thing web do it every year, oh, i'm sorry, we can't renew you this year because we're changing the market. all kinds of excuses. buff the reality was, there was one sick person in that group. so this law will tend to end that. there's also the opportunity for people that have become unemployeed in this economy to get a job, particularly if that person happens to be 50 years or older. that person today has a pre-existing condition called age. they're beginning to enter that part of life where you're going to have more and more medical issues and employers go, wait a

minute. we don't have a position for you. we're not discriminating based on age but your resume isn't exactly the way it ought to be. it's very difficult for a person 50 and older to get back into the work force because of health insurance. now with the exchange, and the anti-discrimination policies in the affordable health care act, which ewe call the patient's bill of right, they will be able to get back into the work force. we're talking about people going back to work. insurance, health insurance, no longer being a barrier to employment. . mr. tonko: you cite an awkward dynamic, that being age. how about gender? there are moran more business start-ups, women-owned businesses. women working in a small business situation as the

employee. a pre-existing condition, being a woman. gender penalizing. there are many aspects and this is getting moran more attention especially in the weeks that accompanied the decision, the pre-decision of the supreme court. a lot of recognition of what was in the affordable care act, pre-existing conditions not being allowed as a reason, a rationale for denying insurance, a big, prime aspect of the progress made here. as i said in my district, is it perfect? no. we aim for perfection and we achieve susan we will continue to work -- achieve success. and we will continue to work. mr. garamendi: this is part of the puzzle of putting people back to work. i started this discussion about

the laws of america and the policies that have been enacted by this congress and previous congresses and the way in which they impact the middle class of america. that impact has been devastating on the middle class for the last 20 years, and it is our determination as democrats to change the policies so the american middle class can once again thrive so that a family can enjoy the fruits of their labor, so they can enjoy the potential that america brings to them. i notice that we have been joined by our colleague from ohio, mr. altmire. please join us and share with us, your thoughts. mr. altmire: i thank the gentleman from california and i was listening to the discussion, as i often do, and i want to bring a perspective to join that discussion as you were both talking about health-care, mr. speaker. and as one who did not support

the health-care bill originally, it is important to recognize as has been happening in this discussion what is working, what has already been implemented that is making a real difference in people's lives and the reason i did not support repeal of the health-care bill is that because i have the fourth most medicare beneficiaries, 135,000 medicare beneficiaries and many of them are caught in the doughnut hole, that gap in coverage in the part d prescription drug program. we are entering the third year of the face-in to completely close this that doughnut hole. people have received a $250 compensation for coverage. they are getting a steep discount on brand-named drugs and moving forward as i say in the years to come, they are going to completely close the

doughnut hole. that is something that would not have happened if we would have repealed the health-care bill. small businesses that struggle with the skyrocketing costs of health-care, they are getting a tax credit to help offset the cost and provide coverage if they choose to their employees. that is making a real difference in the district i represent. being able to cover people up to age 26. we are talking about the job market today. the parents' plan being able to take for a short period of time those young adults after they graduated school and maybe in transition in their life or in the job market, that is making a real difference. and people with pre-existing conditions. children and adults will not be able to be denied health coverage. and those are all things that

have been implemented and are in the law today and taking effect. and we can't overlook that. the legal issues have been decided. this is settled law now. and we have to make sure especially with the medicaid ruling which was not talked about as much bass the court focused on the mandate, we have to find a way for health-care providers to be guaranteed coverage for people who come to their door, whether a hospital, physician, long-term care, because when the health-care bill was put into place before it came law, the deal that was made in return for universal coverage, covering people in this country, they gave a little. they offset the cost to the taxpayer. the states can opt out of that. we need to make sure the

medicaid health-care providers can keep their end of the bargain. so i did just want to add that perspective as someone who didn't originally spofert the bill. there are things that are working and i commend my colleagues from california and new york for having this discussion tonight. mr. garamendi: thank you for bringing that perspective. twice now our republican colleagues have voted for repeal of the law and you have correctly and i think almost totally pointed out the things that would disappear. the doughnut hole would open up again, the pre-existing conditions, the patients' bill of rights would be gone and insurance companies can re-engage in discrimination, all of those things that are very important would disappear. we are fighting fiercely to keep them. as our colleague from new york has said, we will work through the years ahead to improve and to deal with the unknown issues

that are certain to arise. we have to work ahead of us. mr. tonko. mr. tonko: i wonder if you speak to one of the issues that mr. altmire talked about, doughnut hole. an attack on our seniors. when they reach the threes hold, i can tell you painfully heart-wrenching stories that -- and i have a huge proportion of seniors in my count and many will reach that threshold early in any fiscal year. and those prescription drugs are very -- their connection to quality of life. not ornl keeping them well and healthy, but may be keeping them

alive and there are far too many stories, again, heart-wrenching stories of people who will cut their prescriptions or their pills in half so they can balance their budget. that is not the way to respond to their medical needs. they are told by their physician what that prescription drug intake is to look like for their wellness or their getting well. and we ought not cause them to be pushed to the brink where they actually adjust their intake of prescription drugs just to meet a budget. so this closing of the doughnut hole, making prescription drugs more affordable where we finally in 2020 close it completely, i mean people have realized already billions of dollars of savings, 5.3 million seniors

have received savings. so when this house, with the majority, three of us obviously said no, but when the majority said repeal. why? what's the replacement? we didn't hear replacement, we heard repeal. the progress has just begun to be tasted is attempting to be pulled away and it is regrettable. mr. garamendi: we heard many things during the debate last week that are incorrect and inaccurate, one is that the medicare program was cut and benefits taken away from seniors. it didn't happen. what happened was that about $50 billion a year of expenditures going to the insurance industry unnecessarily and unnecessary bonus was removed. that was about $160 billion, and

there was medicare fraud. that is a big problem. and other ajufments. but no did he adjustments. no reduction to seniors and significant increases. mr. altmire talked about those with the drug benefit, as you did. and the prescription drug savings, which mr. altmire, you raised. we know that every senior has a pre--- free annual health check-up, which is an important way of keeping seniors, or anybody healthy. we have blood precious, diabetes' issues, you get ahead of them and with the drugs, you can keep ahead of them. there are many improvements. mr. altmire, i know you have been spending a lot of time on these issues and i thank you for your participation here tonight. if you would like to expand,

maybe experiences in your own district, go for it. mr. altmire: i appreciate the gentleman. health-care is one issue facing american families in the country today. and i know that this group that meets periodically when we are done with session to have these discussions as i'm sure both of my colleagues do. i hear from my colleagues -- constituents and i hear from people all over the country who says you need to continue to talk about the job market and infrastructure repair, something we talked about at length, talk about health-care and issues that are facing small businesses and working families in america because i think that is something that gets lost in a presidential election year. we are starting to head towards that time of the year when politics trum presidents everything. these are real americans that

are suffering. mr. garamendi: i noticed in our gallery two gentlemen soldiers who are here, both of them wounded in the wars and this is part of a group that comes in here every day when we are in session to watch what we are doing. they just stepped out the door and i wanted to catch them before they left to recognize them for the services that they provide. they may come back and in which case, i will interrupt you again. mr. altmire: i had a chance to chat with them today. there is no group that should stand in front of our soldiers. i'm glad -- >> mr. garamendi: they are coming back and maybe recognize them for the service they provided to this country. the gentleman who is always escorting them here in the gallery. they come back with some wound

or another, and that's difficult. but i want them to know and i ask you to join me in this conversation to know that this house, democrat and republican alike are determined to make sure that all of our men and women who are returning from the wars and those who have served, even though not in the field of battle deserve our respect. they need medical services and veteran services and a job. mr. tonko: let me thank our military. our active forces who are defending us in desserted diaz earths and mountains that extract great commitment and courage to our cause. so many veterans are looking for work. it ought not to be a battlefield in their homeland. and the american jobs act makes

it possible for businesses to realize benefits when they higher our veterans and active military that are returning and that is a commitment that ought to be understood by all of us. that should be part and parcel to being unanimous in this house. mr. garamendi: this is the only thing that has been done. when the president last september proposed the american jobs act, the second thing that he talked about was the veterans job bill. and it kind of languished around here for a couple of months. early september when the president spoke and then this came special day every year called veterans day and all of us would go home and go to the veterans parades and lo and be hold we came back and found compromise and found bipartisan. and the veterans job bill

actually became law shortly thereafter. mr. tonko: but the full package could have been done which allows for more opportunities for our veterans if we are hiring police officers, firefighters, educators and teachers. we are building the fabric of the nation and the infrastructure, the human infrastructure that is required to educate our young, protect our neighborhoods, make certain we are there in response efforts when tragedy hits. these are the things that can also in a broader sense can affect the employment theater for our veterans. and the fact that we would be pushed to pressure points and final acknowledge the work getting done is not the way to achieve what we know has to happen out there. we have seen the growth, representative garamendi, of private sector jobs. 29 consecutive months of job

growth, well beyond four million jobs, but still a lot of work to do when we think of the bush recession and loss of eight million jobs. and they want to take us back to those failed policies and say that's the way to get to move forward. we need to move forward with efforts like the american jobs act. . . mr. garamendi: i know that the two veterans here in our fwalry were heading out the door when i saw them leave and i wanted to thank them for their service. i suspect they were headed off to another meeting or wherever they're headed and i don't want to keep them here but rather just thank them for their service and to know that 435 members of this house care deeply about your situation, what you're dealing with and all the others that are in the field and have returned and

providing the extraordinarier is vess to this nation. thank you very much, gentlemen. mr. tonko: we are proud of their efforts and the training they endure to be the greatest force on the globe. we thank them for that. mr. garamendi: the american jobs act had many, many pieces to it. this is one of the great what ifs. would've, could've, should've, what if back in september this house had taken up the elements of the american jobs act? there was, i think, almost 250,000 teaching jobs that were in this piece of legislation. there was also almost the same number of police and firemen and public safety officers in the legislation. it didn't happen and so i know that in my daughter's and son-in-law's school district, there have been layoffs because of the economic and financial

circumstances of the state of california and class size went from 22, 23, to 33, 34. an extraordinary burden on the kids. and when you're in the second or third grade you never get a chance to go back and repeat. that's a lost year. that will carry through perhaps all the rest of your life and you missed that opportunity to realy advance your education. so just on the educational side you go, whoa, what if we had another 280,000 teachers in the classroom across america today? how would that advance the well being of our children? i think it's clear, they'd be far better off, far better off, but it didn't happen. mr. tonko: you're offering a powerful statement, a powerful challenge, the what if. but when you take that statement and failure to commit to our nation's children and then contrast that with what's

happening in competitor nations, where they're investing in education, investing in higher education, investing in research, investing in advanced manufacturing, these are the challenges that are facing us as a government, as a body, as a house of representatives. and if we do not respond accordingly, we're holding back a nation, actually pushing us backward. this discussion here in this house ought to be about moving us forward. moving us forward with progressive policies and investments of human infrastructure. mr. gare men tee: so the president also talked about building the foundation for tomorrow's economic growth. this is the infrastructure of the nation, a big word, but one that i think most americans understand, being the roads, the bridges, the railroads, the sanitation system the water system the research, the

schools, wow. we delayed, i guess, all of us in some respect, but realy the republicans in this house controled this, the transportation bill. delayed the implementation or re-authorization of the transportation bill until the middle of the construction season just two weeks ago we actually passed a two-year transportation authorization program. very, very important. very beneficial. but what if that had happened last september? we lost half a construction season and states and localities were unable to plan and put employees to the projects they needed to put in place because of the dilly dalying and the delay that went on here. we'll take some of the blame on our side but we don't control the legislation. it's controlled by our republicans here. and ultimately, they were unable to put a bill out. the senate did put a bill out,

i thank senator boxer, from california, the lead author on that, and the minority leader, in her committee, two of them came together in a bipartisan bill. it fenally got tone, wore thankful for it but the president wanted to go beyond that. he wanted to establish an infrastructure bank, one where we could literally invest soment public money, some private money, and go about building projects that have a cash flow. like a colorado road or sanitation plant or water system where people pay a fee and there's a cash flow. so we could realy build the infrastructure of this nation. but, didn't happen. >> representative garamendi, as you're speaking -- speaking, i'm thinking of the golden moments in our history, reheat with statements made by the nation, this nation, of investing. especially in tough times. now you know my district. i've described it several times. it's a confluence of the hudson

and mohawk rivers and the donor area to the eastern portions of the erie canal. in very tough times, governor clinton prosed -- mr. garamendi: that was the governor from new york. mr. tonko: right. he said we need to do this. there's a way to grow a part out of this -- a port out of this town called new york. there's a way that perhaps will thereby -- there will be a ripple effect, and there was, with the birthing of mill towns, the necklace of mill towns that became the epicenter of inknow veags. it drove a westward movement, heading toward california. it drove with a pioneer spirit

that was unique to this nation. our collect -- our collection of stories to this nation with people embracing nothing but this noble dream, an american dream, that transitioned -- transitioned a rags to riches scenario, that's what it's all about. it's us in our finest moments. why not today as we have inordinate needs to invest in the people, invest in jobs, understand the dignity of work, underpinned by the effervescence of the pioneer spirit that is, i think, part and parcel to our d.n.a. it is within our fabric as a nation to have that pioneer spirit, we're denying it, we're denying that spirit. mr. gare men tee: you talk about history here and actually, your governor, dewitt clinton, really did lead a major infrastructure project.

now california was a gold rush. very interesting, go become through the old writings, the folks from the east, new york and around, traveled up the erie canal to the great lakes to chicago and then from there on and they also left, this is my relatives, left the port of new york, which was built, part of the infrastructure, to travel through the panama and then across the is mas -- is mas -- isthmus of panama and up the coast of california. my own relatives took advantage of the two infrastructure projects you talked about. however, your governor was building off some of the work of the founding fathers. a lot of talk about here that there's no role for government in the economy. george washington disagreed. his treasury secretary, alexander hamilton, disagree. they had a debate with jefferson who thought that we ought to be an agrarian state

and george washington and hamilton thought there was a role for industrial and manufacturing. so george washington in his very first days as president put -- told alexander hamilton to put together an industrial policy for america. and there were about, i think, nine points or maybe 12 points in that industrial policy. one of them was, build the infrastructure. specifically it said canals and harbors. this gos back to the very beginning of our country, what the president wanted to do and what us democrats want to do is build the infrastructure. the foundation upon which the economy grows. and we can do it. we can pay for it. because every dollar we invest in the infrastructure immediately turns around and develops $1.75 of growth in the economy. so it's not money down a rat hole, it's money that builds the foundation and then expands the economy immediately.

it is the very best way to put people back to work immediately together with education. mr. tonko: the reach we ought to make to our history, to let it speak to us, the reach we ought to make to the boldness that we embrace in times that preceded us, ought to speak to us. ought to feed our soul, ought to feed our mindset. the courageous steps we were asked to take, that we took together, as a nation, committed to a cause, this is the sort of leadership that enge is required. the president is asking us to respond in very challenging times to these orders of investment. i can tell you in my district, birth place of the erie canal, milltowns that have achieved and changed the quality of life of peoples around the world weren't watching -- we're watching nanotechnology, advanced battery manufacturing, chips manufacturing, a growth

area happening within the capital region of new york, all built upon, i think, a public-private sector partnership. government inserted in a way that provides for the priming of the pump that goes where you absorb risk which perhaps the private sector won't take and we're now seen as a global center of operations in certain areas and it's growing, it's expanding. now is not the time to walk away from that progress. now is the time to invest in these dreams. these american dreams that people have always seen as the nobleness of the american is a fwa. mr. garamendi: i want to pick this up. i want to come back to our manufacturing policies before we wrap up here. before we do, just to pull together the american jobs act that the president proposed back in september, a, folk, it did not increase the deficit.

the program was paid for. paid for by changes in the tax policy of the united states. policies that the president continues to talk about today that we eliminate the tax benefits that go unnecessarily to the oil company. the oil industry. some $5 billion to $15 billion a year of subsities going to the wealthiest industry in the world. pull those back. end the extraordinary low taxes that have been available to the super rich, the top 1%, and restore those to the clinton era tax and other tax proposals that he had made so the proposal was fully paid for, not decreasing the deficit but rather putting people back to work, creating the jobs that are necessary to move the economy and to get the american middle class back into the game. so that they can prosper. so that we can rebuild those

american manufacturing jobs. the nine million jobs in manufacturing lost between 1990 and 2010 and keep in mind that over the last 29 months, there has been private sector job growth every one of those 29 months. so when people say, no, no, it's not good, say it's not good enough, but at least it is happening. men and women are going back to work in the private sector. the public sector continues to lose jobs and continues to shed jobs. but on the private sector job side, in part because of the policies we have been talking about here and the inherent strength of the american entrepreneurial and business spirit, people are coming back, not as strong as we want, but if the american jobs act were in place in its fullness, we would be moving toward a more balanced budget, reducing the deficit and putting people back to work. we're not there yet.

but we've not given up on this. and one of the major pieces of this is what we call make it in america because manufacturing matters. i know in your district, you've been talking a lot about this mohawk valley and about this great history. i'm not going to let you continue on without say, hey, i'm from california. we know entrepreneurship and we know about the next generation of jobs and the next innovation. but new york still is there and we'll vie with you for the best in the nation. mr. tonko: i see the order of progress, representative garamendi, we have achieved in that private sector you just outleaned and it's regrettable that the solution for which the president is calling to provide for the public sector side, which would speak to greater numbers of employment because

we've taken that four million plus in private sector and reduced the overall results by losing some public sector opportunities, which speak to soundness of community, public safety, educating the young, providing for public protection out there. these are important aspects of quality of life, they ought to be embraced. . we recognize the strength and part of the president's plan, but there has been this partisan divide and holding back on progress because perish the thought that the white house should look good in this comeback from a recession. we need to place the public good, the nation's good ahead of partisan divide. absolutely essential. and, you know, to then criticize the president by restraining some of the progress that he is trying to cultivate and saying

we aren't cleaning up the mess, there was a huge mess before he assumed office. 8.2 million jobs is a tough situation to walk forward from. and i think there is a solution there and we ought to work and put america first. and needs of this nation first as to be able to continue to walk forward and not negate any of the progress. mr. garamendi: one of the issues the president has been talking about recently and we worked on this almost two years ago and that was the tax policy. at the outset i talked about tax policies being one of them. american policies until december of 2010, actually allowed and gave to american corporations a tax reduction, a tax break when they offshored jobs, send the

jobs overseas and reduce your taxes. hello? how can that be? that was the law of the land until the democrats pushed through a piece of legislation that ended $12 billion a year of tax breaks for corporations that offshored, sent jobs overseas. i will just note that not one republican voted to end that extraordinarily damaging tax proposal that rewarded companies with lower taxes when they offshored jobs, not one republican voted to repeal that law. the democrats stood together and the president signed that and it is now the law. there is another $6 billion of tax breaks that companies get when they offshore jobs.

we have been working to eliminate those. and the president talks about how to reward the jo shoring of jobs, when companies bring the jobs back home, they should receive a tax break. you want to send jobs offshore, you ought to receive a penalty and not a tax reduction. that is good public policy. we don't control the house of representatives. and all tax bills have to start in the house of representatives. so we keep pleading with our republican colleagues, please, please, give american corporations a tax break when they jo shore jobs and end the remaining tax breaks for offshoring jobs. mr. tonko: that is welcome news to my manufacturing base. they support the efforts of the president to reward those who produce jobs here in the u.s. and where we provide benefits

for returning jobs. that is welcome news. that is welcome news to the manufacturing base, as is the call for action by the president for investment in advanced manufacturing. and i know that is compete and compete effectively and to allow for job growth via the private sector base. we need to invest in that new day of manufacturing. it is not dead. i refuse to submit to the notion that manufacturing is dead. it is alive and well. it needs to be retrofitted as to be advanced in nature and in character and let's get moving forward and let's again reward those job creators, not paying people to offshore or send out of this nation, our hugest export, jobs, in the decade.

mr. garamendi: let me give you another one and you and i are working on this together, tax policy. right now, we provide, we americans provide a tax credit, tax reduction for those who put up solar programs or wind turbines. the thing is that's our tax money. the question is, where is it being spent, on american-made aquamente or foreign-made equipment. that tax subsidies are used to purchase foreign equipment. this piece of legislation which i'm working together h.r. 613 basically says if you are using our tax money, for example, the highway trust fund tax money for buses, trains or building roads, then you must spend that money on american-made equipment and

same with solar and wind. if you are going to use american taxpayers' money to build something, then it's going to be made in america. we are going to return the american manufacturing by using our manufacturing on american-made goods and services. i get the last 30 seconds. mr. tonko: let me do this quickly. we are the greatest nation in the world. let us take our golden moments in history when we were faced with heavy challenges and responded accordingly with belief in the american worker, the pioneer spirit and did it in the order of investment. let those solutions-on the parted moments speak to us today. we need the soundness of solutions and respect for the american worker and our greatest days lie ahead. it's the spirit of optimism we should embrace, a history we ought to challenge and feed us

and inspire us and with that, i thank you. mr. garamendi: thank you, mr. tonko and thank our two gentlemen who were here earlier from the armed services. and it's about public policy and the entrepreneurial spirit and it's about america's desire to be the best. we are going to make it in america. we are going to make it in america because we will once again rebuild the american middle class. it's about policy and the spirit of america. it can be done and will be done and we are here to see it does get done. mr. tonko, thanks for this evening. mr. speaker, we yield back our time. the speaker pro tempore: the chair will remind all members it is not in order of the house to bring attention a member of the gallery. mr. tonko: i move that the house stands adjourned. the speaker pro tempore: the question is on the motion to

adjourn. those in favor say aye. . those opposed, no. the ayes have it. the motion is adopted. accordingly the house stands goes into effect. late nights are expected tomorrow and thursday as amendments to the five fed and $19 billion bill take place. but coverage of the house -- live coverage of the house always here on c-span.

in a few moments, ben bernanke's semi-annual report to congress. then the debt and deficit reduction. then a discussion of house changes -- how changes in manufacturing affect production in the united states. >> this weekend on american history tv -- >> 30 years of reagan, bush, clinton, bush and obama have done more to confirm marx's prediction of the rich getting richer than 75 years of the soviet union. >> from lectures and history, socialism in america. columbia history professor on the rise of socialism in 20th- century america. sunday, more on the contenders and key political figures who ran for president but lost.

this week, thomas dewey who prosecuted the inkster's but he would lose to both fdr and harry truman. at 7:30 eastern and pacific, american history tv this week and on c-span 3. >> ben bernanke says the u.s. may go back into a recession if congress does not deal with automatic spending cuts and talks that -- tax rate changes, scheduled to go into effect at the end of the year. he is on how -- capitol hill for a semiannual testimony. he was before the senate banking committee for two and a half hours.

>> i called the hearing to order. today, we welcome chairman burning take -- chairman bernanke back to the committee to deliver the semi annual

policy report. the legacy of the financial crisis still weighs heavily on our nation's economy and financial system today. following the longest recession since the great depression, the economy has grown slowly but steadily since 2009. we have come along way but there is still a lot of work left to be done to get our economy back to the point where jobs are readily available and wages are rising for american workers. while the economy is not going -- growing as fast as we would like, it is important to recognize that it would not be growing at all if congress and the federal reserve had not taken action to restore financial stability. the wall street reformat -- reform act -- works in the consumer's interest. and allows bank balance -- bank

bailouts. recent events ordering berkeley's to pay a $200 million penalty for libor manipulation are reminders that we need top rules and in place and strong funded regulators to enforce those rules. some critics state and that the cost of financial regulation is too high but those same critics seek to under fund and ignore the reality of today's high and unemployment that were caused by ineffective regulations. that is why we passed the wall street reform act and why we are here today. any cost that wall street bears from playing by the rules pales

in comparison to the chileans of dollars americans lost as a result -- to the trillions of dollars americans lost as a result of the crisis. i look forward to hearing from chairman bernanke on the fed's progress and how these efforts have further stabilize the financial system. policy makers can make a financial system more stable and resilience, they cannot prevent shocks from occurring in the first place. while recent policy actions taken in europe are welcomed, the eurozone economy remains fragile. i would like to hear the chairman's spot on the progress being made in the eurozone and

how european policy makers can protect their economies from the potential fallout if the situation were to worsen. while the fed's role in the economy is important, we need to make knowledge that the fed cannot solve all of the economy's problems. the housing market has been holding back the economy for too long and i asked of this committee to support efforts of my colleagues to enact legislation for responsible homeowners to have the opportunity to refinance mortgages. this legislation is fair because it helps homeowners who have been playing by the rules and it is market friendly because it eliminates barriers and is a cost-effective way to jump- start the economy because it keeps more workers paychecks.

congress also needs to reach a of as those sent to the fiscal cliff problem -- reach a resolution to the fiscal cliff problem. today's hearing underlines the importance of effective oversight which has been a leading priority of mine as chairman of the committee. in the past 18 months, we have conducted hearings with all of the senate's regulators. in coming weeks, we will conduct hearings with secretary geithner and his role as the head of council and was the director of the consumer financial protection bureau, record date. -- richard cordray.

i also believe that the wall street reform tax enhancement to fed transparency and oversight had a positive impact. i now turn to senator. >> thank you, chairman johnson. i appreciate you holding this hearing today. chairman bernanke, we appreciate you having -- having you with us. senator shelby is unable to attend because of a family obligation but i ask this statement be made a part of the record. the u.s. economy continues to experience a disappointing job growth and faces significant challenges with the eurozone debt crisis, tax cliff and broader fiscal crisis which includes the need to in just the impending insolvency of the entitlement programs.

a disappointing 80,000 jobs were added in june, holding unemployment steady at 8.2%. in june, chairman bernanke warner congress about what could happen if it does not address the fiscal cliff, noting this would have a significant impact on the near-term recovery. according to cbo, if all the tax and spending measures were to occur together, the economy would grow at .5% in 2013. recently one of the largest private owners of u.s. debt said be have until 2016 to contain our borrowing before bond investors revolt and drive up interest rates. others suggest the timetable could be much sooner. the lack of economic growth has caused some to call for further research bentsen -- expansion of the balance sheet of the federal reserve to a third round of quantitative easing.

there are a lot of questions about how effective the first two rounds have been, what their long-term impact will be and how effective an additional round of quantitative the easing could be. i am interested in learning what more could be done with government bond yields. following the june meeting, the federal reserve announced it would continue its maturity extension program. the operation twist. i am interested in learning the results so far and what are the expectations going forward. another drag on the economy are the hundreds of dodd-frank proposals that will increase the cost of capital formation and add to the climate of uncertainty and complexity. the concern i hear the most that regulators did not understand the cumulative effect of the hundreds of proposals and that there is a lack of coordination between our domestic and international regulators. that is why it is important

that regulators perform meaningful cost-benefit analysis so we can understand how these rules will affect the economy as a whole, interact with one another and impact our global competitiveness. we need to have rules that are strong enough to protect our economy. but that can adapt to changing market conditions to promote credit availability and spur job growth for millions of americans. also like many of my colleague, i am learning about issues related to the setting of the london interbank rate or libor which serves as a bank -- a benchmark for trillions of dollars of loans and derivatives, including the cost of many mortgages in the united states. barclays agreed to pay a $450 million fine to settle manipulation charges brought by the u.s. of justice, the commodities future trading commission and the financial service authority. investigations that banks manipulated the libor process

are continuing our questions -- and questions are being asked. i look forward to hearing from chairman bernanke on these issues and we welcome you here for your report today. >> thank you. to preserve time for questions, opening statements will be limited to the chair and senator. however, i've of like to remind you that the record will be open for the next seven days for additional statements and other materials. with that, i would like to welcome chairman bernanke. he is currently serving as a -- his second term as chairman of the board of governors of the federal reserve system. his first term began under president bush in 2006. before that, he was chairman of the council of economic advisers and served as a member

of the board of governors of the federal reserve system. chairman bernanke, please begin your testimony. >> thank you. >> i'm pleased to present the federal reserve's semi-annual policy before the congress. i'll discuss current economic conditions and the outlook before turning to monetary policy. the u.s. economy has continued to recover but economic activity appears to have decelerated somewhat during the first half of this year. after rising at an annual rate of 2.5% in the second half of 2011, real g.d.p. rate increased at a 2% rate during the first quarter of 2012 and available indicators point to a still smaller gain in the second quarter. conditions in the labor market continued early this year with the unemployment rate falling about a percentage point over that period. however, after running at nearly

200,000 per month during the fourth and first quarters, the average increase in payroll employment shrank to 75,000 per month during the second quarter. issues related to seasonal adjustment and the unusually warm weather this past winter can account for part but only a part of this loss of momentum in job creation. at the same time the jobless rate leveled out at just over 8%. household spending has continued to advance but recent data indicated a somewhat slower rate of growth during the second quarter. although declines in energy prices are now providing support to consumers' purchasing power, household's confidence remain relatively low. we have seen modest signs of improvement in housing. in part because of historically low mortgage rates, both new and existing home sales have been gradually trending upward since last summer, and some measures of house prices have turned up in recent months.

construction has increased, especially in the multifamily sector. still, a number of factors continue to impede progress in the housing market. on demand side, many are deterred about worries of their own finances or about the economy more generally. other perspective homebuyers cannot get home mortgage loans because their current mortgages are underwater, that is they owe more than their home is worth. on the supply side, the large number of vacant home boosted by the ongoing inflow of foreclosed properties continues to divert demand from new construction. after posting strong gains over the second half of 2011 and into the first quarter of 2012, manufacturing production has also slowed in recent months. similarly, the rise in real business spending on equipment and software appears to have decelerated from the double digit pace seen over the second half of 2011 to a more moderate rate of growth over the first part of this year.

surveys of business conditions and capital spending plans suggest further weakness ahead. in part, slowing growth in production and capital investment appears to reflect economic stresses in europe which together with some cooling in the economies of other trading partners is restraining demand for u.s. exports. at the time of the june meeting of the federal open market committee, fmoc, my colleagues and i agreed that economic growth will likely continue at a moderate pace over coming quarters and then pick up very gradually. specifically, our projections for growth and real g.d.p. prepared for the meeting had a central tendency of 1.9% to 2.4% for this year and 2.2% to 2.8% for 2013. these forecasts are lower than when we made in january reflecting the generally disappointing tone of the recent incoming data. in addition, financial strains associated with the crisis in europe have increased since

earlier this year which, as i already noted, are weighing on both global and domestic economic activity. the recovery in the united states continues to be healed by by a number of head winds including still tight borrowing conditions, and as i will discuss in more detail shortly, the restraining of fiscal policy and fiscal uncertainty. although the housing market has shown improvement, at the contribution to the recovery is less than has been typical. these headwinds should fade over time allowing the economy to grow semi rapidly and the unemployed rate to decline to a normal level. given that growth is projected to not be above the needed, the reduction in the employment rate seems to be slow. the tendency for participants has the unemployment rate at 7% or higher at the end of 2014.

the committee made comparatively strong changes. over the first three months of 2012, at the price index expenditures rose about 3.5% at an annual rate boosted by and large increase in prices that reflected the higher cost of crude oil. the sharp drop in crude oil prices has brought inflation down. in all the price index, it rose at 1.5 serve in the first five months of this year compared to 2.5% as a whole. it will be at a below the 2% level with the mandate in 2013 and 2014. participants of the fomc meeting indicated a higher degree of uncertainty than normal and that the rest to economic growth have increased. i would like to highlight the two main sources of risk.

the first is the euro area banking crisis. the second is the u.s. fiscal situation. financial strains in the euro area moderated in response to steps by the european authorities including the provision of three-year bank financing. tensions in euro area of financial market intensified more recently, reflecting political uncertainties in greece and losses as spanish banks which return questions about the resilience of the euro area banking system more broadly. euro area authorities have responded by announcing a number of measures including funding for the recapitalization of spain's troubled banks, greater flexibility in the financial backstop including the flexibility to recapitalize

directly, and movement toward a unified supervision of the euro area banks. even with these announcements, the economy remains under significant stress was spillover affect on conditions in the rest of the world including the united states. the possibility that the situation will worsen further remains a significant risks to the outlook. the federal reserve remains in close communication with our european counterparts. we believe the european authorities have strong incentives and sufficient resources to resolve the crisis. at the same time, we have been focusing on the resilience of our financial system including those that might emanate from europe. the capital and liquidity positions have improved substantially in recent years. we have been working with firms to ensure they are taking steps to manage the risk. european developments have

resulted in a disruption of global financial markets and to oppose the challenges to our financial system and economy. the second important risk is the domestic fiscal situation. u.s. fiscal policies are on an unsustainable path. development of a credible medium term plan will be a high priority. fiscal decision should take into account the fragility of the recovery. recovery could be endangered by the confluence of tax increases and spending reductions that will take place next year. the cbo has estimated it the full range were about to take affect, a scenario referred to as the fiscal cliff would occur early next year. fewer jobs would be created in 2013. as you recall, market volatility in spite and

confidence fell last summer in part on the debate of the increase on the debt ceiling. similar effects could ensue as fiscal ones come into play. the most effective way the congress could support the economy right now would be to address the fiscal challenges in a way that takes into account the need for sustainability and the fragility of the recovery. doing so earlier would help reduce uncertainty and boost household and business confidence. in view of the weaker economic outlook, the fomc decided to ease monetary policy by continuing the maturity extension program through the end of the year. this combined sales of short

term treasury securities with longer term treasury securities. it puts upward pressure on the prices of those securities. by removing additional longer- term securities from the markets, and the asset purchases have private investors longer-term assets such as mortgage-backed securities helping to raise their prices and lower their yields making broader positions more accommodative. economic growth is also being supported by the low levels of a target range of zero to 1.4%. as i reported in february, the fomc extended the guidance at its january meeting noting that it is likely to warn low-levels

through 2014. the committee has maintained this forward guidance at the subsequent meetings. reflecting concerns about slow progress and the downside risk to the economic outlook, the committee made clear that it is prepared to take further action as appropriate to promote a stronger recovery and sustained improvement in conditions in the context of price stability. thank you. i would be pleased to take your questions. >> thank you for your testimony. we will now begin the question of our witness. will the clerk please put five minutes on the clerk for each member? i will lead off with a question

about the libor scandal. last week you released documents showing that the fed provided early warnings on manipulation in libor market. then timothy geithner your race concerns with president bush's working group on performed recommendations to the british authorities. can you tell the american people what did you know, when did you know if, and what did you do about it? what can we do to restore confidence? >> thank you. libor is a critical benchmark two contracts. the actions of traders and banks that have been disclosed are not only very troubling but they have the effect of undermining public confidence.

regarding the federal reserve's role, and the federal reserve bank of new york takes of the federal reserve system./ it was in the process when it received information about libor submissions, notably a phone call on april level of 2008 in which a trader in barclays told an employee of the federal reserve that he thought that barclays was underreporting its rate. about that same time, stories began to appear in the media. there was an april 16 story. i would like to make two preliminary points before talking about their response to that information. the information the fed received was about the banks possibly submitting lower ranks and ordered to appear less week.

the transcripts of the phone calls have no reference to the manipulation of rates for profit by derivatives traders as alleged by the recent decision. the second point i would like to make is that this issue was complicated during the crisis by the fact that there were very few transactions than occurring overnight. banks are asked to report what they would pay their borrowing at a certain term. it may have been that transactions were not taking place. we will get more information on that as the investigations continue. it is clear that be on these disclosures that the libor system is structurally flawed. part of the response was to address those flaws. the federal reserve bank of new york after receiving this information responded quickly

and set up an internal group to address the issue. it informs all the relevant authorities in both the u.k. and the united states, notably on may 1 president timothy geithner briefed the working group. they briefed the treasury on may 6. it was followed up with enter agency staff briefings to provide more information to the various agencies. they also followed up with the bank of england and the united kingdom. there was active effort to report to all of the relevant policy makers and enforcement agencies the information that had been received. the second step that the federal reserve bank took was to develop recommendations to address structural problems with libor

that i mentioned before. the new york fed released a memorandum list of suggested changes that they submitted to the bank of england on june 1 and following earlier discussions with the bank of england. there are also communications with the british bankers' association which is a private group that constructs libor prior to june 1. the federal reserve bank of new york took the lead. they released information. they are looking for additional information. we were in supporting mode. we provided reports related to the construction of libor. our staff were in contact with the cftc.

i think it is important to note that following the federal reserve bank of new york's disclosures to the appropriate authority that there was a rapid follow up. the cftc was making increase as early as april 2008. it sent requests to banks. they initiated inquiry in 2009. the european commission and a range of regulators are also investigating. we know about the june 27 settlement with barclays. there was a substantial response by the federal reserve bank of new york that information led the investigation. it also contributed to thinking about how to better structure the libor panel and the libor information collection to avoid

some weaknesses that became evident. >> what are the factors that led you to support the extension of the so-called operation twist program and what changes in economic conditions might lead to a stronger policy response in the future? if extensions of operation twist are not possible, was other policy tools are available if the fed decided to provide additional monetary support? >> the federal reserve in december 2008 brought rate down close to zero. we have had to rely on a number of less conventional policy tools to achieve accommodation. those included quantitative easing programs and the operation twist as i discussed in my remarks.

it provides extra financial accommodation for the recovery. the other type of tools we had include communication tools notably our forward guidance which gives the market some sense of how long we think rates will be kept at their current low levels. those are the principal types of tools that we have. we're looking very carefully at the economy, trying to judge whether or not the loss of momentum we have seen recently is enduring and whether the economy is likely to continue satisfactory market conditions. if that does not occur, we have to consider additional steps. we looked at a range of possible tools mostly involving the balance sheet and

communication. the committee meets in a couple of weeks. we will be discussing those tools. we have not come to a specific choice. we are looking for ways to address the weakness in the economy should more action be needed to promote a sustained recovery in the labor market. >> thank you. ever since the dodd/frank conference there has been a debate whether non-bank financial users were exempt from requirements. chairman dodd and chairman lincoln acknowledged it was not perfect and tried to clarify the intent with a joint letter. they stated the legislation does not authorize regulators to impose margin on end users. in april 2011 they issued a

joint proposal that requires them to post a martian to their bank repay a margin to their bank. it stems -- been to post a margin to repay their bank. distance from title 7. i offered an amendment to fill intent by providing an exemption from margin requirements for not the financial end users. but passed the house by a vote of 370-24. is it accurate that banking regulators view the plain language as requiring them to impose some requirement unless congress changes the status sheet? >> we believe the statute requires us to impose some requirement.

we tried to mitigate the effect as much as possible by allowing for exemptions when the credit risk was viewed as being sufficiently small. many small and users would be exempt in practice. >> do you agree the non financials and users of hedging does not contribute to systemic risk and that the economy benefits and that it is appropriate for congress to provide an exemption for non- financial end users that qualified? >> i agree that they benefit and the economy benefits from the use of derivatives. it seems to be the sense of a large portion of congress that the exemption should be made explicit. we're very comfortable with that proposal. >> thank you. i want to shift gears back to the question that the chairman

asked with regard to what you asked about what tools you still have and how he may approach them. you still have some possible tools to deal with. there is a lot of speculation and concern about whether you are considering another run the quantitative easing. there are questions about how effective it has been and what more can be done. can you discuss for us how effective you feel the quantitative easing has been and whether you feel it is a tool you should consider going forward? >> we ran out of space to lower short-term rates. we have to look to other tools. we have used asset purchases as a way of providing additional support to the economy. economists differ on terms of

how effective the tools have been. my own assessment is that the quantitative easing has been effective in promoting strength in the economy. it was most evidence in q e one -- qe1. qe2 was effective at addressing what was beginning to become a worrisome amount of risk of deflationary in the fall of 2010. it was addressed. my view is that it also contributed to economic growth. it is hard to judge. it depends on what you think would have happened in the absence.

there is questions about side effects, risks that might be associated. i think they should not be used likely. my own view is that these tools to do have a capacity to support the economy. what we will be looking at is really two things. the first is whether or not there is a sustained recovery going on. the other issue with the price stability, notably we would want to react against any increase in inflation risk.

>> thank you. >> thank you very much. let me return for a moment to the issue of libor. can you give us and the millions that depend upon libor because it says how much they have to pay for student loans, etc. -- that the current libor is reliable, that the changes that were made have been put in place and that this is an index that is reliable and not being subject to manipulation going forward? >> i cannot give that with full confidence. the british bankers' association did not adopt most of the suggestions that were made by the federal reserve bank of new york. it is likely that concerns are less because we are no longer in a crisis.

that was when transactions to many were not taking place. i would like to see additional reforms to the libor process. it'll continue to be this. there are a number of people looking at alternative benchmarks like the overnight index swap rates or other types of interest rate that has an advantage over libor as opposed to simply reported rates. >> what steps are you taking right now? your relationship with the bank of england. what are you doing to assure this index is appropriate. i encourage you to study the alternatives. the libor is so deeply embedded in situ thousands of contractual arrangements that it'll be hard to next week shift to something else.

>> we need to continue advocating for reforms to the libor process. it affects -- our ability to influence that is limited. two of the banks have reported that they have been asked for information by investigating agencies. we are following that very carefully. we will see what happens. be able to supply any help we can. >> let me turn to the monetary issue.

the federal reserve has been in some cases pursuing aggressive monetary policy while fiscal policy has not kept up. i presume you are prepared to continue to do that given unemployment numbers, etc. that is regardless of what we are doing on the fiscal and. >> we do the best we can. we will continue to do that. we would appreciate other policymakers playing appropriate roles for themselves as well. >> one of the comment you made is that there will be a need next year for continued stimulus if we're going to reduce unemployment, which is one of your mandates, and that if we reach a solution that is

heavy on cuts to spending, heavy on entitlements, that would not provide stimulus. it would further impact on employment in the country. is that an accurate assessment? >> the position we have taken is that the first cut is do no harm. what we need is a strategy which addresses the long run sustainable -- sustainability issues. if the fiscal cliff is allowed to happen, it will certainly have major negative effects on the recovery. many other observers have made similar recommendations. we feel that is reasonable. >> some of the specific issues we face at the end of the year

are filling a gap in the 2013 in terms of spending and revenues. if that 2013, if we avoid the cliff by taking another route and it decreases spending and other stimulative effect, would your view be that we could have avoided a cliff but still find ourselves in a perilous economic situation? >> it is a question of the time frame. in the near term, we already have a lot of fiscal drag from state and local governments. some coming from the federal side. in no way am i saying that we should not be making strong

efforts to achieve long-term sustainability and make a credible plan as soon as possible. it to the matter -- it will be better to make is soon to allow the recovery to air its need in the short term. >> thank you. thank you for being here. i was listening to the last here. i know you talked about the fiscal cliff. the spending reduction is $1.20 trillion over the next seven years. we spent about 45-$47 trillion of taxpayer money over the next 10-years. while i agree that we should come up with a better solution that deals with the entitlements and revenues, are you seriously considering that we're considering a billion dollars in reductions, are you concerned that small amount of spending reduction is something

that is going to damage the economy? >> the fiscal cliff -- >> i am talking about spending. >> a smaller fiscal contraction will have a smaller effect. i do not want to make a judgment. a smaller reduction in fiscal -- in the fiscal position would have less effect than a larger one. >> as a look at the economy, which cannot also say that the best thing we can do is for us to have real balanced fiscal reform. is that not the thing that would cost our economy to take off

more than anything else and alleviate the uncertainty people have? >> this reform is very important not only to control the deficit but also the quality of fiscal policy. what are we spending our money on tax those things are important. the way the current law is written, we have the maximum impact in the short run on january 21. much less is happening over the next decade or two. i am not advocating an overall increase in fiscal spending. i am saying that the timing should be adjusted to allow the recovery more space to continue but to make a serious effort to improve our fiscal policy over the next decade. >> i agree that we should have a better policy than we have now. most people are trying to seek that. it is unbelievable that we have

not already done that. on the other hand for us to potentially kick the can down the road on sequestration creates even more if we do not come up with another solution, which i hope we will. to say that you are recommending that we kick the can down the road and make us look even more irresponsible to me is work been the $108 million that may be reduced out of the spending. do you understand what i am saying? >> yes. delaying everything would be a very bad outcome. >> i think the actions you are taking, and i understand you have a dual mandate, i think we should have a single, i know that it creates bipolar activity. you're trying to juggle two. we created that and not you. the actions you are taking really take -- i know qe2 was in response to deflation -- it

takes the impetus of us to act responsibly. i wish we had a chairman of the fed that will say we're not doing anything else. we are pushing broke. it is up to you to act responsibly to deal with these fiscal issues. are you tempted to ever say that to congress? >> i do not think that is my response ability. i focus on maximum employment and price stability, and not hold threats over congress. >> a very politic answer. i would say that you had members that are concerned about the policy that you are putting in place been disruptive. >> we have a range of views on the committee. >> let me ask differently. if we were to ask responsibly

and do something in a balanced way that dealt with not only the next 10 years but the 20 or 30, would that alleviate the need possibly for the fed to consider additional quantitative easing? >> possibly. the fiscal issues are a major concern and downside risk. if congress addressed those issues, it is very possible that would abrogate any need to take further action. >> you have been a little vague on what additional tools that you have a. i know the whole world watches when you speak. it does appear that most of the tool kit utilized at this moment, if you were to consider additional tools, what would be the range of options that might exist with rates being where

they are today? what else is there that the fed can responsibly do since the fed is the biggest lender to the federal government already, more than china and japan? >> i do not want to give any signal that we're choosing one or another. it includes programs that could include treasuries or mortgage- backed securities. those are the two things we are allowed to buy. we could use our discount window for lending purposes. that is another possibility. we could use communication to talk about our future plans regarding rates or our balance sheet. a possibility we haven't discussed is cutting the interest rate we pay in excess reserves. there are a range of things we can do.

each test costs and benefits. >> thank you for your service and being here. >> thank you. i do thank you for your service. i think you have done a superb job in one of the most difficult times to be chairman. i do not quite agree with my good friend mr. corker. i think you have tell congress what you want us to do in your own way of doing it. last month use said "more comfortable if congress took off some of the birding in terms of helping the economic recovery." human stimulus. i agree with you. under current conditions fiscal policy should be our first choice. it would be more effective. we can talk all we want. everyone gives speeches but we do not do anything. we have had a hard time getting the cooperation necessary to get anything done on the fiscal side. we tried tax cuts which supposedly our colleagues on the other side like.

we tried infrastructure. we have tried support for state and local governments when jobs are declining. we have run into opposition on all fronts. just last week a tax credit for job creation and accelerated depreciation. we got no support. the bottom line is very simple. we're not going to get the fiscal relief we want over the next short while. giving the realities when the president last fall compose fiscal support, which to me is the right way to go, he did not a single vote. we know the reality.

we know the realities, particularly in this election year. the fed is the only game in town. i would urge you to take whatever action you think would support a stronger economic recovery. you have received criticism for efforts to help the economy. republican leadership in the house and senate even as they were blocking jobs bills sent a letter opposing more monetary support. i would urge you now more than ever to take whatever actions are warranted by economic conditions in the minutes of your last fomc meeting the forecast was revised down. the unemployment rate remained elevated. not a single member forecasted inflation above the to certain targets. the progression is stickier than anyone thought.

the fed has a dual mandate to guard against inflation and also to keep unemployment -- to keep employment up and unemployment down. these conditions was certainly motivate the fed to seriously consider taking further action to bolster the economy. what is your thought? >> we take this seriously. we will act and and a political, a non-partisan manner to do what is right for the economy. we said we were prepared to take further action. the complication is that we are dealing with less conventional

tools. we had to make assessments. it is very important that we see sustained progress in the labor market. these are the things we will be looking at as the committee meets later this month and summer. >> you used qe1 and qe2 but you have other tools. >> yes. >> do you believe the danger for inflation is quite low? >> our projection is that it will be close to or below our 2% target. not everyone agrees with that. my opinion is that risk is low right now. as i mentioned, it is a modest rise, not a large risk, of going the other direction.

>> you certainly agree that unemployment has been too high and is sticky and we are having a much rougher time than we ever imagined getting unemployment down. >> that is true. >> get to work, mr. chairman. >> thank you. thank you for being here. it is interesting to hear my colleagues talk. they seemed puzzled why our temporary gimmicks to not seem to work. by any analysis of the cliff was created by all of these temporary policies that expire at the same time. we are throwing a lot on new. at the same time, it appears we're forcing you into a temporary short term idea.

i am concerned, you mentioned cost and benefits as costs we do not talk about on our side as well as keeping the interest rates low. you are well aware that keeping interest rates where they are are costing americans about $400 billion a year in lost interest on any savings that they might have. there is a real cost. over the last four years, about $1 trillion in loss. so there is a real cost, and over the last four years, probably about $1 trillion, so people putting aside dollars are

losing the the value on their dollar, so there is a cost to that stimulus effect. also, on quantitative easing, which you are clearly considering, the federal reserve bank of new york estimates that 50% of the value of s&p over the last decade is related to fed action and the buildup around fed action of quantitative easing. my concern now is that what we are seeing is not an increase in the value of stocks, but a projection on the loss of value in our dollar. when we talk about no inflation, i think what we are talking about is no visible inflation at this time because if we are printing more money to buy debt, and you would agree the federal reserve has bought over half of our debt in the past couple of years, we are diluting the value of our dollar over time. while it might not show off today or tomorrow, it is inevitable that it will show up and we see that as a reflection in the price of stocks because

that does not reflect long-term projection in value and profits as much as it does play in the market and what is coming out of the federal reserve. my concern now is another announcement of quantitative easing, which might inflate the stock market temporarily, but another short-term effort that could help implement in the short term but actually reduce the value of the dollar and therefore everything we work for you in the country. so, how are you gauging the cost of another round of quantitative easing? >> well, let me respond to the specifics the race. on savings we understand that low interest rates are a hardship for many people. the reason that interest rates are low, of course, is that we are trying to promote a recovery in the economy.

if people hold fixed income securities like cd's or treasury bonds, but they also hold stocks or corporate bonds, or small businesses -- other assets that depend on the strength of the economy. raising interest rates might help some folks, but if it cost the economy to weaken, it would be bad for investors broadly speaking. when we are trying to do, as our mandate suggests, is strengthen the economy, which in turn should make america more attractive to invest in and provide higher returns for everyone investing in the united states. on the dollar and inflation i appreciate your concern, and that is something we pay close attention to, but we have not

seen inflation and the dollar has been stronger recently. we are comfortable that we have the tools to unwind these policies in a way that will not threaten inflation, but as i said to senator schumer, we take both sides of the mandate seriously, and as we are looking to help to reduce unemployment we also want to be confident that we maintain price stability in united states and thus far we have been successful. >> the dollar is stronger relative to the euro, but compared to values inside the united states it does cause concerns that this point. again, i appreciate what you do. i would just ask caution in diluting our dollar further for temporary action. thank you. >> senator menendez. >> thank you, mr. chairman. thank you, chairman bernanke for your service. i want to speak about interest rate manipulations by large

banks since the fed plays a key role in insuring the integrity of rates that affect small businesses, cities and towns across the country. i look at the most recent set of allegations on the libor manipulation and once again it exposes a culture of greed, cheating, lying, at least one large bank, and probably many more which is why nine of my colleagues and i wrote to you and the department of justice asking for a robust investigation in the role of these banks and how this alternately effected consumers in this country, investors in this country, cities in this country, because libor is far more than a benchmark. it is a significant indicator

that is used. the federal reserve bank of cleveland found that 45% of prime adjustable mortgages are linked to libor. 80% of sub-prime use libor as a benchmark. this is a huge issue. it goes to the integrity of our financial system and the lack of faith that the american public and many of have in the system. i'm looking at the internal e- mail in 2007 and 2005, with derivative traders asking other employees to submit false survey responses to benefit their trading positions, changing them, preferring certain libor outcomes on certain days -- sometimes for it to be higher, sometimes lower -- depending on how it would benefit their position. now, i look at this and i say to myself this is about trying to manipulate a key economic indicator for the purpose of profit.

am i wrong? >> no. i agree absolutely. this is not acceptable behavior. >> but me ask you, clearly banks like libor were trying to profit from libor manipulation but that came at the expense of the public in general. >> it is an interesting question. you mentioned borrowers. they may have benefited because libor was under-reported. we will probably find out through lawsuits and investigations. >> if you were caught in the time when they wanted to hire libor, and that was a time of adjustment, you have a detriment.

investors had a detrimental in not low in libor, but if it is lower, things are working well. >> i am not defending it. it is a major problem for our financial system and confidence in the financial system and we need to address it. >> how do we address it? some of my colleagues bristle at regulation, but it seems this is an industry that will not work with the integrity that the public deserves. we're talking about pension fund investments, mutual fund investments, and the consequences to consumers. and i am sure we're talking about billions, not trillions in effect. so, for example, do you think we need additional internal controls and fire walls between

reporting personnel so we do not have this work to manipulate? i would like to hear what it is we are going to do now that we know all of this? what will we do to ensure the integrity of this banking system? >> first, this will have to be an international effort. libor is constructed by a u.k. organization and it is constructed for 10 different currencies. it has to be international. there are two approaches. one would be to fix libor, make changes to it, increased visibility, reduce the ability of individual banks or individuals to defect libor and increase the reporting process. that is one strategy. the other strategy would be going from what is essentially a reported rate to an observable market rate as the index and there are a number of possible candidates that might ultimately replace libor.

as you point out, libor is deeply ingrained in many contracts so it will not be simple to make that change but i agree we need to address the problem. >> i look forward to the fed's leadership and suggestions about how we make a system that cannot be manipulated that has consequences to millions of consumers, investors, pension funds, municipalities, counties, governments -- all effected by libor. it might need to be international, but we need to understand what we need to do in the united states. >> center better. >> thank you, mr. chairman. from everything i have read about libor issue, it seems that since 2008, when the potential reporting was learned

about, it reacted on the policy side with various recommendations with british counterparts. i have not seen anything about it reacting as a regulator of u.s. large banks. did it do anything to investigate whether u.s. banks were guilty of the same practice? >> what it did was it informed the responsible authorities at the cftc in particular, very quickly, and the bank of new york made a presentation to the president's working group that provided supporting

information, as did the board. the investigations took place but they were taken up quickly not by the fed, who is a safety and soundness regulator, but by authorities who had more direct responsibility for those issues. i do not know. i have to say the federal reserve bank of new york is still investigating the situation itself. i do not know what communications or conversations were had with the three u.s. banks on the panel, but the enforcement actions were taken by cftc, and sec. >> do we know definitively that no u.s. banks were guilty of the same manipulation? >> we do not know that. >> that goes back to my concern. if we do not know that, it seems as if somebody dropped the ball that we are four years later and we do not know that. >> two banks have reported that

they have been asked to disclose information to the ins to that -- investigative agencies, so the robust processes under way. >> four years later. my point is knowledge of this happened in 2008 and neither the new york federal other regulators gave a significant investigation so we could no one way or the other as we speak today four years later that the u.s. banks did not do the same thing. am i missing something? >> only again, i think the responsibility of the new york fed was to make sure the appropriate authorities had the information, which is what they did. >> you think it was a reasonable responsibility for the new york fed to follow up and say if u.s. banks do the same thing? >> i do not know what conversations they had.

the u.s. fed is the regulator of some banks. there are others. >> certainly, the new york fed is it primarily -- primary regulator with regard to the banks to engage jim libor that we are talking about, correct? >> two of the three. >> right. the fed is in the process of will making with regard to "predominantly engaged in financial activities" under dodd-frank. the rule that has been published and the fed is now taking comments on seems to absolutely ignore a specific criteria that we in congress placed in dodd-frank in section 102-a6. it is very specific, using an 85% test, and it seems to me the rule the fed is in the

process of adopting ignores that specific metric. how can the fed adopted a rule that ignores specific statutory language. >> we would not want to do that, and i will check on that question for you. >> if you could check on that, again, it is 102-a6, and i believe the fed ignores a specific metro, which i would call the 85% rule. >> thank you. >> thank you very much. finally. capital standards for the largest banks, as i have read your comments in the past, it seems you support somewhat larger capital requirements for mega banks, but you seem to think where we are headed, 9.5% under bezel 3, is roughly the corporate parent is that a fair

assessment? >> there is an international -- roughly the estimate. is that a fair assessment? >> there is an international standard based on formulas and calculations that try to establish parity across banks across the world. >> when i am asking is, to the extent that that opposes higher capital standards on the largest u.s. banks, do you think they're good enough to insure stability and protection in the future? >> i think they're very useful, very important. basel three in general will

increase everybody's capital and the quality of capital, which means the largest banks have additional capital, but it will not just the capital. it will be the market discipline that comes from a 40, liquidity requirements, -- of 40, liquid requirements and so on. it is important that we address to the to fail, and this is one way for banks to take into account the. size imposes a cost to the rest of society -- account that the bank's size and poses a cost to the rest of society. will continue to have international discussions. it is our approach to have consistent requirements with international standards for capital requirement, and these numbers were based on calculations that drew from the crisis we are always open to further discussion -- crisis.

we are always open to further discussion and looking to see how the effects work through the system going forward. we will get a chance to see what the impact is on banks and credit costs. >> my time is up, but i would encourage you to look at that, and place stability ahead of -- i understand the desire for uniformity across the globe, but it should not trump what is best for -- . >> you're looking for higher capital requirements. >> yes. >> senator akaka. >> thank you, mr. chairman, and let me welcome chairman bernanke to the committee, and thank you for your tireless leadership in these challenging times. recent economic events in europe and china show us how

dependent the united states is on the international markets when it comes to our economic recovery. despite concerns about the overall rate of recovery, some sectors are beginning to turn around and we are beginning to see some bright spots as indicated in your opening statement. hawaii, for example, had record tourism numbers in may, and nationally we see spending by foreign travelers continuing to rise, helping to reduce our deficit. my questions are how do you think that current policies and those regarding tourism and exports have effected the recovery? also, do you have any suggestions on how to further

encourage growth in these areas? further encourage growth in these areas? >> tourism has been something of a bright spots. it has been -- we have seen improvements in tourism in a number of places around the country. you mentioned the international trade deficit. people may not appreciate that when a foreigner comes and visits hawaii, that counts as a u.s. export because we are exporting the tourism services. the export of tourism services has been growing very quickly, something like 14% in the last year, faster than other types of exports. it contributes to our trade balance as well as to overall economic activity. it is a positive. with respect to policies that

address it, there is a lot of incentive where we see individual states, for example, compete with each other to attract visitors. but we can consider issues like these policies -- like visa policies, we can look at any tax or other implication that might affect the cost of tourism. so eight is an area where -- so it is an area where there is a lot of benefit and scope for economic benefit to hawaii and the rest of the country. it has so far been a bright spot among the various service industries we have. >> thank you. i am concerned with the well- being of consumers. during previous hearings, you

and i have discussed the importance of improving financial intimacy to of paul consumers while the work to grow the economy. what weighs have you seen -- what ways have you seen financial decision making by individual americans improved during this recovery? and what more need to be done? >> there are two sides to improving the decision making. on the one hand, there is education and that effort has continued. the federal reserve is continuing its efforts towards promoting financial literacy and economic education. i have an upcoming meeting with teachers across the country and i will be talking about financial literacy an answering their questions and talking about how to introduce students to these topics. some of the activities we have

moved over -- some personnel and functions went over there but they are also engaged. so education is one side and the other side -- it is important that disclosures and the types of products that are offered are such that people have a reasonable chance of understanding what it is that they are buying or investing in. the federal reserve pioneered a few years ago the use of consumer testing to will improve disclosures for credit card statements and a variety of other types of disclosures. we hope to see that type of activity continued. in general, the experience of the crisis has made many people more aware of the need to be financially literate. and more cautious as well. but it is an ongoing battle.

it is not something we can declare victory on. we have to continue to work to make sure both kids in school and adults who are making financial decisions have access to good advice and good education. >> thank you very much for your response. >> mr. chairman, good to see you again. the forecast you have testified about today, i am assuming do not factor in the results of the fiscal cliff that is headed our way between now and the end of the year. is that a safe ascension -- assumption? >> that is correct. >> because of the fact that all of the various items that are included in the so-called fiscal cliff would take affirmative action by congress to pull us back, which typically means 60

votes in the senate, and majority in the house, a presidential signature. my assumption is that if that does that happen, we get caught in a situation where those forecasts would be revised yet again and it would be even more pessimistic than your testimony today. would that be correct? >> absolutely. >> as you think about the sequester and returning to the policy and the estate tax and all of the various factors that we are looking at between now and the end of the year, is there -- if he were to give a recommendation to congress as where to act, would it be act on everything or is the priority that he would set for action? >> no, i think the choice is

between spending and taxes and the mix and the kinds of taxes -- i think that is a congressional responsibility. i am pointing to the collective impact of these different things happening at the same time. there may be different ways to mitigate that affect. i am sure members of congress have different views and the best way to do that. maybe to come to some kind of agreement. so i do not have a specific recommendation other than to think about the collective impact as they all happen at the same time. >> let me talk to you a little bit about the mitigation piece of this. some of us on this banking committee have been meeting for many months, some members have been meeting over a year, talking about an approach.

i would guess the best way of describing that is the outline for the approach is the simpson bowles plan which came out a year ago. thinking about that plan, would you be comfortable in testifying today that that is at least an acceptable alternative to what we are facing between now and the end of the year if congress could see its way to adopting that approach? >> if it does have a profile that seems reasonable in terms of addressing longer-term sustainability over the longer period. but i do not want to endorse the individual components in part because choices between taxes and spending are a congressional prerogatives and because the simpson bowles plan is not really a complete plan. it does not say much about health care and how those costs will be controlled.

but it does have the feature that, like many other plans, suggests to introduce the fiscal discipline in a rigorous way but over a longer time to allow the economy to adjust more easily. >> mr. chairman, i think if the average citizen were to listen in on the political debate that will occur between now and december -- between now and november, you would get very discouraged. but having said that, give us your thoughts -- if congress were able to put a plan in place, whether simpson bowles or another approach that provided that stimulus, maybe, for a period of time, provided

economic stability in terms of tax policy and revenue policy and started stabilizing things with a view towards trying to deal with the deficit over a period of time, what kind of signal would that send to the marketplace? would that be a positive signal? >> it would be very positive and reduce a lot of the uncertainty we see. it would a just a very important problem and would show the ability of our political system to deliver important results. when the united states government was downgraded last summer, the reason was the concern about the ability of congress to come to a solution, not a lack of resources for the country as a whole. it really was about whether congress can work together to deliver a satisfactory outcome. so i think something like that, even if it was only an outline,

a set of guidelines that congress would fill in as it went forward, i think that would go a long way to reducing uncertainty and increasing confidence and addressing one of our biggest longer-term problems. >> senator brown. >> thank you, mr. chairman. as a result of dodd-frank, the federal reserve has grained -- gained a great deal of authority with u.s. banks. regulators agree we have a responsibility to ensure firm rules are in place and rules are being followed. unfortunately, as we all know, since 2008, we have seen too many examples of wall street breaking rules again. and laws and common standards of ethical behavior. i follow up on some issues that the senator talked about. i want to run through it for the sake of repetition because it is important to continue to recognize what these problems are.

investor lawsuits, enforcement actions over mortgage-backed securities. municipalities sold over price credit derivatives, bankrupt them -- bankrupting some of them. the nation's largest bank in january halted all consumer debt collection losses over concerns about poorly maintained paperwork. the nation's largest bank has lost $5.8 billion to date on large complex derivative trades. regulators either did not know about or look to the other way. it appears employees this reported a loss of 16 global banks and were suspected of manipulating. one publication -- a trial exposing illegal practices for ranging bids so banks could under pay for municipal bonds. former employees in the largest

bank told the new york times the company urged them to steal -- steer clients to their own additional funds because they were more profitable for the bank even though they paid investors lower returns. commission was investigating whether the bank manipulated prices for the energy market. this goes on and on. not to mention all the noise in institutions in which the fed has no jurisdiction -- the facebook i.p.o. -- no wonder the public does not trust you or us or any of the banks, whether those on wall street or the regulatory system. i do not know any other answer, mr. chairman, other than to say so many of our biggest banks are too big to manage and too big to regulate. i think this behavior shows that.

>> there have been many debt practices, i agree. many are tied to the crisis period. that is bad business. it is important for us to address those issues through enforcement and of course part of the reason, i am not over claiming here, but part of the reason you could make a list is because so many of these things have been turned up by various enforcement groups. and perhaps many have not, that is true. >> i apologize to interrupt, but he said this is bad business. for a lot of them, it has been good business. it has been embarrassing to some but it has also meant bigger profits and bigger bonuses. it is not good for our economy but it has been far too many reports for some of the bad actors. >> it is very shortsighted. that is the way you build a

long-term relationship with customers. on the size of banks, i think the real issue is too big to fail. if you crocker too big to fail, there will be strong market pressures for banks -- if you conquer too big to fail, there will be strong market pressures for banks. i spoke to the media this morning about the benefits of providing shareholders with additional value by breaking up in situations where you do not have good control or synergies between different parts of the bank. what dodd-frank does is provide a blueprint for attacking too big to fail, that includes liquidation authority, the living wills, which if you wanted to break up banks, it provides information about how you would do that in a sensible way. i think it is important to attack too big to fail. we are addressing that through

capital, supervision, the liquidation authority, living wills. if banks are exposed to the discipline of the market, we will sees some breakups. >> living wills seem to take death only on somebody's bed. i do not think these living wills addressed the issue, nor does this other regulation seem to address the issues of all of this litany of problems street in the end, if these banks can be regulated, it seems clear that the fed and other regulators, they are either not up to the job or they are complete with a wall street activities. i guess i beg of you to figure out how to restore confidence to the american people and financial markets because we have not yet. >> is a high priority. i agree.

>> thank you, chairman of bernanke for being here. i wanted to touch on mullis -- monetary policy before moving on to beat scandal. -- before moving on to the libor scandal. i will acknowledge i am sympathetic to the fact that we have given you a dual mandate which i think creates the risk they will be put in a position where you have to deal with the conflict over to conflicting goals. i want to stress, i know you and i disagree on this, but i feel strongly that the problems facing our economy are not monetary in nature. the result from this on going to leveraging process we are suffering through, and regulatory avalanche, unsustainable fiscal policy which you have acknowledged and the threat of huge tax increases. to address this with easier

monetary policy, i worry about the unintended consequences, including the fact that it has the affect of masking the true cost of these deficits and making it easier for us to continue this imprudent fiscal policy. what i would like to ask you about if i could is this libor scandal. i am disturbed about the destruction about what little confidence might remain in our financial system and about the direct impact to american citizens, including my constituents. i think of this city of bethlehem that engaged in interest rate swaps. i wonder whether they were systematically receiving payments them -- that were lower than what they should have gotten because of this. you mentioned that fed officials became aware of barclays manipulating the index in april

of 2008. "the wall street journal" recounts an e-mail exchange in august of 2007 between a barclays and fed official. when did you become aware that there was a lack of integrity in the reporting of libor rates. >> monetary policy is not a panacea. it is not the ideal tool and we look forward to having partnerships with other parts of economic policy. on the telephone contacts, note that these were phone calls madd e by junior employees whose job it was to call and get information about what was happening in the market. in one of the calls, it was clear that the fed employee did

not know what libor was or how it was constructed so there were issues about how that was communicated. i learned about it in -- at the time when it became covered in the media which would have been in april of 2008. >> here is what i do not understand? -- i know you appreciate the importance of this index and how widely it is used and how the american financial system -- it is integrated into this. you and other regulators understood that there were serious questions about the integrity of this. perhaps even systemic problems with the integrity of this and get everybody allowed in these transactions to continue. did it not occur to somebody to bring the financial institutions together and say you probably ought to consider a different

way of establishing your floating rates because there is this integrity problem? did that conversation happened with any financial institutions? >> financial institutions are not the only participants in this libor-based market though i think the best way to address the problem, given the issues occurring during the crisis at that point in time, would be to reform the way that those numbers were collected so that the libor rate that was set would be an -- >> you mentioned absorbable market transactions would seem like a better way of doing it. the question is why we allowed it to go on the old way when we knew it was flawed for the last four years. >> because the federal reserve has no ability to change it.

>> you have enormous influence over the institutions in beijing in this. >> we were in communication with british bankers' associations. they made changes but not as much as the -- as we would like. >> it is not that market participants cannot understand how it is collected. it is a freely chosen rate. >> i an not sure market participants were aware of the problem of the integrity of the mechanism by which it is established. there are other ways to establish a perfectly viable floating rate that would not have these problems. i am very surprised this was allowed to continue for so long when the problem with the integrity was known. >> again, senator, the fed took the lead in making good suggestions about how to clean up the libor process. >> thank you. >> senator kohl. >> chairman bernanke, last july would discuss how the united

states was experiencing a jobless recovery. you agreed then that the long term unemployment was a major problem and recommended congress take a look away to help the unemployed with things like training and education. the federal reserve has its own mandate to keep unemployment low and we continue to see very disappointing jobs numbers. i am sure we agree the consequences of long-term unemployment are enormous. so why has the fed been so slow to tackle unemployment? why hasn't the fed issued its third round of quantitative easing and could you expand on your current maturity extension program? >> certainly. we have taken a wide range of extraordinary actions to support the economy. in june, we took the step of continuing the maturity extended program which has many of the features of quantitative easing. in of all purchases of long-term securities which provides

additional support to the economy. we made clear we are prepared to take further actions and are looking to see if we will get sustainable improvement in labor marets. -- labor markets. the reason that there is any question is again the range of views about efficacy and risks associated with these measures. that being said, we are prepared to take further action. we will evaluate our options as we go forward. >> i appreciate that, however given that unemployment has remained over 8% for 41 months, now is the time to be more aggressive, i believe, in your approach to unemployment. i think we agree the consequences of long-term

unemployment are too great for this to go on much longer. on libor, one chief executive of multinational bank was quoted as saying that libor is the banking industry's tobacco moment. citing the federal negotiated settlement in 1998 that cost companies over $200 billion, can you foresee a scenario where banks pursuit taxpayer assistance? to compensate parties that were victims of liber rigging, -- libor rigging, could this result in another federally rick cook -- negotiated settlement? >> many court cases are already in progress. i think it is too soon to make any guess at what the outcome of the cases will be. deer have been a few estimates

-- there have been a few estimates of potential costs but those are back of the envelope types of calculations. i do not know what the cost will be. i really do not think it is irresponsible for me to guess until we get more information about the impact of these actions on the actual libor rates and the implications of that. it is obviously very serious but i think it is too early to judge what the cost will be. >> a dozen -- recent press reports indicate the scandal could cost the banking industry millions of dollars, if not trillions of dollars. there is no appetite here or anywhere else to do another bailout for the banks, given the east -- the increasing amount of money at stake, i would urge you to work closely with the justice

department on this. i think he would agree that you will. >> if we can contribute to a global settlement as we did in the case of the services, we would, of course. >> thank you. >> mr. chairman, thank you. and in advance of the crisis of 2008, to many observers of our country's economy, and came out of the blue. as a surprise. what is it you are worried about now? what is out there now that we ought to be paying attention to that has the potential of being the next crisis to the economy of the united states? i often read about the credit card debts, you read about student loan debt. what are the things that you are most worried about and what are

we doing to immediate the problem? >> i think the two items would be the european sovereign making situation which remains unresolved. still a lot of financial stress associated with that. i think still some distance before they get to a solution. that poses an ongoing drag on our economy and although i have every hope that european leaders will find solutions, there is the risk of a more serious -- serious financial blow up. i do not want to take all of your time but we have been taking appropriate steps to try to strengthen our banks and provide -- to prepare for whatever at the events might occur. the other is the domestic fiscal situation.

i think it is important that in the short term, congress worked to adjust the debt limit and the fiscal close -- fiscal cliff and establish a plan for fiscal stability. >> when do we have a sense of whether the european crisis is going to have huge consequences to the u.s. economy? what time frame are we on in which we know whether europe has appropriately responded to resolve their own problem? >> we appear to be in a muddling through a type of environment which is costly to everybody. europe even more so than us. they already in a recession. i think based on all i can observe, it could take a very long time. the structural and institutional changes that europe is trying to make are not ones that take place quickly.

for example, they have recently agreed to create a single bank regulator for eurozone banks. to do that could well take some time. it could go into next year before they have a single bank regulator. the are also trying to establish a set of fiscal rules and agreements. they have made some progress there but given that there are 17 governments that have to agree to every major change, it could be some time before they come to a fully satisfactory fiscal arrangements. it appears to be something that could go on for quite awhile, unfortunately. >> let me ask a more specific question. the kauffman foundation is in kansas city and considers entrepreneurship. its studies demonstrate that between 1980 and 2005, companies

that are less than five years old accounted for nearly all of the net new jobs created in the u.s. economy. new businesses create an average of 3 million jobs each year. our own census bureau now indicates that the start the engine is slowing down. in 2010, there were about 394,000 new businesses started in the united states, the lowest level of new start-ups since 1977. i would like to hear your perspective on the importance of start-ups and what policies congress and the administration should pursue to return the days in which the united states is at the forefront of innovation and entrepreneurship. >> those facts i believe are correct. young companies are in big contributor to job creation because if they are successful, they grow quickly and add a lot of employees.

i do not know -- the data you cited, i do not know how accurate they are. obviously it is difficult to measure start-ups. many of them are small enterprises but i think it is clear that both because of the weak economic conditions and because of problems relating to the availability of credit and venture capital and the fact that many entrepreneurs use equity in their home as a form of startup capital which is not as available as of was before the crisis, it is possible that those companies are not starting up at the rate they have in the past. i do not have a really good program here to suggest. other than to try to create favorable tax environment and credit environment for startup

firms to ride regulations in a way that serve their purpose but allow firms to flores. according to international agencies to calculate these things, the u.s. has a pretty small business friendly environment in terms of costs and time required to start up a small business. it is not like we are in very bad shape on that but in the kind of improvement that would make it easier for small businesses to get the necessary capital to meet the victoria and other requirements -- meet the regulatory and other requirements, those things are approaches that could help these companies start up and provide employment. >> one would think we have a significant startups -- significant startups and terms of the employment numbers which creates the opportunity for

some to start a business on their own. chairman, thank you. >> thank you, mr. chairman and chairman, the end is near. i would echo what my colleague just said. we have legislation to try to promote startups. startup 2.0 addresses the issues you just talked about as well as talent. we made some movement on the access to capital earlier. i would also -- some of my colleagues, because of the actions we took as congress in dodd-frank, we have seen an increase in capital on american banks in excess of $300 billion more in capital reserves since the crisis. i think that has helped our banking industry relative to some of our -- some banks who are under assault around the world. i want to commend you for your

continuing urging of us to act on fiscal policies. waiting for congress is a little bit like waiting for godot. hopefully we will see some action later this year. my first question would be -- as we grapple with this issue of try to get an appropriate balance of revenue to generate that $4 trillion to get to gdp ratio back down, because we can do this on the moderate basis and have the ability to face these things in, i sometimes scratched my head because what is being asked of the american people as much smaller than what is being asked of those within the u.k. or europe where they are going through policy changes. have you done any kind of sizing of what a $4 trillion deal

relative to the size of our economy would be asked of the american people versus those being asked the people around the rest of the world? >> i have not done that exercise exactly but in terms of percentage of gdp, some of the fiscal shifts taking place in countries like spain, porto, and italy are very substantial and in the near term which is part of the reason why their economies are so weak in the near term. it is true in terms of the fiscal step being taken -- it is larger in these countries which are under fiscal stress. but i am not quite sure what the implication of that is. we are lucky that we can borrow at a very low interest rate. we are not currently in the same situation as greece or portugal. therefore if we can

intelligently combined a gradual glide path with a strong credible plan for stabilizing our deficit on the longer-term, we can avoid that kind of painful contraction and do it more gradually. >> it seems to me that it is remarkable that we cannot step up and do our job relative to what is being asked of other people are around the world. one of the things we have had some policy debate this morning on, additional actions he may take to estimate -- to stimulate the economy. if we look at the european central banks' recent actions in terms of -- what affect have their stimulus activities have

on the world economy and in terms of your decision making? >> there has been a global slowdown and a lot of it is emanating from europe which through export demand is affecting asia and other parts of the world, the united states as well. there has been slowing in asia. chinese gdp statistics have been weaker this year than previous years. partly that was intentional as they saw to cool their housing market and address inflation concerns but there is a slowing. to the extent that actions taken by our trading partner strengthens their -- those economies, and will help us in the margin because it will increase our markets and provide an overall better economic environment. at this point, compared to what we saw during the aftermath of the crisis, nothing is happening

globally of that kind of scale -- at that kind of skill. relatively modest steps are being taken in both of those jurisdictions to try to offset some of the slowing. >> but those actions are similar to what you may take in the fed. the point i would simply make is that this is -- there seems to be a consensus opinion of around the world to take these types of stimulative actions. >> the world is an easing cycle. in terms of specific actions, the u.k. just has been adding to its quantitative easing program and doing other things as well. so the u.s. should be very clear -- the federal reserve is not the only central reserve that has been using these policies as a tool to strengthen their economies. >> thank you, mr. chairman. >> thank you very much and chairman bernanke, thank you for being here. i have been in my office listening to most of this on

television. i appreciate that you have talked about fiscal policy as well as monetary policy and the overall economy. you know that your forecast is lower than it was back in january. and you said that you now forecast that we will have over 7% unemployment through the end of 2014. i think we will agree this is not the kind of economic growth that we need and that americans have had in the past. if taxes are raised on individuals making over $250,000, many of whom are small business people, what affect will that have on the projection you have in your written testimony? >> i have not done that

specific exercise. i have been focusing on the overall size of the fiscal shock that includes the expiration of the 2001-2003 tax cuts as well as the end of the payroll tax cuts, ui payments and the sequestration. you put those things together and you get a shock which is about 4.5% of gdp. >> the president reiterated last week his request that we simply raise taxes on $250,000 and above. in terms of the federal deficit, that is a relatively small amount. that would be a tax on job creators and make your numbers worse. wouldn't it? >> it could. if it reduced incentives and direct command.

both of those channels. but as often is the case in tax policy, you have an efficiency and growth concerns and equity concerns. all of those things feed into tax decisions. >> i realize it is hard to predict with certainty. i think we have seen that over time but i would simply suggest to you that you are correct in saying that it could have an adverse affect. let me ask you about the fiscal shock. i think we have to do something on the spending side. the economy is fragile and you do not want it to happen quite so quickly. senator kyl and senator mccain came up with a proposal to deal with sequestration. let me just ask you -- it went over like a lead balloon. let me go back to it and ask what your general impression is of the proposal. it would have raised -- it would have saved, rather, $124 billion

in spending by simply doing two things -- freezing federal pay for federal workers until june of 2014. the second thing would have been a 5% reduction in the federal work force. by hiring only two workers to replace every three leaving through attrition. this reduction would have taken up to 10 years to achieve. that is not the sort of thing that you do as a fiscal shock, is it? we could absorber that type of modest spending reduction in order to save us from the approach of sequestration at the end of this year. >> without endorsing this

specific program, a spending program that comes in more gradually over a period of time but also is tied to a plan to achieve fiscal sustainability in the medium term is what i am recommending. it would be something that would avoid this very sharp change in the government's fiscal position. >> let me see if i can squeeze in one more thing. unemployment rates -- unacceptably high. he predicted 7% or more by the end of 2014. in january of 2002, unemployment rates were at 5.7% to read october of 20 -- 2003, 6%. by october of 2004, 5.5%.

wouldn't we love to see that kind of rate right now in the united states? 4.9% but august 2005. 4.4% unemployment rate by october of 2006. may 2007, 4.4%. by the end of 2008, it is up to 7.3%. we hear a lot of discussion and warnings by people in this city about not going back to those disastrous policies that got us into the situation we are in in the first place. the fact is we had relatively low and relatively acceptable unemployment rate for march of the decade until 2008. -- for much of the decade until 2008. we have real to -- gdp growth

in 2006, 2007, and 2008. what happened in 2008? tax cuts for the rich? >> no, we had a major financial crisis that created a global recession. >> thank you very much. >> thank you, mr. chairman. on your opening comments, you mentioned housing refinancing and families under water. we had about 8 million families whose mortgages are under water. some can we net -- some to refinance but it has been a small number. if families who are under water could refinance and those higher interest rates are trapped into lower interest rates, could that be a significant factor and tool to help move the construction of the economy forward in stabilizing those families? >> if that were possible, it

would be helpful because it would reduce payments and defaults and foreclosures. it would improve the income of the people who could refinance. >> thank you, mr. chairman. switching to another comment -- i believe you made in response to chairman johnson. i think you said you had e-mails about fixing interest rates to make the banks look more healthy but we did not have e-mail related to collision with derivative traders or something like that. can you clarify what you said there? >> there had been two different types of violations -- one which was very much and tense during the crisis. banks under reporting the cost of their borrowing to avoid looking weak in the market. that is the kind of information people were talking about in the

markets and that the new york fed head about in -- heard about in 2008. the other kind is what investigations have recently revealed in the case of barclays with there was clear evidence of individual traders conspiring with others to manipulate the libor submissions to improve or increase their profits in short-term derivatives trades. that is a different activity. i was only making the point that it was only the former that came to the attention of the new york bed. >> in terms of the latter, between the traders and those reporting the rates, when did that first come to the attention

of the fed? >> not until relatively recently. this was something that was discovered by the joint investigation of the cfdc. i think the sec was involved, the doj and british authorities. >> we have an unbelievably large said on monday. we need a low three months six that could potentially cost a fortune. another trader wrote -- we need a 4 1/7 fix on the one month low -- 1 month low fix. we need a 4.1 fix on the 3 month high fix. this type of activity -- does this constitute fraud? does this fall into a criminal area as well as unacceptable

manipulation, if you will? >> based on what i know about it, it seems to be so, yes. >> i think the point my colleague was making earlier was when you know someone has a thumb on the scale, isn't there a responsibility to alert the customers about that from being on the scale? -- about that thumb being on the scale? if you had it to do over again, would you also alert the customers and municipalities that something is not quite right and you should be aware of our concerns? >> it is important that people know about it but i am not sure i would agree that this was something that was on known -- unknown. the financial press was full of stories about it.

the reform proposals that the new york fed may also reported in the press. i think there was a good bit of knowledge about this problem. >> i think the municipalities that were involved are feeling the perhaps were not as aware of the thumb on the scale as they might have been but double all be sorted out in due course. i want to mention an issue i will follow up with you on which is related to the growing role of banks in providing crude oil to refineries and then buying products. we have goldman doing this with the refinery operating in three states. j.p. morgan is doing it. morgan stanley is now doing it in several states. it reminds me of the situation -- at this point, there is no

sign of wrongdoing of any kind, but it reminds me of the potential for problems that occurred when enron was supposed to read it was supplying electricity and running electricity trading markets. because we have that here. we have the banks involved at this supplier and purchaser of large quantities but we also have them involved in all kinds of trading in part because at this point, regulators have exempted this -- the markets from the vote or -- the volcker firewall./ is this an issue we should be concerned about? >> am i mistaken? i thought the statute exempted the market as opposed to the regulation? >> let's follow up on that. there are also a lot of letters that have been submitted on the future spot markets.

i believe that is a gray area. >> except in so far as this that you examine certain activities, i assume the proprietary trading would be subject to the vocal. -- to the volcker rule. we will look at that. >> thank you. >> thank you, mr. chairman. mr. chairman, thank you for being here and freer testimony. i want to make one observation than have a couple of questions. there have been traces of a discussion about the nature of the economic growth we need to see in this country. it really is not just about gdp growth. it is about job and wage growth and whether we can recall and those things together -- recouple those things together.

as you observed, there are things we can do in our tax code and regulatory code that would provide an ecosystem that would deliver on that promise for the american people. we have been having a hard time getting to that conversation in this congress but we need to. we spend a lot of time talking about how to avert a crisis now. you are a historian of the great of -- great depression. no historian will be able to fairly accord -- record your tenure without saying you came to the senate and congress and you clearly said here are the things i most worried about. if you do not deal with it, you risk a real disaster.

one is europe. i would like to hear on that score a little bit more about what you said about the strong incentives to resolve the crisis that the europeans high. -- the europeans have. what are the strong incentive to resolve the crisis? they have a lot of political disfunction there as we do here. but they also have a less elegant institutional arrangement right now for dealing with it. >> that is right. they have both economic and political incentives. the european union and all of those european wide institutions that include now the common currency area were created after world war ii in part to try to avoid future war on the european continent. obviously that is an important objective that people put a lot of weight on. so political union is something that many european leaders consider to be important.

that is just a part of maintaining the currency and achieving stability there. in addition, both the north and south benefit from the common currency. in particular, the germans -- they have an exchange you rate in the euro which is probably weaker than they would have if they had a deutsche mark. therefore they have a more competitive currency and a captive market for selling their exports, both of which would not be there if the eurozone was not an integrated, stable structure. even from the point of view of the germans to have the most concern about the potential fiscal costs and greater coordination within the eurozone, they have very substantial political and economic reasons to try to make

this happen. throughout europe, general opinion polls in most cases is that people would rather have the hero despite the problems they would be facing. despite the problems they would be facing. >> i cannot even imagine. >> they have 17 different parliaments and the treaty which requires broad if not unanimous agreement. so there are substantial problems in getting to agreement. >> let me come to the second point. the most affect the way congress could help to support the economy right now would be to work to address the nation's fiscal challenges in a way that takes into account both the need for a long one -- long run sustain the -- sustainability.

tell us what the 100 year history would record if we do not do this. >> in the short term,as the cbo and others have pointed out, at the fiscal cliff is allowed to happen, it would probably not the recovery back into a recession -- knock the recovery back into a recession and delay the recovery we are hoping to facilitate. in the longer-term, it is simply not possible for deficits to continue along the path that they are currently projected. so either some solution would have to be found that to be very painful at some point in the future because of the size of the cuts. we were talking about comparing us to europe and some countries making big cuts right now we

might face if financial crisis where interest rates would rise and that would feed through to other interest rates like mortgages. it would be costly to our economy. both in the short and long term, it is important for us as a nation to create a fiscal policy that achieves both the short- term and long-term objectives. >> i wish i had more time but i will come back with other questions. thank you, mr. chairman. >> thank you, mr. chairman. and, thank you chairman for 94 and during the long hearing today. -- chairman bernanke for in during a -- for enduring the long hearing today. we talked a lot about libor today and it is a benchmark that

lenders voluntarily used to represent the cost of borrowing by large banks. but there are alternative methods. you mentioned that in your earlier testimony. and nestle institutions could use them as benchmarks for loans and derivative contracts such as the yield on u.s. treasury. each has short comings. can you discuss some of these alternatives and you have any that might be preferable? >> there have been a number of different ones. one that has been considered is the general collateral repo rate. it has the advantage of being a very thick market. trades take place at different maturities. that was a possibility people are considering. another possibility is the ois

rate. the so-called overnight index swap rate. it is like a measure of market -- longer-term federal funds rate. it has some advantages as well. i think the main thing to distinguish is these rates, the once dimensions -- there is no ambiguity about what the rate is. there would be no issues and that revolve reported richard accurate. >> could use to the market's going to another right -- another rate vs the libor? >> unless measures are taken to

restore confidence in libor, the problem is that we have enormous amounts of existing contracts, a variety of other kinds of loans and securities which are based on libor. until those are negotiated away or they expire, you have this huge legacy issue of libor- based financial contracts. typewriter.ke the it is not very efficient, but everyone is used to it and it is hard to change. some might have the same phenomenon there. if we're to keep the libor, we have to make sure that it has the confidence of the people in the markets. >> thank you. chairman bernanke coming section 941, to jointly prescribe regulating -- prescribing regulations that require a securitized to retain

creditors, the rule was issued in march 2011 and the commentary was subsequently suspended. would you say that the role of the bank of new york and its drafting of the completion of that role? >> we tried to look at existing arrangements for credit risk retention for different types of markets. and people in new york to do with those markets on a regular basis would be helpful in providing that kind of information. but, of course, the best -- the responsibility for drawing up the regulations and making the final determination lies with the board of governors in washington. although we may use some

expertise from new york, it is a board decision. >> thank you. when discussing the non-standard monetary policy tools at the fomc is constantly -- is currently using, you have said that the level of accommodation the economy is using is based on the total stock of outstanding securities in your portfolio. and in june, the fomc said that it would take the steps to extend the maturity of its treasure portfolio rather than to expand its size or change its competition -- composition. would you describe why they would choose to extend it and not acquire additional mortgage- backed securities which would have the added benefit of supporting the all -- the housing sector? >> when we say that it is the stock that matters, we are talking about the stock of longer-term security. what this is doing is replacing very short-term securities with longer term securities,

increasing our stock of longer- term securities, putting long- term pressure and, by taking duration risk out of the market, pushing investors into related assets, like corporate bonds and lower yields there as well. this was an effective step and it was a relatively natural one since the previous program was just coming to an end. we extended it for six months. but we continue to look at alternative approaches, including approaches that include mbs and trying to assess both the efficacy costs and the risks of those programs as well as the outlook and the extent to which we think we can get a better outcome in the u.s. economy. >> in the last fomc statement, it said that it was ready to make extra steps it they did not

see improvement in the labor market. what would you describe as an improvement in the labor market? what would it look like? it is my understanding that the fomc does not expected to fall below the current levels before 2013. >> we want to see unemployment going down. we had significant improvement between fall of 2011 and early this year. we would like to see the economy return to a situation where we're making progress on unemployment. >> thank you, mr. chairman. >> we want to thank you for your testimony today on the fed boss economic forecast. thank you. this hearing is adjourned. [captioning performed by national captioning institute] [captions copyright national

cable satellite corp. 2012] >> federal reserve chairman ben bernanke, he will return to capitol hill tomorrow morning to testify before the house financial services committee. you can see that live on c-span 3 at 10:00 p.m. eastern

in a few moments, the committee responsible for the federal budget outlined its plans to reduce the federal deficit. in an hour, a discussion on how changes in manufacturing affect what is produced in the u.s. and then chairman bernanke's testimony before congress. on "washington journal" tomorrow morning, defense spending and joe wilson, chairman of the house armed services subcommittee on military personnel. bill patel will talk about tax cuts. he is a member of the budget and ways and means committee. and we will focus on the cost of health care. washington journal is live on c- span everyday at 7:00 a.m.

eastern. >> if i am president, job number one for me will be creating jobs. let me say that again. my agenda is not to put in place a bunch of policies to give me attention and applause. it will be number one create jobs for american people. i do not have a hidden agenda. and i submit to you this. if you want a president who will make things better in the african-american community, you're looking at him. >> republican presidential candidate mitt romney and vice- president joe biden spoke at the naacp convention in houston. >> just close your eyes and imagine. imagine what the romney and justice department will look like. imagine when his senior adviser

is robert borden. imagine their recommendations for who is likely to be picked as attorney general and the civil rights division. >> watch their entire speeches online at the c-span video library. the committee for a responsible federal budget has begun a campaign to reduce the federal debt and deficit. this is one hour. >> responsible federal budget and i would like to thank you for joining us on the launch of the campaign to fix the debt. i am joined today by many leaders from the business sector, former members of congress, experts who were all working in a variety of ways to

help us move this country towards a serious resolution for the fiscal challenges that face us. it is really exciting because these groups are coming together to work with the members of congress and outside of washington to build a whole campaign to this country back on a sustainable fiscal path. the campaign to fix the debt will bring together co's, business leaders, former members of congress, budget experts, economists, but most importantly, voters across the country to really lend their support and create a safe environment for people here in washington to put together a package that will ultimately put in place a plan to fix the debt, to help strengthen the economy and to do so in a way that will really bring the country back to the strong position it was before where, as we know, if we fail to act, the consequences will be immensely serious. we will continue to work with members of congress to build

support on a bipartisan way for a debt ceiling there will be a lot of very aggressive social new campaigns to bring people all across the country want to focus on this issue and a way that they can be active and have their voices heard. it is parting with all sorts of different groups, both in washington and all across the country. there's one group called the can take it back. we are lucky to be joined by the leaders of this campaign. the last point i want to leave

everyone with his that this will not be easy. we know that that is putting together -- this will definitely be difficult. but the narrative recently has been all about how the economy is broken, the budget is broken and washington is broken. and there are times that many as think that may well be true. but there are some people across the country and members of congress who want to come together and work on this issue. regularly, it is our greatest challenges that inspired our greatest moments. and the people year and all the people we're working with really believe that, as difficult as this will become a this is a campaign that we cannot afford to lose. that is why they're joining us here today to get involved. thank you so much. i will turn it over to you, governor rondell. >> good afternoon, everyone. this comes from the first meeting to fix the debt campaigned steering committee. it was a good meeting.

it must be done so in a way that preserves economic growth and protect the truly needy in this country. this is a unique group. it is an unprecedented bipartisan coalition of former lawmakers, business and civic leaders and budget experts. our goal is first and foremost to galvanize public support to produce a significant comprehensive debt reduction plan that can be passed by the congress and signed by the president no later than july 4, 2013. we think it should be passed into law sooner.

secondly, we believe that it is necessary for us to create an environment where it becomes not only good policy to vote yes on the debt reduction plan, but good politics as well. and we believe we can do this by going after public opinion and generating public opinion and support in america's home towns and other people in america's home towns can deliver that message to people inside the beltway that we want to act and we want to act now. why do we think we can succeed where other plans have failed? for a number of reasons. number one, because this is an unprecedented coalition. no. 2, because we were all dedicated to getting this done. no. 3, because the consequences of inaction, we believe, have become clear and much clearer to the american people every time there is a budget fiasco like

raising the debt limit. the consequences of doing nothing are becoming abundantly clear. and also because the era of that denial is clearly over. the conversation now is not sure we fixed the debt. it is how we fix the debt. and the american people, as is often the case, are way ahead of the policy makers. they understand that we need to get this done. so, can we do it? yes, we can. it is finding the political will to do it. the basic framework, everyone knows in their hearts and in their minds, what has to be done. it is finding the political will to get it done. we believe that is our job, to infuse washington with the political will to make sure, once and for all, that we make significant reductions in our

debt. my thank you to senator gregg who has always reached across the line and found the ability to find real solutions to real problems. >> thank you for all lining very effectively what our purposes are here. it is great to be joined by some a mixture of individuals across america. they're all here to do something about our debt and get it under control. adam smith, over 200 years ago got it pretty well. he said great nations are not empoverish other people. they are impressed by their governments acting badly. we have a government that has acted rather badly in the area of its debt. we're here to help them at will, to get ideas and resources that can be used by the decision makers it we are not the

decision makers, we understand that, but to be used by the debt -- by the decision makers to help us move forward could you don't do this, if we don't get the fiscal situation under control, will know that we will pass on a nation that is less progress, where they have less opportunity and with the standard of living dropped rather dramatically. we don't have to look much further than across the pond to see what happens when you do not address this effectively. and put the template of the american template over the european union. we are in moore's years shape in a number of areas and there. our deficits are higher bid our accumulation of debt is moving faster. we have the resources of our extraordinary nation behind us, but we better take action. what we will try to do here is support those folks in the congress who are willing to do that by giving them ideas and initiatives. one of the strongest ideas in the marketplace was developed by

a erskine bowles. it is a vehicle that already has credibility and updated today, taking into consideration what the president and the speaker of the house did, the consideration of the super committee, and the simpson bowls process and producing a vehicle which will give people on capitol some resources to use that are very constructive. so it is great to join with all of these extremely people. time is running short. we have a major decision point coming up with the fiscal " occurring and probably the mother of all lame ducks in december. therefore, we want to make sure that people have what they need in order to make good decisions at that time. >> bob zelnick. i just left the presidency of the world bank.

if it is a real pleasure to be here. about a month or two ago, i had a visit from the foreign minister of australia, a very good friend of the united states, named bob carr. and what he said has stuck with me. the united states, he said, is when the deal away from restoring its global pre- eminence. but, he cautioned, there are countries in the asia-pacific better saying, this time, the put andtates isn't up you better listen to what we have to say. adam smith, 200 years ago, alexander hamilton, the first secretary of the treasury, his first goal was to restore america's credit. the secured a country, created a

base so it could finance the louisiana purchase and they made the strongest country in the world. but our generations now is squandering a legacy of over 200 years. the world economy is stumbling. the european situation is a caution and warning of what can creep up on a pretty fast if you don't act. so the task of trying to get control of a budget and a debt that is out of control is not only an issue for future generations in maintaining a legacy. but it is a question of whether the united states will continue to lead in the world. i don't believe that a slow- growth economy can lead. so the issue we are facing is one where we hope this to -- this group, building on the one we had before, perhaps will help organize and support for the decisions that ultimately the congress and the president have to make. thank you.

>> first, thank you for bringing us together. i'm proud to be part of this group, part of the steering committee. i am delighted to be working with people i have worked with in the past and that i have tremendous respect for. number one, we have a fragile economy, as bob said. not just in the united states, but particularly around the world. no. 2, neither party in my view, even after the election, will be able to impose its view on the country or other parties. no. 3, this is not physics. this is not talk it was. this is arithmetic. in my view, neither party has a governing strategy. both parties have been very vigorous political strategy. just to underscore, there are

people who are already working together. we have a lot of smart folks on capitol hill. we have people who understand this problem. but the ones who are trying to work together don't get support from their leadership. they don't get support in most cases from the white house. and they don't get support from their parties. so what is happening? i think we have two wings out there in the political system and the fuselages missing. the american people will have to rally and they will have to support people who are willing to work together. to me, the rallying point is right here. they have done a tremendous job in their commission. i happened to be driving back from georgia when the erskine commission report cannot.

i must say that i was impressed. again, just speaking for myself, why not substitute simpson bowls with a cliff in early december so that, at least, if nothing is done, this becomes the default position in june or in april or whenever the deadline is you for your leadership. it is agreed to be with you. >> thank you. it has been about 30 years when i started boring people. [laughter] about the long term and unsustainable debt in this country. and today will not be an exception. i can assure you. there have been a few moments over the last 30 years when progress was made, like in the 1990's. and i would like to make the cases that there's quite good opportunity at this time.

there is rapidly growing awareness of the problem in several sectors. for example, farmers, who rarely agree about anything, we serve a large number of former public officials from eight previous administrations and we asked them about the debt situation. 100% of those former bipartisan decisions said they strongly agreed that the fiscal situation was unsustainable. what about the think tanks who also rarely agree? our foundation went to six of them last year. we asked, number one, what do they think about the sustainability of the situation and, number two, what was their plan? all six agreed, even though they covered the whole ideological

spectrum, that in become it was unsustainable and they came up with their plans. third, the business sector. some of you may recall what tom friedman said in the business sector. these guys are m.i.a., missing in action. today, maya has put together an outstanding group of co'eo's. i think major progress is now being made among the business sector. finally, let's talk about the public level. recently, we had a survey of 1000 citizens of this country about this situation. i saw much in that survey to encourage me about the possibilities. they seemed too much more fully understand the problem than they used to understand. i will give you just a few, i

hope not too boring, statistics. 93% of democrats and nearly 80% of republicans told us they believe that these long-term debt problems must be solved and must include both tax increases and spending cuts. so while washington is mired in ideological and almost theological arguments about no revenues and no entitlement cuts and so forth, the public is saying i want a compromise. we want you to compromise and make a deal. my son reminded me that it was nike who said "just to do it." i think we are at the level where we just want to do it. thank you. >> dave cody, the ceo of

honeywell. as a member of some symbols, i was shocked at the size of the problem and the biscuit ability of the problem as the baby boomer generation retired. -- and the in this capability -- inescapability of the problem as the baby boomer generation retires. if you had spent the $1 million a day since jesus christ was born 2011 years ago, you still would not have spent a trillion dollars. that will be our annual interest bill if we don't do something. the uncertainty of the resolution of this problem is causing people like me to be extra careful when it comes to making hiring decisions and investment decisions. if we don't do something, we could find ourselves in a position where 2% gdp growth at

8% unemployment is the case for the next five years. we don't want to do that. we don't want to hurt a fragile recovery. but at the same time, it is important that we address in the long term both a simplified tax system that collects more and a simplified entitlement system, specifically medicare and medicaid, that spends less. if we don't do that, we will never resolve this issue. and like a lot of issues out there, both republicans and democrats are right. there is a readiness to both of their positions from what we have been doing is -- there is a bright ness -- there is a rightness to both of their positions from what we have been doing. to build on bob zelnicich's poi, as the ceo of honeywell, have traveled to many different countries.

you get to see a lot of people changing and a lot of countries changing. you see people working harder to compete every day. the competitiveness of the world is improving every day. we are not keeping step. and this is one of the biggest things we can do to improve the competitiveness of the country and get us back on the path that i think we rightfully belong and that is that we have to solve the debt first. there are a lot people in the world and in some countries even that think that we no longer have the political will to act. as a once great country, we have begun a path of decline because we can no longer do the tough things in life, make the big decisions that we need to print i don't believe that. i know this group doesn't believe that. i can also represent that must ceo's de not believe that. but we have to exert the political will to actually act and make those tough decisions. thank you. >> i am at the brookings institution. i may have served on more debt

commissions than anybody in washington. [laughter] we are calling this effort fix the debt. but i think what we really mean is fix the economy and restore a vital high growth u.s. economy that is capable of leading the world. fixing the debt and growing the economy are not antithetical. they are necessary to each other. we cannot grow the economy without fixing the debt because, at the moment, we are unique unsustainable situation and we cannot fix the debt without growing the economy. i was proud to serve with erskine and now simpson and now cody on simpson bowls. i also served with pete

domenici. what i learned from this double experience is, as somebody said earlier, it is the arithmetic that drives the problem. you have a bipartisan reasonable and sensible group looking at what we do, they come to the same conclusion. we have to reduce the rate of growth of entitlement programs, especially the health care ones, and we have to reform our tax system so that it raises more revenue in a better way. those are the key. so it isn't very complicated. it is doable. and this group has set out to convince the american public and our legislators that we are on a track that cannot lead to any good, but we have the potential to get off it to grow the economy and to fix this problem. thank you.

>> i am steve ratner. i think i am the wall street representative here, having spent -- i hope that is okay still -- [laughter] having spent most of the last 30 years on wall street. everybody on wall street can do arithmetic. some can do calculus and physics and all that stuff. wall street is a very diverse place. we have people from every ended -- and of the spectrum and plenty from the middle. madison will person -- from the people i work with on wall street, they have many different views on what to do about it and how urgent it is. but everything -- but everyone in washington can do math and everybody on wall street understands it needs to happen.

you cannot deny their importance. they are the -- a critical lubricant of any will functioning economy. we fortunately have had the best functioning capital markets in the world and we want to keep it that way, particularly in terms of how they view our debt. you heard a couple of mentions made of places where the markets have gone awry. one place was in 1993 when bill clinton arrived and was hoping to do some extension stuff and the market said not so fast. we need to deal with deficits. interest rates started to go up fast. ultimately, a deficit reduction package was put in place and we ushered in a pretty sustained time of low inflation and growth and even lower budget deficits as the 1990's wore on. europe was mentioned and we certainly have seen the consequences in europe but when

you get off track. many people say to me, well, interest rates are so low in the u.s. right now, why should we care about it? first, we have all these problems, but most of the world has worst problems than we are the flight to safety, incredible as that may seem. secondly, markets are not quite as fast acting and as responsive as you might expect them to be. markets are not perfect. it is a little bit like a parable of the boiling fraud. g. boiling fro now you see what has happened to greece. i do not think that we should take any assurance from the fact that we have this doric very low interest rates. that could change in an instant.

-- have historic very low interest rates. that could change in an instant. and that could very well happen. the last thing i want to talk about is the fiscal cliff. among the many things that the market hates is uncertainty. we saw some of that during the debt ceiling debacle last summer, which produced the second sharpest drop in consumer confidence, second only to hurricane katrina, and a bigger drop than what happened in the invasion of kuwait or lehman brothers. it has only recently come back to where it is now. we have to be very mindful about how we operate in the short term. i would like to leave us on a positive note. as an example of president quintile in the year to begin in

the early 1990's -- president clinton in the early 1990's, there is hope and there is a way to fix this problem. every day that we let it fester, it gets more difficult and harder to fix. >> i am the executive chairman of world fuel services corporation. most importantly, i am an entrepreneur. it never occurred to me that come in building all the -- that, in building a global company, that there would come a time in my career that the single list long-term threat to my ability to compete with global marketplace is the fiscal solvency of the united states.

i think there is a sense that life would just go on and we would be ok whether it is about the plane your cash, training people, creating jobs, long-term health care costs, tax policy, all of these things are derivative of a root cause and it gets back to debt. that crisis is real and it is unsustainable. we are headed toward a $7 to invest in december. -- $7 trillion mess in december. we live in a highly polarized and highly hostile political environment. i think we need to stop trivializing the debate. we need to talk about the substance. we need to not confuse advocacy for governance. we need to get beyond and transcend partisanship. i am here as a citizen of this country and i think we are all

citizens of this country. this campaign is about galvanizing broad support across all segments of the society to its citizens to help create the political will to get this done. and to take control our economic destiny. destiny is not a matter of chance, but of choice. it is not something that happens to you, but something that is achieved. i think this is achievable. if there's anything that i learned from erskine bowles, there is a framework in place. it allows rational well-meaning people to get together and solve this problem. but it is not easy. business is part of the problem, too. we all own it. we'll put in the people in government who have contributed to the problem. but you cannot stand back and watch. that would be reckless. we owe our citizens better. we owe our children a lot better than that.

now more than ever there is an urgency that is unprecedented and i think that i am proud to be a part of this campaign. people were stunned last year when we fooled around with the debt ceiling. that is something that shocked the world. america, the greatest free country in the world cannot get the political system to do this. so we have an opportunity to be great. this is a country by the people, for the people. many to take control of our destiny. there would be no greater statement we can send to the world than to get a debt deal. thank you. >> good afternoon. i'm al simpson. [laughter] you know, we have had william jennings bryan quoted. we have had alan smith. we had alexander hamilton. so i q willuote my here -- so i

will quote my hero, al simpson. .t just texting me appeare [laughter] he would be here, but he had some surgery done on his legs and he gave me some notes to speak for him as he always does. i just want to make a few short points. i am the 10th of 10 people you have had a chance to listen to. i am really proud to be part of this bipartisan effort to put our fiscal house in order, but more importantly, i am really delighted to have a chance to work for judd and ed. they are my kind of leaders. they know how to work hard. in no hurry to get something done. and that is what we have got to

do in the days and weeks ahead. and i think i would be a mystified did not say that i am also proud to be on the stage with people who have been in the vanguard of this effort, real pioneers, people whose shoulders i certainly stand on, people who supported this effort and actually saw we would end up where we are to be long before i did. i wish pete domenici was here because those people have recognized this problem for a long, long time. i do believe and you have heard me say it before, but we face the most predictable economic crisis in history. it is just math. fortunately for all of us, it is also the most avoidable economic crisis in history. the fiscal path we are on is simply not sustainable and these

deficits of over $1 trillion a year, they are a cancer. anticancer will destroy this country from within if we don't get the politicians here in town in both parties to wake up and decide now is the time to act. we have to have a comprehensive long-term fiscal plan that reduces the deficit by least $4 trillion. and $4 trillion is not a number we made up. $4 trillion is not the maximum we need to reduce this deficit. it is not even an ideal amount. amount we needmum ou to reduce this debt. our commission came forward --

this whole commission idea came out of a nice idea thatjudd and kent conrad had if they hadn't held the administration's feet to the fire. so thank you for that. but this commission on fiscal responsibility of reform did come forward with a plan that does exactly what i think this nation needs to do. alan and i have always said that this plan is no more than a starting point. there are a lot of good ideas out there. i have read of a plan that alice and people manage to pull together and it has some better out there than we have put forward. it is terrific. i looked at the work done by the gang of six and there are good ideas there that we could all

use. if you look at the work done by the super committee, the work by the president and the speaker, some of the work done by the biden commission, you can see some really good ideas. and we have enough really good ideas out there. what we need now is to act. we need real action. as everybody said who came before me, we do face a fiscal clef. if we do nothing and we barrel through this fiscal cliff at the end of the year, we will have about $7 trillion hit this country right in the gut and that is crazy because the effect of that will be somewhere between 1% to two 0.5% of gdp. that is enough to put our country back into recession. that we cannot have.

that is why al and i have spent 90% of our time over the last year traveling around this country. we spend some time here in washington meeting with members of the house and senate from both parties and we got some great ideas. we visited with the think tanks and got a really good ideas there. think tanks on the right and on the left. we have designed and hopefully it will be kicked off today this effort to put together a social media campaign where we hope that we can get as many as 10 million people to sign a petition to encourage congress to act and act responsibly now. and lastly, we have been putting our plan in legislative language. it has gone from about 65-page report to over 600 pages.

while i think that is crazy, it is probably one of the many reasons i would have been a terrible senator. [laughter] we hope it will help as a framework for the real decision makers in the house and senate to come together. we had hoped from this effort we have made and the effort we have made in putting together this ceo fiscal leadership council, which has over 100 members of the fortune 500 now as part of it, we had hoped that common sense would overrule politics and people in this town would be hard at work at this now. but it looks like politics will override common sense and nothing will probably happen until after the election. what the hope of this group is is that we can provide the decision makers the kind of vehicle and the kind of support

and the kind of support from the country at large where they can come together during the lame duck and put together a framework of a policy that will move this country forward. i think, if they do, not only will the people of this country rejoiced. i have literally met in the last year with hundreds and hundreds and hundreds of thousands of people, people from the right, the left, the far right, the far left, the center, democrats, republicans, conservatives, liberals. if we had an hour of each one of them, we always got a standing ovation because the people get it appeared they want real solutions to real problems. they understand the problems are real but solutions are painful. but there is no easy way out. but i believe those same people

will rejoice and i think steve is right, too, that the markets will rejoice if we come together on a common-sense bipartisan balanced plan. and i think, if we do that, the future of this country is very, very bright. maia, thank you for letting me be a part of this. >> we will take a couple of quick questions from the audience and then we will have a time afterwards where people can stay and talk with the bunch of export -- experts as well. >> times up. [laughter] >> great job. >> you mentioned the july 4, 2013 deadline idea. there is the cliff, but you don't sound like we will hit the cliff full on. >> we will just be here as a

resource for the congress. if i were in the senate, i would suggest they set up a procedure with ascertainable standards which would cause them to either act or that things will occur if they don't act before july 4 on these big issues on entitlement reform and tax reform. >> thank you to maya for putting this rational group together. i also want to thank her for launching his campaign. i have a question -- there is no present existing stock about entitlements that we approach. when we talk about that, it does not include this huge overhang. we need to underscore

entitlements as well as revenues. the combination of the airplane with no fuselages and the campaign contributions, if you have a billion dollars worth of campaign contributions twisting representatives and the wingnuts twisting them, i don't see the logic, the political will or the logic for putting this together and reaching something rational as you're suggesting could and if i missing something on the arithmetic of a billion dollars, let me know i guess my question is, are we doing anything to mitigate the major contributions to the wingnuts and voting for the wingnuts on both sides? thank you. >> anybody? [laughter] >> go ahead. >> you go. >> this is not an absolute direct answer to your very good question.

concord coalition, bob biggs be is here in the front row, he and i co-chair that now that bob kerrey is out running for the senate in nebraska. csis has this directly focused on security and foreign policy. we believe this is a security issue. those two groups and others, including pete the medici and ellis, will have a set of hearings in september. there will be one on fiscal policy, one an income of policy, one on taxes and growth, and one of security. what will come of that, we don't know. but we will get the best witnesses we can find and try to get the consciousness raised around the country and try to get the middle of america as assertive as those on the wings. >> you should also note that we are not trying to engage on the presidential elections. once this election cycle is

over, we want to be available has a resource for whoever the next president is to be able to govern well and for the congress to be able to govern well. we will have a bunch of ideas for -- to help them accomplish that. and the american people has an inherent common sense that quite often exceeds here in washington. >> all the way in the back. >> a lot of americans already believe that the debt is a big problem. the problem is -- my question is, as far as the social media campaign, how do expect to get people to excepting the problem to accepting the hard realities? but it is not that big a jump. 93% and 80% agreed that we have

to do both. raise revenue and reduce spending and reducing entitlements are the growth of entitlements. the stage is set. we just have to galvanize those people to speak up. if you are in elected office holder, you hear from -- i don't use the word wingnuts -- but you hear from some people on the extremes in a higher percentage in numbers than the people in the middle. our job has got to be to get the people in the middle to speak up, whether it is through social media, through traditional letters and e-mails. we basically need them to give the legislators here in washington a permission slip. it's ok. we will stand by you. we know this is important. we know it has to be done. go do it and we will be there. i think that is eminently doable. it will not be easy, but, if you

can get americans to understand how important it is and people grow in their understanding literally every time there is another bump in the road, i think we can do this. that is our task. >> this morning, during chairman bernanke's testimony, senator schumer basically asked him why are you not asking to fix our economy because we cannot? it was one of the most unbelievable statements i have ever heard any testimony of that type appeared it just shows how the senate cannot do anything. how do you address that in this process, that type of attitude? >> i actually think the senate is where the constructive action will be energized at a very high level. you have functioning in the senate right now -- the gang of six is not 6 at all. it is probably about 30-40 people.

we talk with a group of senators, probably 40 people there. chuck schumer was there. people from both sides of the aisle were there. the ring days and interested and they understand that some significant action has to occur. i think the senate is quite fertile ground to get something substantive done. and we will try to be of help to them. >> federal spending has exceedined in the past year, however tax revenue has never been as much as 24%. >> i can tell you the way that we thought through it, which is not 100 percent of the way that everybody appear would do it. but you have roughly the right numbers.

in 2020, the forecast is for spending to be about 24% and revenue to be about 19%. if we wanted to get the deficit down to at least 1% of gdp, that meant we had to get spending down to around 21% and we had to get revenue up to around 20%. that is what we were able to do in our plan. i believe you can get spending down to 21%, even with the changes in the demographics and even with health care growing with the rate of gdp plus one. somebody asked earlier how to do that. you make the tough choices. there is this nobel prize- winning scientist ernest rutherford and his nobel prize project was running out of money. he turned to steam and said, hey, we're running out of money. now we have to start thinking. [laughter]

that is what america is. we are running out of money. we have to start thinking. we have to make choices, tough choices. we have to make the hard political choices. i just ran the university of north carolina for the last five years. one thing i wanted to focus on was making sure that we did our part to improve k-12. we produced most of the teachers so i wanted to figure out how we could produce quality teachers, not just mortgages, but better teachers, morth and science teachers. i said, surely, there are some federal programs we can look at to improve the quality of teacher education. there are. there are 82. we do $1.5 billion of annual federal scientific research at the university. is that all high value-added research? it is not. nor is it at the 3000 other

colleges and universities that do scientific research. i want to invest in education, in research coming in infrastructure. but we also have to look at how we're spending our money today and make sure we spend it more wisely. that is why we can trend spending way down. i believe, as the economy improved and we go through simplifying the code and getting rid of some of the spending in the tax code, we can also create additional revenue. >> last question. >> [no audio[inaudible] >> bus republicans and most democrats and almost all independents recognize that you cannot resolve this problem in a partisan way because the american people cannot accept action on programs that they consider critical to themselves and to the nation, such as entitlement programs like medicare or medicaid or their

tax dollars unless they think it is fair. and often as required by partisanship. i think republicans look at it this way, or i hope they do. if we get a solution like simpson bolts, which recognizes that the majority of the african debt reduction has to come on the spending side, then the revenue side can be accomplished through tax reform, major tax reform along the lines of what president reagan did. which gives you a different tax law which is much more oriented toward investment and economic growth. so i think there's very fertile ground for republicans to step into this debate and be extremely constructive. i think most republicans want to do that. again, i will return to the meeting of the senate. both sides of the aisle were there in large numbers, very interested and varying dates on

had to get this done. these are solid folks want to be constructive and who were looking for different ways to do it. >> there were members from both sides of the aisle. they would they had it three votes during our session. they ran out to vote. they were all back in there. nobody pulled out. people are interested. they know we face a fiscal cliff and they know they have to deal with it. >> we are aware this will be a formidable challenge. it is absolutely necessary to galvanize strong public opinion from virtually every area of this country. i think some of us will stick around of any of you want to talk to us individually.

thank you. [applause] [captions copyright national cable satellite corp. 2012] [captioning performed by national captioning institute]

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>> now a discussion on what has been produced in the u.s.. from washington journal this is 45 minutes. host: the larger issue at stake is what is made in the usa. >> i would say almost everything.

if you look at imports relative to the size of our economy, we make about 86%, 84%. compare that to china or mexico, most import a whole lot more than we do in the united states. it is a situation where many products are made from parts all over the world. it is not quite clear how much we really do still make here in the united states. host: the european union at 39% and the world average over all at 49%. host: we have to ask what we are importing. from there they have a much

bigger footprint. they are responsible for one- quarter or more of all the goods that are produced and sold here in the united states. i think it is a more significant issue especially with respect to apparel. team usa and yet they are wearing uniforms made in china. i think that was a missed opportunity to promote made in the u.s. products. host: are there purely made in the u.s.a. products? guest: i think they were looking specifically at the blazers they were wearing. you can get blazers and suits made in the united states. there are u.s.-made brands. host: what our strengths and

liabilities on the topic? guest: i think china should be outraged because they are wearing uniforms with a nike logo. they are sending their money to can you imagine if the tables were reverse? ralph lauren employs twice as many people in the united states. do we want them in front of a sewing machine eight hours a day? host: will create those kinds of jobs? guest: more economic freedom. look at a spectrum and have countries that are not free and countries that are free. new zealands, hong kongs, that is where people have more freedom.

people tend to be a lot worse off in those countries. host: the idea of freedom when it comes to making things in the united states. guest: i think it is a good idea. would you look ex countries that have done well, they emphasize planning and carefully targeted their productive capacities. germany invests heavily in training and workforce development. they have managed their industrial structure. despite competition from china, germany has a large trade surplus with the world as a whole. they are a country similar it to us. their wages are higher.

they have more interest of government regulations and yet the more successful. host: you can join the conversation by asking them questions or sending us a tweet or e-mail. democrats, 202-737-0001. republicans, 202-737-0002. 202-628-0205 for independents. you can send a tweet at twitter.com/cspanwj. what do those figures and those rankings mean if they are imported? guest: i have looked at imports by industry. the import share of total

consumption ranges as high as 90% in textiles and apparel. we're almost entirely import consumers in those kinds of sectors. even with automobiles, the figure is up over 40%. we have to invest to recover those kinds of jobs. guest: those figures are a loyal misleading with respect to china. but it's something like an ipod. all the -- we capture most of the value from that product. the federal government spends so much and borrows so much money. it borrows over $400 billion. that is the core problem that

needs to be address to. host: danny is up first from houston, texas. caller: hello. what is made in the usa? i made a resolution -- i am 82 years old, retired engineer. i made a resolution unless entirely needed, not by anything that was not made in the usa. i found everything, if you look. host: how much time did it take you? guest: that is fantastic. that had to be your choice and it should not be somebody in washington, d.c., telling you how to spend your dollars.

it is made in the u.s.a. because we have a 10% tariff on imported wool coats from other countries. i pay more and somebody else pockets the money. i think most americans would choose to do business with their friends and neighbors. i can afford to% more on the suit. a single mother buying new shoes and t-shirts, those of the people that are hurt the most. guest: i think danny is trying to buy american. our own government is moving in the opposite direction and negotiations are taking place over the next global free-trade agreement. there are measures of el al law

any kind of labeling to identify the country of origin, where things are made. if people are trying to outlaw that. they do not want to have consumers discriminate between products made here or in mexico or in china. that is a fundamental rationale we should reexamine. related is the government procurement agreement, which says all government contracts have to be available for providers from any country. that the only country honors the kind of contract and we should we examine that commitment and use our public investment to rebuild our own industries. guest: i think we should encourage other countries to be open to u.s. products.

people in the other countries should have the opportunity to buy our products to build their it infrastructure and their roads. host: the idea of who sends jobs overseas. both candidates have made claims about this about the other. he addresses governor romney's tax proposal and if they would send jobs overseas. [video clip] >> by eliminating taxes, governor romney's plan would shift and crete 800,000 jobs in those other countries. this should not be surprised because his experian as has been hit in investing in the business of outsourcing.

now he wants to give more tax breaks to companies that are shipping jobs overseas. i want everybody to understand that i have a different take. we don't need a president who plans to ship more jobs overseas or wants to give more tax breaks to companies that are shipping jobs overseas. i want to give tax breaks to companies that are investing right here in ohio. i want to give incentives to companies that are investing in you, the american people, making american goods that we can sell around the world at would say "made in america." host: that is president obama from cincinnati. there is a story in "the wall street journal." you can comment on that.

guest: i think what the president is trying to do is to encourage firms to move investment back to the united states and i think that is it wise move. the proposals that candidate running has made would increase the incentives to do that. i am concerned about these kinds of tax policies and what they will do. u.s. multinationals have cut employment while they have expanded millions of jobs to the work force overseas. that has led to a loss of american jobs. guest: look at the big picture

of outsourcing. in 2010, people and other countries invested $2 in the united states. if you look at the total stock of foreign investment in the united states,there is a net $4 trillion in the united states for creating jobs. that is a good thing. i go back to the main principle. we need to have more freedom. the ones that tried to control things from the government, they are the ones that will suffer. host: territorial approach? guest: we do not want to subsidize companies -- a -- i would look more at organizations like opec -- a government agency which guarantees investments if you go to another country and your bail you out. need to look at. host: sheila from delaware.

call. i don't understand people when they start grouching about china taking our jobs. we would do it. it is the rich people taking jobs over there. i do not know what they blame obama so much. the rich are government support these companies and take money to hurt us around here. i do not understand it. was a republican and now i'm going to be a democrat. guest: look at who owns nike and ralph lauren. look at who owns most of the fortune 500 companies.

that is the money they need to retire on. we need to -- if we have the successful company, the government is responsible and i think that is outrageous. host: van from winchester, ohio. caller: good morning. thank you for taking my call. i am a first-time caller. host: go ahead. caller: i think the republicans and the democratic leaders in this country failed american people. there really hurt america and what american people want is a free trip and a fair trip. i'm listening and i hear our

leaders talking, especially mr. reid. he said to burn the uniforms for the olympics. most of these people amuse me. i'm laughing, go ahead and turn your ipad and turn your tv. go ahead and burn your blouse, anything. we should benefit from trade, but it has to be free, fair, and balance to four american people. guest: i think the caller makes three good points. the trade should be free, fair, and balance. right now we have trade that is unrestricted but is not fair and is not balanced. we have a massive trade deficit

that this places as much as 5000 jobs in the united states. trade is unfair. countries like china are manipulating their currency. a tax on all of our exports to china and the rest of the world. they want subsidies and that is not a fair trade and we need to step in and correct it. we need to get much tougher with currency manipulation. we need to declare that china is a currency manipulator. there's a bill that would allow companies to ask for duties to be assessed against imports from china that are subsidized by manipulated currency. fair trade enforcement in the

united states. they do not want to stop the subsidy they are getting from the chinese government. we need to enforce the fair trade laws. guest: i agree with the caller and that fair trade is a good thing. you have something you want to sell and i want to buy it, and we agree on a price. what is not there is one people in d.c. listening to lobbyists -- lobbyists tried to get special handouts for the company's and that to me is unfair trade. fair trade is giving the people

the choice to save the money without the government getting in the way. caller: i grew up in dayton, ohio, and i'm back here taking care of an aging parents. i watched national cash register and move south and other manufacturing in the dayton region move south for cheaper labor. many operations moved overseas. this happened around the country but around the rust belt zone. how did both parties basically over decades sell the american workers and unions down the pike, and they have benefited handsomely.

i wanted to ask about both parties with trade agreements. there has been a trade agreement that obama hasn't liked. could you talk about what percentage of their product now has to be -- say you have a product imports are from all over the world. what percentage of their product has to be made in the u.s. to then be labeled "from the u.s." i think china charges 20% tariff or tax for u.s. products and we charge china 2%. host: we will leave it there.

there's a chart we have from a boeing 747 streamliner with parts from many places going to one specific products. what did you get from that? guest: 8 problem that boeing found when they decided to outsource countries all over the world was that when they went to put the plane together in seattle, they found they had a bunch of parts lying on the floor that did not fit together. there were years over deadline in delivering the plane. i think companies are discovering their hidden costs to this globalized production chain the we have been hearing about and real advantages to investing in the united states. guest: there is a big bmw factory in south carolina.

there are toyotas built in the united states because we have some of the best workers in the world. we need to focus on training and educating our work force so we can continue to compete. if you have problems in ohio and michigan, but the state policies in have that have caused these companies to move to texas or south carolina. host: is that they made in usa product? guest: it is made with parts from all over the world. how do you decide what is made in the united states? how do you account for the profits that the retailers make selling ipads? it can be challenging.

guest: i think there is a simple answer. cars that are made here and designed by u.s. companies and have higher levels of domestic content are made in the united states. look at some of the newer imports from korea. they may have 10% or 15% of u.s. content. guest: this is good for consumers and forces the u.s. to be more competitive. host: our topic is what is made in the usa? we're joined by robert scott and bryan riley. you can give us a call. 202-737-0001, for democrats. 202-737-0002, for republicans.

caller: give me a couple of minutes, pedro. it is assembled in america. only 75% of the materials have to be made in america to be called made in america. i believe in my opinion. i have been talking about this subject on c-span for over a year. 3 million skilled jobs available over the last two years, like welding and stuff. i'm not blaming anybody.

our biggest problem is raw materials and our labor force has been trained to go to college. biggest diploma is a liberal arts and stuff. host: what is your question? caller: how can we bring it back? china sets up companies next to the raw materials. they have a strategic way of manufacturing. how can we get the education back to get our raw materials back in america. host: thank you. this is from twitter from victor. guest: exactly.

they have some many new factories in china because all the subsidies they get from the chinese government. there will invest $600 million in clean energy technology over the next decade. we can touch that level of public investment. china also competes in other ways that are unfair. the biggest single thing they do is to keep their currency undervalued by 25% to 30%. they also subsidize and build their products here in this country. that is what multinationals are willing to go over there and build factories. in fact, some of the biggest exports in the united states are

raw materials. our top exports last year, scrap steel and scott paper. beyond that, raw plastics and hard coal. they are taking our commodities and turning them into finished goods. guest: i do not think we want to start trying to out-subsidize china. i agree that raw materials are so important, trying to find ways to free it resources. i think we have a lot of untapped resources. most of what we import, they are not finished goods. most of them are raw materials. over half of what we import we used to make something else. that is one reason removing barriers is going to benefit people here. i want to say one more thing. this is a perfect example. we pay 40% more for sugar in the

united states than people in other countries do. we have candy companies that have moved to canada and elsewhere. host: this chart shows the types of employment trends that are going on. it shows a 81% jump. the service industry, -25% in the goods producing industry. my question is, where are we in terms of made in the usa? what about service? guest: the service sector is growing. there is a difference in the type of service. i grew up in kansas. every kansas farmer feeds 45 people. eventually, they get up to over 100 people. they get tired of repenting the sun.

farmers got more and more productive. our manufacturing workers can produce more. we have more people going into the service industry. that can be a good thing. i would rather have more doctors and nurses. it is the type of services, the types of manufacturing jobs i think we need to focus on. by freeing up resources to have more doctors and architects, that is something we should encourage. guest: we have developed an unbalanced economy. we have had tremendous growth in imports. it has cost us about five and a half million manufacturing jobs. when the economy was fully employed, those people were pushed into the service sector. we have in balanced growth. we have too much and services. where was that growth? there was the greatest demand in low-paying jobs like retail,

walmart, restaurants, home health care. these are not growth industries. they are minimum-wage jobs. host: cancun, mexico. this is chris on our independent line. caller: the whole problem with the outsourcing is, the companies that make billions in profits. you have a company like sprint, 50,000 customer service jobs. they pay people to dollars an hour. they are not paying for sprint service. americans are taking up $100 a month. here is printmaking all of their wealth of americans without having to hire any americans. this is what is great in this economic downfall. companies that are outsourcing

are making all of their wealth of of those who are in america. without having to hire americans to do the work. guest: the caller hits the nail on the head. the problem is it is the multinational companies that are making these decisions. i have looked at the activities of multinationals. 1999 to 2009, they used to export more than they imported. they created jobs. over the last decade, they have shifted to outsourcing. they have shifted factories abroad. we lost 62,000 manufacturing facilities. as i said, millions of manufacturing jobs. they have moved those to other countries. it has made enormous profits. they are buying cheap imports and putting them into products made in america. that is generating huge

products. it has contributed to the rise in the gap between the haves and the have-nots. it is one of the main issues that is driving the overall debate in the political campaign. the huge growth in inequality. it is directly related to growth. host: are there other industries you have foreign entities in the united states employ american workers? guest: there are over 5 million people and the united states that work for subsidiaries of foreign companies. it is across the board. they tend to pay better than the average u.s. wage. the median number is the 5 million jobs and the united states because somebody wanted to create jobs in the united states. it does not go back to the government trying to micro manage and control. giving people the freedom to operate wherever they want to.

if we do that, the 5 million is going to become 10,000,020 million. -- 10 million and 20 million. guest: u.s. multinationals are responsible for about a quarter of our trade deficit. foreign multinationals invest here, they sell products and the united states that they make at home. they are responsible for over half of the trade deficit in 2009. they may employ 5000 people, they employ many more at home. multinational trade is a lose- lose. that is the bottom line. host: arkansas, lee on our independent line. caller: one of the main problems we have had since 1913 was the creation of the federal reserve, the private bank. ever since then, ron paul has been talking about this for

years, the currency has basically been downgrading of since then. now you have a situation where they can go overseas and pay somebody pennis to do the same work we would do here. they can live off of those pennies. people demand a minimum wage. i am all for people getting a fair wage. the problem is, since of a currency is so devalued, they can get so much for so little over there, it makes it harder for companies to operate here. i propose starting over the whole system, getting rid of the fed, one of the other points of want to make -- host: we will finish with that. guest: when a politician starts

complaining about international trade, they are trying to divert attention from the real problem, which is that economic problems are created in washington, d.c. from a government that is too big. i am not an expert on the federal reserve. guest: the caller may be mistaken about the way in which economics work. the fed has been one of the more affected agencies. perhaps the only reason we do not have even more unemployed workers in the country. also, the notion that the valuation is causing trade problems is mistaken. we need to have a lower volume of the dollar, relative to manipulate currencies, that would make a good more competitive on world markets. part of the problem is other

countries have made their currencies too cheap. we have to force them to stop that. i think the caller is right that it would be a good idea, we saw a rise in living standards and a minimum wage levels and the rights to organize all across the world. that would help raise wages. host: we heard from president obama earlier about tax proposals, especially when it comes to wage issues. this is senator jon kyl. the current tax system is the one that is sending u.s. jobs overseas. >> it is not that there are evil businessmen. they bend over backwards to keep their business here. it is a lot easier. the reason they have to go abroad it is because their government treats them unfairly.

we tax them too much. we regulate them too much. there is too much uncertainty. when we are debating the subject of outsourcing, people abroad making products that are sold in the united states, ask yourself, why would an american company do that? the answer is, they do that when they have to. when their own government policies make it impossible for them to compete effectively. guest: tax rates and the united states are lower than they have been at any time in recent memory. i think our government policy does encourage investment in the united states. what we need to do is focus more specifically on manufacturing and trade policy. guest: corporate tax rates are among the highest in the world.

if you are running a company, that gives you incentive to move to offshore jobs that we do not want to have happened. i think american companies can compete with anyone. the biggest problem is it government throwing up roadblocks that make it harder to do business. guest: there is a difference between the statutory maximum tax rate and what is paid by most companies. there are multinationals that pay no taxes. what matters is the average tax rate. they are lower in the united states. host: do you want to respond? guest: everyone i talked to has said the fact that our top corporate tax rate is the highest or second highest in the world, depending on how you look at it, is a big problem. does that mean we do not have different deductions? of course. we need a simpler tax code with

a low rate. that would be one of the best things we can do. caller: high. i know the car business. i have two comments. one is on the trade imbalance, which has been generated for a long time. it has been very specific to china. if you look at china's overall trade, they have a deficit with the rest of the world and its surplus with the united states. we allow them to pick a pocket. u.s.-made cars, detroit was the king of the car. china would not allow american cars to be imported. if you want to sell cars in china, you have to build a factory in china, make china a 51% partner, teach them how to make cars, then they open a factory on the other side of the street. this has been industry after industry. it is going on now with the

aircraft industry. the number one export is boeing aircraft. the chinese are busy building a commercial aircraft industry off the back of the american industry. general electric is teaching them how to build the avionics for airplanes. there was a major fund paid because they give them a software for how to run attack helicopters. our president is pointing fingers and yet his policies have been more aggressive than those of his predecessors. the united states for the first time since jfk was president cannot put a man in space. we have to go to russia and paid them of millions. our president laid off 15,000 highly educated, highly compensated nasa engineers who are looking to be greeters at

wal-mart. guest: the caller raises an important point, the theft of intellectual property vatic. companies are well aware of that. they are at risk of property loss. i would go back to the photograph of the streamliner. boeing is a big success before the united states. one reason is they are able to import products from around the world and export our planes and elsewhere. the policies in china, the government manipulating their economy, the reason they have been able to have growth is they have relaxed their controls. the last thing you want to do is copy the types of policies that china has done to make their people porter. we are better off when we lower our barriers. guest: china is born to continue

to do everything it can to steal technology. we need to get tough. manufacturing policies to rebuild our own industries. the only way we can do that is by offsetting unfair trade policies in china and by investing in our workers and industry as a whole. host: one more call from houston, texas. caller: i watched people from the heritage foundation for a long time. as near as i can tell, there is a connection to the chinese. they did not seem to want anything for the american people. everything they proposed seems to be a pro-chinese policy. another thing i would like to say it is it seems to me the crux of all of this comes down to our free trade agreement. if you do the research and you

look up each individual free trade agreement, the minute we make those agreements, the imbalance of trade becomes clear. we get a huge trade deficit. just as soon as we make the agreements. why do we keep making them? why is there not a presidential candidate that represents the people of the united states who would like to revoke free trade? can we repeal these agreements? is there anything that makes them impossible to repeal them? why is there not a presidential candidate -- when you hear a% to 90% of people calling in saying they think free-trade is the basis for all of our problems, that it is nothing more than international socialism, we are sending all of our jobs overseas. you could reduce taxes from now

on and not change the fact that american labor is so much more expensive. host: thank you. we can use that to wrapup final thought. guest: all we want is freedom. if you go to a website and the look at the companies that have the lowest trade barriers, the most economic freedom, those are the countries where you have the lowest poverty rates. the most opportunity. when our children and grandchildren are going to be able to prosper. we want more freedom for the american people. we do not want more control. the free trade agreement, we remove government barriers. we can repeal them if we decide they are not in our interest. there is nothing permanent about them. in the future, we need to extend -- expand free trade internationally. if you want to lift all of the

poor people out of poverty, these agreements do that. guest: the presidents of both parties have continued to negotiate free-trade agreements for the past two decades or more. they have been told it is going to expand exports. the focus is on paris. the fact is, what these also do is make countries like mexico and korea, they pay for u.s. foreign investment. as i have shown, when foreign investment increases our trade deficit increases and we lose jobs to these countries. it is what happens after we put this into place. i agree with the caller. we should get out of these agreements. i think the reason is, money is flowing into both parties in support of these deals. you have to look at issues like the need for campaign finance

reform if you're going to change the way the system works. host: robert scott is with the economic policy institute, epi.org is the website. brian reilly of the heritage foundation. he is their trade policies senior out of -- analyst. thank you very much. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] >> in a few moments, ben bernanke testifies before congress. in 2 1/2 hours, the committee for a responsible federal budget outlines a plan to reduce the debt and deficit. after that, a forum on security. >> there has been a hostility to poverty. since the war on poverty. lyndon johnson was the best president. he looked at poverty issues and spent money on that. spent money on that. he talked