japanese, for example, have. >> and they've paid for it too, haven't they? >> well, it depends on your point of view. the current prime minister thinks they haven't done enough. >> what do you think? >> i think that they should try to get rid of deflation. i support their attempts to get rid of deflation. in terms of exiting from our balance sheet, we have put out a couple years ago we put out a plan. we have a set of tools. i think we have belts, suspenders, two pairs of suspenders, we have different ways that we can do it. so i'm not -- i think we have the technical means to unwind at the appropriate time. of course picking the exact moment to do it of course is always difficult. you know, you want to -- you want to withdraw the support at the right time, not too early, not too late. that's always a judgment call. but in terms of the ability to get out and to normalize our balance sheet, we have again a

set of tools which i'd be happy to go into, if you like, but which will allow us to normalize policy either by selling assets or by retaining assets and doing other things, like raising the interest rate we pay on reserves. >> do you think you will grow to a 4 trillion dollars balance sheet? >> well, we don't have -- we didn't announce any number. what we're doing is we're looking -- we're tying our asset purchases to the state of the economy. we want to continue purchases until we see a substantial improvement in the labor market condition on inflation remaining stable. we're also looking at the costs and benefits including the financial stability issues that senator -- that the senator alluded to. we haven't given a specific number, but we are certainly paying close attention to all of these issues. the senator mentioned the transparency of the fed. we're having this debate in public. you may have noticed that many

members of the committee talk in public. we want everyone to understand that we're looking at all these issues. we're taking them all into account. and we're trying to do the right balancing of our objectives. >> is your portfolio public? >> yes, sir. >> it's public? in other words the 3 trillion dollars of value or whatever of your portfolio, it's public as to what securities you have and what they're doing performing and nonperforming? >> they are all performing. every single one. i mean they are all treasuries and treasury guaranteed agency securities. >> just about all of them are treasury or treasury related securities? >> by law we can only buy treasuries and agencies. >> and they are all performing right now. >> >> 100%. >> okay. i just have a minute on bozell 3, where is it on implementation

in europe and u.s.? bring us up-to-date. this is a very important i think regulatory challenge. >> as you know we put out a proposed rule on bozell 3. we received a lot of comments. we worked through the comments. we've continued to talk to our international partners and we are planning to have a final ruling out on it, i can't give you an exact date but somewhere in the middle of this year, and with the aim to be -- beginning the implementation of it during 2013. i would point out also that as far as we can tell through our stress tests and other measures virtually all of our banks are already on track to meet the requirements. it is not a question of the banks not being adequately capitalized. they are already either at or about to reach the capital levels. >> what about europe and their banks? >> europe is also in the process

of implementing it. their banking system is weaker i think. it has strengthened some in recent quarters. we are discussing with them some of the details o f their plans, some of which differ from the international agreements in our view. but they are also in the process of implementing this agreement. >> thank you, mr. chairman. >> senator schumer? >> thank you mr. chairman. first i want to welcome senator crapo as our new ranking member and look forward to, whoing with you on the commit -- to working with you on the committee. to the other members of the committee, welcome. it is a great committee. i hope we will have a good productive time under the chairman's leadership. my first few questions are about

sequestration and i want to talk a little bit about italy. estimates suggest that letting sequester take effect could reduce the gdp by as much as half a point over the remainder of the year. i first want to know if -- i'm going to ask you a series and you can answer them. is that a fair estimate? instead of stopping sequestration, some have suggested letting the full amount of cuts take effect. but rearranging the cuts rather than imposing them across the board. in your opinion, would this reshuffling mitigate the negative effect of gdp growth in any meaningful way this year or next? or would the net effect on short-term gdp be more or less the same since the total amounts of cuts would be the same. be the same. the second question is there, sequester is friday, and there's debate about how quickly the cuts will take place and how quickly the impact on jobs in the economy will be felt, cbo

sequester says it costs 750,000 jobs. when do you think we'll see impacts in the job market? in the more much job numbers, april, when? those are the questions. >> sure. the six-tenths on gdp growth in 2013 is a cbo number. we have similar results to that. it's a reasonable estimate. in terms of whether or not arranging cuts are beneficial, could be from the point of view of more allocation of the cuts or cuts consistent with the preferences of congress, but that, of course, is a congressional decision. i have no input there other than to say that i think the near term effect on growth is not substantially different if you did it that way. in terms of the effects on unemployment, sequester takes place over a period of time. >> mr. chairman, you didn't

answer the second one. regardless of the political preferences the congress might have, would the rearrangement affect economic growth in any way if the cut level is the same? >> not significantly, would be the same i think. >> got you, good. >> in terms of impact, the sequester takes place over time. furloughs take place over time, i wouldn't expect a big impact immediately, i think it builds over a period of months. >> right. one of my colleagues, i don't want to steal his thunder, but in a meeting earlier described it like the metaphor of the frog who jumps into a pot and the water starts boiling, and if you don't feel it at first, you stay in there, you will boil. >> it's in a period of time.

it's in conjunction with other measures taken this year as well. >> thank you. next question's on italy. the markets reacted nervously, shall we say, to the elections in italy and the idea they might not be able to form a government or might form one less willing to go with the economic policies. my question is, a, what do you think of that, but, b, more importantly, what is the expose sure of our american financial institutions to italy's debt? how dangerous, the worst case scenario, can't find a government, goes through what greece or spain has, how big a effect is it on the stability of our american financial institutions? >> well, the market reacts to

uncertainty. they don't know which way the government goes or how policies will be affected. i'm not an expert in italian politic, but i don't think any of the candidates outright rejected either staying in the euro or maintaining the policies that are being required of italy in order to continue to receive, you know, in order for the committee to be in the euro zone, but there's a lot of uncertainty there to see what happens. italy is unusual in that it's current deficits are not very large, but it has a very large outstanding dealt, and so there's a lot of italian debt held around the world. our assessments going back to banking exposure in italian and spanish debt is that it's moderate, that it would be meaningful, that it would not in

itself be a write down, for example, and, again, not forecasting in any way, would not inflict serious damage on the financial institutions. there are, of course, also money market funds that lend funds to italian banks, and the fate of the institutions is connected to the fate of the fiscal situation, but, again, i think that the main effects are more indirect, and, again, i want to emphasize this is totally hypothetical that serious concerns about say the aid and abet of italy to remain in the euro has broader effects on other asset classes, stock market, bond yields around the world, bank stocks, ect., and those effects would be more unpredictable and more

concerning than the direct losses in exposures in terms of italian debt holdings. >> thank you, mr. chairman. >> senator corker. >> thank you, mr. chairman. when the fed decided to have a currency war, as it did, did you embark on that thinking, well, our country's in trouble, to heck with everybody else, or did you think it would leverage the wealth effect, if you will, if everybody had a race to the bottom? i know the fed has been really purposeful in trying to create this sort of faux wealth effect. did you think it would multily your efforts, and speaking to that, overall effect, you do calculations all the time, but could you tell us exactly what sort of a -- what the wealth effect is, the part of it that's

not real, that if you were to stop doing way you were doing relates to monetary supply today, how much of a diminishment in national wealth would take place? >> well, on the first question, we're not engauged in a currency war or targeting our currency. the g7 has a statement that's very clear that it's entirely appropriate for countries to use mop tear policy to address their domestic objectives, in our case, employment and price stability. our position is that our expansion their monetary policies copied in other industrial countries are increasing demand globally and helping not only our businesses, but, also, the businesses in other countries that export to us. it's not a beggar policy, but one to benefits trading partners. >> the wealth effect is something you tried to establish

here, and how much wealth diminishment takes place if you were, to, in a way, move away from the punch bowl? >> there's some, but i point out that if you look at the stock market, for example, the equity premium, the risk premium associated with stock prices is quite wide. in other words, stock prices by that metric don't appear overvalued begin earnings and given interest rates. now, if interest rates went up some, that would have affect on stock prices, but the point here is not to create what you call a faux wealth effect, but stimulate the economy creating momentum in growth and employment, and that, in turn, shows up in earnings, and that creates a genuine increase in wealth, same with house prices, so -- >> i think that, you know, i don't think there's any question that you would be biggest dub,

and there's more spending in gdp since any other time since world war ii, and that's working in wealth that the fed is actually purchasing a large portion of the new debt as we live beyond our means, and so it's very -- it's working very well together in that regard. just wondering if y'all talk at all in your meetings about the degrading effect that's having on our society, and how it's basically punishing people who have done the right things and throwing seniors under the bus and others that have saved money. do y'all ever talk about the longer term degrading effect of the policies as we try to live for today? >> i think the concern we have is the effect of long term unemployment and people who don't have jobs for years. that means they are never going to acquire skills or going to be a productive partner of the work force. the jobs part is important. you called me a dove.

well, maybe in some republics i am, but on the other hand, the inflation record is the best of any federal reserve chairman in the post-war period, or at least one of the best, # # -- 2% average inflation. we worked on both sides of the mandate, trying to achieve a stronger economy for everybody. there's no degrading going on. you mentioned and pointed out if we try to have it and try to raise the three or four or five percent with the economy weak, they could not be sustained. the economy's not weak enough to establish high real returns to savers. if we do that, that throws the economy in recession and have low interest rates like the japanese do. the only way to get them up for savers is to have a strong recovery and provide support to the recovery. i don't agree with that promise.

>> do you have the notion of being perceived, watching regulatory capture take place here, basically, the regulators work for the people they regulate, and, you know, we had t.a.r.p., which most people who voted felt like it was a needed thing during the policy that allowed the big constitutions, especially on wall street to really reap tremendous benefits in the early stages without doing anything. you're getting ready in a few years, as you eluded to, as interest rates rise, to basically print money to sell securities at losses, and then pay interest on reserves which people pointed out, and i think y'all talked about it, it's going to be billions and billions of dollars going to the institutions that, again, you regulate. do you concern yourself at all with the fed viewed as, you

know, independent as they used to be and working as closely with agencies you used to regulate? >> that's true, but none of the things you said are accurate. for example, >> oh, yes, they are. >> well, -- >> yeah. >> to take the case of paying interest on returns in the exit, for example, that's number one, that is beneficial for the taxpayer because on the left hand side of the balance sheet is reserves, but on the right hand side is the securities we hold to pay a higher interest rates than the reserves. by doing that, we make a profit remitted to the treasury. >> no, when you exit. when you begin to draw the money supply in, going to be very, very important to the institutions. >> why? >> they will yield huge returns on reserves as you -- >> we'll pay market rates, exactly what they would be getting in the repo market and

anywhere else. no subsidy involved. >> okay. >> senator menendez. >> thank you, mr. chairman. thank you for the testimony. you mentioned the housing market and that being important, one of the drivers of our economic recovery. in that respect, senator boxer and i introduced the responsible homeowner refinancing act which would remove barriers to refinancing for bars with gse mortgages and have a history of paying their mortgage on time. in the state of the union of the the president said those who want to refinance are told no. can you discuss the benefit to individuals and the gnarl economy to enable families to refinance mortgages at today's historically low interest rates? >> well, if the borrowers can

refinance, they will have lower payments, lower debt burden, and more income and ability to spend. the offset, the question on the other side is whether there are needed subsidies or other costs and how large those would be. that would be the tradeoff i look at. it's true from the borrowers point of view to refinance at a lower rate is going to increase the chance you can stay in your house and increase your income. >> wouldn't we, in essence, solidify an entire universe of responsible, so far responsible borrowers to be able to ensure they continue to be a responsible borrowers be able to avert any efforts, any movement towards foreclosure and create an economic stimulus because if i have been patching the roof on my house because i pay less a

month, i have the wherewith you know all to spend the money in an economy that ultimately has a ripple effect. would that not be a fair statement? >> well, senator, as you know, i don't like to endorse specific legislative proposals -- >> forget about the proposal, just the question in general of the possibility of refinancing at historically lower rates. >> again, from the bow were borrowers point of view is good. they have higher chance of staying in the house, and what implications is on the lender's side or fiscal side? is there money coming from the government, whatever, to offset the other side would be the question, i think, you'd have to look at, but your point to help borrowers, obviously, it would. >> let me ask you this. with reference, you today in the testimony, i don't know if you verbalized it, but i read it, the sizes of deficit and debt matter, of course, but not all tax and spending programs are created equal with respect to the effects on the economy. to the greatest extent possible

and efforts to achieve sound finances, fiscal policymakers should not lose side of the spending policies that increase incementives to work and save, encourage investments in work force skills that has capital formation and provide necessary and productive infrastructure. with that view being your statement, isn't sequester, something i did not vote for because i saw where we were going to be headed, isn't the way it takes place in contrary to the view? i'm asking congress -- i think there's a tendency -- >> i think there's a tend sip, senator, thinking about the budget and deficit to think about total spending and total tax, and i'm saying, and i think it's consistent with your point, that it's important whether tax policy is good and whether the spending is productive to

increase the productive capacity of the economy or achieves desirable social goals so i hope it's not controversial to say congress needs to think about how taxes spend and achieve best outcomes it can. >> in sequester, there's across the board cuts. >> that's right. >> fur gsh it -- if you're in the private sector, you try to make up the revenue, or if you cut your business, you make cuts that poses you for growth again. it could be human capital or technology, whatever. across the board cuts are indiscriminant, and, therefore, doesn't have the balance you suggest is necessary. would that be a fair statement? >> that's fair, but the question is will senate and congress agree on how to replace sequester with another set of programs. if they can, obviously, they can find a better combination, obviously, there that would be

better for the economy. >> it would be more desirable, assuming that agreement could be achieved, that an approach across the board regardless of understanding the very issues that you raise, how do you create policies to work, save, encourage skills, capital fornation and whatnot? >> i agree. >> thank you. >> senator toomey. >> i want to follow up on the point that the senator from new jersey was making, i think, if i understood the gist of what he was saying, we might have a lot of agreement on this, and that is whether we like it or not, it certainly, certainly is possible, and, actually, looks quite likely that the question zester beginning, and as codified, it is without regard to any sense of what the higher and lower priorities of the

agencies to be affected. hard to imagine that's the optimal way to go about cutting spending. it's impossible to believe all spending is equally meritorious and every category of spending in every agency has equal merit and equal priority. it seems to me, the most sensible way to go about this would be to give flexibility to the people closest to the spending decisions, the agency heads, the administration, the omb so they can make the cuts least disruptive. some are less disruptive than others. it could be less disruptive to the economy if they had a thoughtful process than if it has to be done uniformly across the board. does that make sense? >> yes, sir. >> thank you. another point about the -- i just have to make, i was not going to get into this, but i have to disagree with the notion

that we have some kind of severe austerity program to kick in. we have a federal government that doubled in size in the last ten years, 100% growth in total spending. the sequester contemplates 2.5% budget authority reduction which, as you know half is spent in this fiscal year so we talk less than 1.3% of federal spending in outlays to be curbed. the fact is if the sequester fully goes into effect in fiscal year 2013, the federal government will spend more money than it did in 2012. hard to understand that as spending cuts in austerity. by the way, my math, the actual outlay is reduction equal to about one quarter of 1% of gdp. how that has a disastrous impact on gdp growth escapes me, and the idea we postpone it and

promise to make cuts in the future, i think the credibility of the promises would be worth zero, and our economy responds in an adverse way. you'd see there's absolutely no willingness, no political ability to begin in the slightest position of fiscal discipline. there's negative implications. my suggestions, mr. foreman, you talkedded about the fact inflation is not a problem by conventional measures at this point. i take your point. to what extent are you concerned about asset bubbles? there's people who think we have bubbles in the works right now in treasury securities, agriculture ri, reality, some in the equity markets. how do you know where there's a bubble, and how concerned are you this unprecedented monetary policy manifests itself in

appropriate asset appropriation? >> it is a concern. as i said in the remarks, we are approaching it two ways. first, we are putting a lot of efforts into measuring, monitoring, asset prices, and financial activities. secondly, we are to the extent where there's frotiness in classes, they can hole the losses. for example, banks have twice as much capital as a few years ago, and we test them according -- stress them according to different scenarios where asset prices move sharply and ask if they would be able to lend and be stable. >> i got little time, so i acknowledge that, but i think you agree it can be very difficult to know when a bubble

is forming and getting frothy opposed to fundamentals. the other concern i have, you mentioned earlier in conversation with senator shelby and corker that you have the ability to unwind the balance sheet. no question you have the ability, but what worries me is the i want pocket of the know -- impocket -- impossibility of knowing the impact of the unwind, like, more than what people thought existed precipitated a selloff in equities a week or two ago. what's the impact of having to liquidate a portion of the holdings on the bond market, on the equity markets? >> we don't think we can do that. >> not ever? >> we could exit without ever selling by letting it run off, and we could tighten policy raising interest rates we pay on

reserves. that's a strategy, for example. in any case, we said we'll sell slowly with a lot of notice and have forward guidance on rates so there's not a shift in rates' expectations on the part of the market. we're giving a lot of thought to the issues. senator, a quick point, no risk free approach to the situation. the risk of not doing anything is severe as well. we try to balance them as best we can. >> thank you, mr. chairman. >> senator warner. >> thank you, mr. chairman. ben bernanke, thank you for your work and efforts to, as i think we all have concerns, tax extraordinary actions, oftentimes because to date, we failed to keep up our end of the bargain to keep in place tte balanced comprehensive phased in

deficit reduction plan you called for and many of us worked on for years, and i add there's plans from simpson bowles on had a revenue component that was substantially higher than the revenue secured at the -- on the new year's eve deal. i would also acknowledge they had an entitlement reform component that's also not been part of the agreements to date. i do want to come back. at one level, on the sequester because i heard some of my colleagues say the hit to the economy of sequestration which was set up to be the stupidest option possible such an outrageous option that rational people would never allow it to come to pass would look at that top line number and its effect it would have on the economy and one of

the things i know you have great folks who do analysis, whether you have been able to dig in at a mobile beyond the top line cut, a failure that the phasing, failure to have it balanced with some revenue additions but to actually get to the level of granularity where in many cases because of this across-the-board approach could, maybe not of equal value to taxpayer or the defense, where in many cases the accosting the taxpayer more money by these cuts where we will either be in one case breaking volume contract purchases not just on the dod side, university president here today, grants that may have had four years of research, last year of research cannot be left and consequently the previous

work goes down the drain, up or we talk about the economic costs of furloughing individuals with you have done the analysis to say what the downstream might mean, meat inspectors or poultry inspectors might have subsequent driving up of prices to consumers because not as much food gets into the grocery store, has urinalysis taken on the kind of -- the extract added stability value based into the legislation. >> previous speakers, a thoughtful approach that looked at these issues would be better if it could be agreed upon, across the board approached. we don't get into line items, specific programs. >> agree, top wind the number will have enormously detrimental effect and we need balance, but i would argue that there is perhaps a stupid and perhaps

less stupid away and only digging in to the absurdities that take place and actually some of the cost taxpayers that will incur under the guise of cutting is pretty remarkable. and my time is going away as well. two other items. one other conversation for those of bristling with the fiscal issues on any historic basis clearly at historic spending levels, historically high spending levels and also historically low, last 50 years at least, revenue levels, one thing that is sometimes cited is our goal ought to be a 50 year running average of what our revenue should be as a percentage of gdp. i really wonder with the demographic bulge with the aging of the population that even those of us who have been very

strong opponents of major entitlement reform, do you really think the kind of backwards looking 50 year historic revenue target is an appropriate and economist if you look at the aging population and the kind of demographic bulge of the baby boom coming in even with meaningful entitlement reform? >> in terms of debt to gdp ratio as i mentioned in my remarks we had a national assets of 40% ratio before the crisis and lost a lot of assets and given what is happening, can or 20 or 30 years out we should be trying to build over the next decade through fiscal capacity to deal with it. >> my time is up but what the debt to gdp goal should be going forward, you haven't made that comment. >> i don't think there's a magic number but historically we haven't been at 75% at any time

since just after world war ii. it will be helpful. >> thank you, mr. chairman. senator coburn. >> appreciate your work. just a comment, the revenue that was passed western we less than what simpson-bowles had agreed to but simpson-bowles was used to lower tax rates to stimulate the economy, not raise taxes and not stimulate the economy. and what is outrageous is we have not done anything to address our long-term problems. mylar in term colleague from virginia has been effective in working across the aisle to accomplish that. my questions have to do with q e. do you think is there a diminishing return on your efforts that quantitative easing? in terms of its effect? >> good question and we have debated. on the one hand, the first round

in 2009 had some substantial benefits in terms of market functioning, markets were in turmoil, our purchases help calm markets and set the stage for recovery in financial markets and we don't have that situation today, and things working in the other direction, credit markets are more open, banks on lending more, the low interest rate can pass through more easily than they could have. that is a good question. we don't know exactly which way it goes. there is evidence that 3% mortgage rates are one of the reasons housing is turning around, low on a loan rates, one reason car sales are up, whether it is bigger or less i am sure it is having positive benefits in terms of growth. >> now that we have japan pretty well duplicating some of our

efforts, to fight deflation, which i agree is the proper goal but people struggle with that for 20 years, do you worry at all now that the european countries have done quantitative easing in effect, a japan has done it, the bank of china has done it, we have done it, the competitive ratio will be competitive in that competitive differences might divert away and we see this in terms of trade and protectionism in terms of the international markets. >> you make a good point that the fed is not extraordinary. in terms of balance sheets, lower term term interest rates we're similar to other countries. we don't you monetary policy as being a currency war. it is not like putting terrorists on your imports so that you can -- to the benefit

of domestic industries. that is not what we are doing. if all the major economies that need support provide stimulus and extra aggregate demand that is mutually beneficial because china depends on the strength of europe and the u.s. as their export market. and we too depend on other countries as well as a market for our goods. so this is, i think, a positive sum game, not a 0 sum game. >> there was concern in the last g 20 meeting in terms of this target at the end being 110 instead of 90, instead of 78 like it was 90 days ago or maybe longer. but there is some concern that the currencies can get out of balance and that will have a significant impact on trade. would you agree to that? >> certainly discussion of the

issue. the emerging market economies which are full employment in many cases are unhappy because low interest rates and the advanced economy is give them a choice they don't like. accept lower interest rates which they feel causes inflation or problems in their own economy or alternatively raise their exchange rate appreciate which hurts their export market. they have had some concerns with accommodative monetary policy in advanced economies in general but i don't think japan raise is a special case. notwithstanding the rhetoric, we haven't seen what they're going to do yet. they haven't officially appointed the new governor. presumably what they are going to do is monetary policy aimed at domestic objectives and not specifically at the exchange rate. >> you don't have to answer this but if you would give me your thoughts, recent paper crunch

time, fiscal crises and the role of monetary policy, would you mind at some point giving me your thoughts on that? >> i will but the main thing i would say is i want to be very clear, the cbo agrees that the federal reserve's balance sheet policies are going to be very significant been to the taxpayer in terms of returns to the treasury. >> thank you, mr. chair, thank you for your testimony. i want to start with too big to jail. we had the situation in singapore, hsbc, the united states decided not only not to investigate any individual but not to investigate the bank as a whole, related to money laundering, related to terrorist organizations and drug organizations, no small thing,

drug organizations, mexico responsible for 40,000 deaths, terrorist organizations a threat to the united states, the too big to jail echoes the fact the we still have banks that are so large that we are concerned about creating any ripples. in this case it sends a message as well about future behavior. if current behavior, manipulation of the libor rate, not criminal prosecutions, i don't believe, too big to jail for money laundering, doesn't this kind of a undermine in a way our enter national regulatory structure for financial institutions? >> i agree that no individual institution should be exempt from paying for crimes that they commit. on this particular case we work closely with the department of justice and cooperate in every way to get some information. in the end the company pay a

$2 billion fine. if it relates to the bigger issue you're thinking of of too big to fail we also agree that that is something that needs to be addressed. many parts of dodd-frank are intended to address that and we are pushing those as hard as we can. >> thank you. i think it does certainly say to us we are long way from getting there if we are that concerned about any form of shakiness in these large banks that there's another aspect of this too. it continues to tell folks that it is safer to invest in large banks than community banks. community bank would have been shut down or investigated thoroughly. what i see in the economy in oregon is community banks that are willing to lend in to the local economies because they understand it better, they're more comfortable with it, they understand, they may have

relationships to the competency of an individual company and so forth and this sort of bias kind of counter-productive to our overall health of the economy? >> absolutely. the playing field isn't level, there is not market disciplines a too much risk taking said getting rid of too big to fail is an incredibly important objective and we are working in that direction. >> thank you. i want to turn to the fiscal cliff. we had a drop in gdp in the fourth quarter of last year. do you share the view somehow that that was true to december 31st fiscal cliff? >> only incidentally. one of the factors that happened to contribute to the fourth quarter was twenty-two% annual rate drop in defense spending and it is possible that in anticipation of the sequester, there may have been changes in

spending patterns. as i said in my remarks i think the fourth quarter was really accommodation of transitory factors. i don't think it signaled any real change in the pace of growth of the economy. on the other hand the pace of growth of the economy remains 2% which is positive but not as strong as we would like. >> we are looking at different items that you mentioned, the debt ceiling, continuing resolution, sequester, which does convey a feeling of lurching from crisis to crisis. we have heard many companies have put substantial money aside that they haven't reinvested, they had some profitable years. does this style we seem to have adopted of being unable to get our act together and plan a year at a time with traditional sense, really kind of shooting ourselves in the foot? >> i think so, senator. we have not been able to

identify with accuracy the quantitative impact of uncertainty about policy, but we certainly are around the table, we hear many anecdotes from businesses about their reluctance to expand or higher given that they are not sure what the fiscal situation is going to be. >> switching gears, the volcker rule, or volcker fire wall between hedge fund activities and banks or bank deposits make loans, this still, the rulemaking has not been completed. we are well past the two year mark headed towards three years. does this need to get done so institutions know what the appropriate boundaries are and so that we can demonstrate we have the ability to pass laws and rules that go with them and operate as an accomplished society? >> we have made a lot of progress on it. the issue at this point is the

volcker rule is really three or four different rules. the cftc, the banking agency, each has a volcker rule which applies to the institutions that they supervise. there is a strong sense that we have that we would be much better served if those rules were closely coordinated and close to being identical as possible so the issues at this point are not the work that we have done at the federal reserve. the issues are finding agreement and closure among different agencies who are working on the rule. >> thank you, mr. chairman. thank you for being here today. haven't had a chance to raise some questions since 2008 on the financial services committee on the other side. good to have you in front of me and thanks for taking time. we ask a lot of questions a lot

of different ways, not going to be any different but let's give it a shot. we haven't passed a budget round here in four years. are you optimistic that some time in your lifetime we may pass another budget around here in washington d.c.? >> let me ask you another question and you can answer. do you think we will never balance a budget? have a balanced budget in your lifetime? >> i would settle for stabilization of the ratio of debt to gdp which is a slightly less tough level. >> sounds like a no. >> it is easy to criticize but the politics is very difficult. i understand there are a lot of different views, strongly held views and it is not easy to come to agreement. i don't think congress is not trying. i know you are trying and i hope you confined the agreement to achieve these important objectives. >> the reason i raise the question is the sequestration

issue we have in front of us on friday is a result of lack of budgeting and effort to budget. i am from a vessel of time putting money down i'm putting $100 down the sequestration, then those up front. as soon as that occurs we get into our budget committee markups that are supposed to happen on march 11th through fifteenth. putting another $100 down that doesn't happen. then we are supposed to bring those bills down to the floor sometime on march 18th and on march 27th government funding expires. because we don't budget and i am arguing that they comes and goes we have a big argument. i'm talking about the instability we have and how difficult does that make your job? >> that makes my job difficult but it also makes the economy's job difficult. again, as senator berkeley mentioned, the uncertainty associated with not knowing how policy is going to be developed

and what tax rates will be and what spending will be and what programs will be and which contractors will be receiving funding etc. those are important concerns. >> i know your policies are based on monetary policy and also unemployment, employment. i have to believe that art indecisiveness and inability to get things done is causing a lot of consternation. you made a comment and you repeated this in this hearing that continuing quantitative easing, purchasing these assets will continue until substantial improvements in the outlook of the labour market in context of price stability, will you explain in more in depth what that means? >> sure. we are going to be looking at a variety of variables, looking at payroll employment, is a strengthening? is it sustainably strengthening? is the unemployment rate coming

down? we do not have a specific target. we'd have given thresholds for our rate policy, we have not extended those to our asset purchases and the reason is a couple of reasons. one is as you mentioned there are a lot of other things happening in our economy like the fiscal issues you referred to but in addition we are paying very close attention as a number of you have mentioned to the efficacy and cost of these policies and that makes it difficult to say this is the number we're going to achieve. we are doing our best to communicate. the criteria for action. we have not been able to come to a specific number which encapsulates the change and outlook for the labour market and the assessment of cost and efficacy which is another part of the decision process. >> do you believe your asset purchases are causing any kind

of equity bubble? >> i don't see much evidence of an equity bubble, earnings are very high. as i said the equity risk premium is above normal. that is, in other words, pricing is, equity holders are still being somewhat risk averse in their behavior. but again, we have a two part plan. first is to monitor these different asset markets. the second is to try to understand what would be the implications if we are wrong. what would happen? who would be hurt? what would happen to financial institutions? would there be a broad knock on effective in effect some particular asset turned out to be in a bubble. we are trying to do both of those things and we do not rule out that if these problems become sufficientll worrisome, that they would be taken into account in the monetary policy. >> mr. chairman, thank you.

>> senator warren. >> i want to say thank you, mr. chairman. this is my first chance to say in public how grateful i am for your help in setting up the consumer agency and how helpful all the people were at the fed during the time of transition at the consumer function. thank you very much. i would like to go to the question about too big to fail, that we haven't gotten rid of it yet. now we have a double problem. that is that the big banks, big at the time that they were bailed out the first time have gotten bigger and at the same time, investors believe with too big to fail out there that is sacred to put your money into the big banks and not the little banks effect creating an insurance policy for the big banks, for the government creating this insurance policy, not there for the small banks and some economists including economist at the i m f starting to document exactly how much the

subsidy is worth. bloomberg did the math on and came up with the number $83 billion, that the big banks get in what is he essentially a free insurance policy. they borrow cheaper than the small banks do. i understand we are all trying to get to the end of too big to fail but my question, mr. chairman is until we do should the biggest financial institutions be repaving the american taxpayer, that $83 billion subsidy that they are getting? >> the subsidy is coming because of market expectations the government would bail out these firms if they failed and those expectations are incorrect. we have an orderly liquidation authority. even in the crisis, we wiped out

the shareholders. >> you did not wipe out the shareholders of the largest financial institutions, the big banks. >> we didn't have the tools. now we could. >> $83 billion says that whatever you are saying, $83 billion says there really will be a bailout for the largest financial institutions if they fail. >> that is the expectation of markets but that doesn't mean we have to do it. we have to solve problem. we are really an agreement on this. too big to fail is not absolute. there are spread, credit default swaps as there's probability of failure. moody's and others have downgraded these firms, taken down some of their government's support ratings as you know but we have a lot more to do. i think that is a good debate have but we are in complete agreement that we have to stop too big to fail. >> it is working like an insurance policy. ordinary folks pay for homeowners insurance, ordinary folks pay for car insurance,

these big financial institutions are getting cheaper borrowing to the tune of $83 billion in a single year, simply because people believe the government would step in and bail them out. i am saying if they're getting it why shouldn't they pay for it? >> i think we should get rid of it. >> i will ask the other question. you were here in july, you commended dodd-frank for providing a blueprint to get rid of too big to fail. we have now understood this problem for nearly five years. when are we going to get rid of too big to fail? >> as we have been discussing, some of these rules take time to develop. orderly liquidation authority we made a lot of progress on that, we have living wills, we are moving in the right direction. of additional steps are needed, congress can discuss those but we do have a plan and it is moving in the right direction. >> any idea when we're going to

rise in the right direction? >> it is not at zero-1 thing. it is overtime, you will see increasing increasing market expectations that these institutions can fail and i would make another prediction and predictions are always dangerous that the benefits of being large are going to be small are going to define over time which means some banks are going to voluntarily begin to reduce their size because they're not getting the benefits they used to get. >> i read you, i read your predictions on this in your earlier testimony but so far look like they're getting $83 billion for staying big. >> that is one study. you don't know if that is an accurate number. >> we will the back and look at it again if you think there's a problem with it. does it worry you? >> of course. this is very important. we are putting a lot of effort into this. it is our problem we have had for a very long time and i don't think we can solve it immediately but i assure you that as somebody who spent a lot of weight nights trying to deal

with these problems in a crisis, i would very much like to have the confidence that we could close down a large institution without causing damage to the rest of the economy. >> we are both trying to go in the same direction. i am just pointing out that all that space in between what is happening is the big banks are getting a terrific break and the little banks are just getting smashed on this. they are not getting that break and that has long term impact for all of the financials. >> i agree with you 100%. >> senator reddick. >> thank you for being here. my top concern is actually exactly the same as mrs. warren's. i think that is a statement in and of itself, there is growing bipartisan concern across the whole political spectrum about the fact, i believe it is a fact

that too big to fail is alive and well. first of all, in terms of the study, ms. warren cited the bloomberg calculations, but that is clearly not the only thing out there. there is an fdic study released in september that concludes that, quote, the largest banks do in fact payless for comparable deposits. furthermore, we show that some of the difference in the cost of funding cannot be attributed to either differences in balance sheet risk or any non risk related factors. remaining and explain risk premium gap is on the order of 45 basis points. such a gap is consistent with an economically significant too big to fail subsidy paid to the largest banks. in addition, i am after working paper has attempted to quantify this subsidy and it said the

subsidy quote was already sizable, 60 basis points as of the end of 2007 before the crisis. it increased to 80 basis points by the end of 2009. then we have the bloomberg quantification which was working off of that imf work that was mentioned and also a board member who says, quote, to the extent that a growing systemic footprint increases perceptions of at least some residual too big to fail quality in such a firm notwithstanding the panoply of measures in dodd-frank in our regulations there may be funding advantages for the firm which reinforces the impulse to grow. so my first one is not just one out liar study, given all of that, what specifically is in process in terms of rags or

should be put in process to counteract that? because my concern is even if this problem is solved two years from now, the entire landscape of american banking will be different by then including a lot of solid, smaller firms gone and that is a real loss to our financial system. there's a three part plan and dodd-frank. part number one is to impose costs on large institutions that offset the benefits they get enough funding markets. for example capital surcharges, activity restrictions. bunch of other things that impose greater costs and force the largest firms to take into account their footprint. that's one. number two, the authority we work with the fdic and foreign counterparts how to take down a large institution without

bringing down the system, and, part three is a raft of measures to strengthen the overall financial system so that it's more credible that we take down the large institution without taking down the system. there's the three-part plan that's working to some extent. for example, even though u.s. banks are stronger financially than european banks, frequently, u.s. banks have wider credit default swap spreads with credibility of failure because the ircheses of u.s. and -- difference between u.s. and europe between perceived government support. that's the process. that's the plan. there's additional ideas such, you know, doing glass stege l again, separating the commercial banken and investment banking activities. we're doing that to some extent, but we don't think that it by itself really is all that helpful because in the crisis, firms that failed were straight investment banks, and firms in

trouble were straight commercial banks so i'm open to discussing additional measures, but the plan to impose costs on banks to make them internalize the imprint to have a authority to strengthen the system, and that ought to improve the situation, but if it doesn't, i think we ought to consider alternatives and additional steps. >> in closing, i'd really continue to encourage y'all doing that now, and, again, i think it's a bipartisan concern. i've expressed this concern and several ideas, for instance, with senator brown on the committee. the three components you describe are understood by the market. in that opinion, they are digested and valued by the market, and the market still says there's too big to fail. in particular, i'd continue to urge you to revisit higher

capital requirements beyond the marginally higher requirements instituted so far for megabanks, and i would continue to urge all and have it in the same spirit. thank you. >> thank you, senator. >> senator mansion. >> mr. chairman thank you, chairman bernacke, thank you. when i came to the senate, i was in a arms services committee, and was asked what the greatest threat the united states faces, and i thought it was a military challenge, but he didn't he hesitate saying the debt of the nation is the greatest threat to the nation. i didn't know if you share the same thought? >> it's serving important economic risk, and it's

important over the longer term we have a sustainable fiscal plan. no question about it. he said it was the greatest threat we faced. many possible candidates for that. also, i know they talked about sequester today, and we talked back and forth, the consequences if we do and if we don't. bottom line, sequester came in to being because in summer 2011, we thought there was a supercommittee together of a goal of 1.5 trillion, and if they didn't reach it, there was a minimum penalty of 1.2 trillion across the board in defense and nondefense. us being -- we voted on that as a body. we are now looking to get out of it saying it's draconian and saying we did it. if we don't do it at all, and negate that responsibility and promise of a vote that we made for the public, what effect would that have on the market?

i heard effects it has if we do it, but what are the effects if we don't do it? >> my recommendation, and, i only recommend to you that it's congress' decision on how to proceed is a two-part recommendation. i think if you -- which is the short term and long run. i think it's true that just canceling the sequester would not be -- would not solve the overall problem. the long term fiscal issues so if you cut the sequester, modify, compensate for that, in my recommendation, compensate for that by looking at measures that address the longer term fiscal concerns which is what the cbo shows to be the point where the debt really begins to explode, and that's the tradeoff -- >> it would be irresponsible not

to do something. there's two paths to take. either fix the financial problems and longer term bigger fix, or do something with sequester that we punish ourselves basically because we have been unable as a body to come together, so i think that was also said. if we're going to do a sequestering, shouldn't it be done in a more or smarter way with more flexibility? >> well, as you point out, it was done to be sort of like dr. strangelove -- >> right, right. >> the bomb that goes off. if, obviously, if you find a way to, you know, be a bipartisan way to make it more more effective and better prioritized, that would be a good thing. >> okay. >> and people disagree on the second point, but, again, what i suggested today is trying to make tradeoffs between the effects of the near term recovery and, you know, aligning the policy with the timing. the timing says that we've made progress in the near term as far as the budget is concerned.

where the problems still remains unaddressed is in the longer term, and so it doesn't match to be doing tough policies today when the real problem is a longer term problem. that's what i'm trying to suggest. >> we kick the can down the road, but that's a -- a whole other conversation. my final question would be, sir, how big is our national debt? >> well, there's a lot of measures of it. >> what would be your explanation? >> well, the basic measure is the debt held by the public including the debt held by the fed, about $11 trillion, 73% or 75% of the gdp. >> correct. >> that does not include, though, for example, so-called unfunded liabilities like the promises made to medicare recipients. >> they have to understand they have to pay back in good faith.

how much of what is our total national debt that's responsible by the good faith of this country and the people in thisy? >> it is currently $11 trillion. >> if you add everything, the gross federal debt? >> gross federal debt includes debt owed by parts of the government to other parts of the government like the social security trust fund, for example -- >> responsibilities of fannie and freddie? >> so that's another element that's guarantees, not direct debt. that is a potential liability. it is -- it's hard to -- >> if you looked at all in a single number -- >> worst case scenario -- >> full faith and credit of the country, what would you say it would be? >> i saw the article i think you refer to, and that included -- >> is it accurate? >> the possibility that we -- that the government would have to pay off every deposit in the united states through the fdic, not realistic possibility. i don't -- there's an

alternative measure which are bigger than $11 trillion. >> i think they said -- could be total exposure. >> if you include medicare -- >> higher than 16 trillion? >> yes. i would say that's fair. >> thank you. there's a vote pending, but there's a senator from tepees care to make a brief -- >> just one quick question, and i was interested -- i went back to the office, didn't expect to come back, but listening to the exchange with senator warner and it reminded me of the questioning of truelove, last you served with on the fed board, and just i asked him about the risk, and i know that is a member of the fsoc, and your goal is to identify systemic risk and deal with that, and that was much like the

answer that you gave senator warner a minute ago. we're on a journey, but i would ask the question is there any end -- entity in our country that if it failed would create systemic risk, and if so, why is that still the case after the creation of dodd-frank? i mean, why haven't we moved more quickly? why are we taking so long on the journey, and is there an institution that if it failed, would pose systemic risk to the country? >> well -- >> if so, would you identify. >> the only answer i can give you is dodd-frank is a complicated bill -- >> well, that piece of it is not complicated. it's eight words. that's not complicated. it's a directive to you, and you're a part of this and a winner with dad-frank. i ask the question, why would you not go ahead and identify that, and if there's an entity

that is in our nation, if it failed something that poses a systemic risk, you know that. why not go ahead to move to deal with that? >> well, the fsoc has the authority to designate nonbank firms that use the systemic, and they come under the oversite of the fed. >> let me ask, if we have firms, though, are we going -- is it your thought that under this power that you've been given, is it your thought that we would continue to have farms operating in our country that if they failed, they would pose systemic risk, or are we going to try to mitigate that? i'm curious. >> the goal of the powers you gave to the fed and other agencies is to urges as much as possible, eliminate the problem over time. additional steps i, i think, require congressional action beyond what we implemented. >> i don't think so.

i'll follow up with a later e and i appreciate the case, and i thank you. >> thank you, senator. we thank you for being here today, chairman, and this hearing say jowrned. >> answering tough questions on the economy this hour. >> peter barnes is on the capitol hill. hey, peter. >> hey, guys, you saw this interesting exchange, very poignant exchange between the new member of the banking committee, senator warren of massachusetts, a big consumer advocate, does not like the big banks, went after ben bernanke on whether or not the fed would come in and rescue big banks in the event of a financial cries is, and cited a study that right now the markets think that, and that, in fact, the banks, as a result, borrow to the tune of $83 billion less than they might other otherwise without an implied

guarantee, ready with her questions. take a listen. >> even in the crisis, we, in the cases of aig, for example, wiped out the shareholders. >> excuse me, mr. chairman, you did not wipe out the shareholders of the largest financial institutions, did you, the big banks? >> we didn't have the tools. now we could. now we have the tools. >> well, $83 billion says that whatever you're saying, mr. chairman, $83 billion says there really will be a bailout for the largest financial institutions if they fail. >> no, that's the expectation of markets, but that doesn't mean we have to do it. we have to solve the problem, senator. i think we are really in agreement on this. >> and shortly after that, ben bernanke shot back at her on this study that she was citing saying, quote, i think that that's one study, senator. you have no idea if that number is accurate. ha-ha, guys, back to you. tracy: yeah, that was probably the most interesting part of the whole testimony.

peter barnes, thank you very much. >> signifying what exactly, not sure, but top of the hour, stocks, annie -- and nicole is live. >> the ben bernanke effect, the truth is we've been around the same levels since 10 a.m. today. the vix and fear index pulled back, and the dollar is strong, the trend seen over the last couple days. we did see a run up going into the 10 a.m. hour right there for the new home sales number coming in better than expected lichting things along, but bouncing along as we heard from ben bernanke, obviously, concerned about europe. that's something that continues. he talked about the sequester and whether or not that helps, whether it goes through or not. there's a look at the dow jones industrials. as i noted, you see the runup there right before the 10 a.m. to the home sale, and there's names doing well. as far as the dow movers, home depot on the heels of the

quarterly report, doing well up 3.6%, and on the downside, jp morgan, united health care, and merck lower. jp morgan announced layoffs. dow up half a percent. back to you. tracy: thank you, see you in 15 minutes. david: facebook and other social networks are called breeding grounds for crimes. the warning from the kansas city fed ahead. tracy: the midwest hammered by snow, and energy markets are watching. david: speaking of energy as we do every day at this time, look at oil, down a tiny bit. ♪ [ male announcer ] at his current pace,

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david: more team coverage of the

markets. tracy: charles payne showing us how to make money on proshares, but sandra smith watching gold. hey, sandy. >> hey, tray di, watching gold, traders on the floor reacting to ben bernanke's testimony just a few minutes ago. gold prices, if you take a look, surging on ben bernanke's testimony. gold's up now looking at a $28 gain, $27 gain, up a couple percent on the session. this is the biggest jump seen in the price of the metal in about three months, guys. ben bernanke making it very clear, defending the asset purchases of the fed, and that is leading to traders hedging against inflation. they are buying gold right now. meantime, this is on a day when goldman sachs has a report saying the gold cycle is over, the gains of the past 12 years are coming to end as the economy improves and investments in gold begin to decline. not so much the case today, guys. we are seeing a lot of buying on the ben bernanke testimony. goldman's three month forecast?

1615 an ounce, about where we are. they are saying gold's going to do nothing over the next several months. there's six and 12 month forecast saying $1600 an ounce, not only saying gold does nothing, but they are calling for it to go down about $15 # over the next yearment back to u -- year. back to you guys. >> thank you very much, sandra smith. tracy: charles payne looking at japan, off of what dear uncle ben said, suspect it? >> partly. talked to drk -- corker had the most interesting give and take with ben bernanke and mentioned the currency war that he bristled that called a dove, but he says japan has not started to hammer the currency. thips they got the prime minister, the currency's down. they will put a guy in who has been a huge critic of the bank of japan's deflationary policy.

the currency will be walloped on purpose. it will do better for businesses. i've been in this for two months now, on the verge of a breakout, at the double top. you see the chart. breaking out through here, keep in mind, this was $87 back in 2011. there's plenty of room on the upside for this one. >> the japan economy is dead for s, and the reason we have to do better to weaken the currency and let their ships at cheaper prices. >> well, that's the -- that's part of the reason, and, actually, to be frank with you, i loved the mentality of the prime minister determined to bring back the spirit telling the kids, you know, the 25-year-olds who like to go through the beauty salon and don't want to work, you're going to work. he's talking about bringing back the warrior spirits. the irany, of -- irony, of course, i'm not in favor of the ma nip lative policies, but -- manipulative

policies, but it's going to happen. he says get back to work, and you're going to like it. tracy: charles payne. >> get the grass feeders back to work. david: no matter the debate you're on, the punch bowl has to be removed eventually. jason pride, director of investments joining us now. jason, fed's balance sheet more than tripled since the meltdown. any surprises this morning in his comments? >> i don't think there's any surprises. they have been fairly clear in the communication here looking for a target of 6.5% on unemployment, 2.5% inflation to begin, you know, tapering back their bond buying. they are still in a position of having to offset deleveraging throughout the system. we talked about this for a long time. you know, consumer debt loads to income are only down from 130% of the deposable income down 100%, there's more room there

and in the deleveraging of the governmental system. the fed has to be an offset for that for a considerable period of time. that comes out somewhere in the middle of 2015 is probably the likely target for when they actually start tapering their purchases and start hiking short term rates. sooner if things get more confident. you know, there's uncertain factors here. the system could get more confidence and see more growth, which is why they have a range of expectations, but somewhere in the, you know, late 2014, early 2015, somewhere there is the range of expectation. david: jason, while we thought we had the fed security until 2015, they are worried the fed moves earlier, and fed members hint, hey, we could move early, we could move early. undercutting upside impact of the commitment to stay low because they warn until not to stay low? >> you know, it's a balancing

act for him. it's a communications issue for them. they need to both convey that we're -- that they are there to do what's necessary to do in order to keep the economy moving in a positive direction while also kind of tapering off the concerns of inflation bubbling up and getting out of control. david: yes. >> what you'll see is you'll see them balance that sort of communication. they'll do it through different players within the group, you know, allow different fed speakers, the ones that are more hawkish to speak up louder when they have to make sure the message is there a little. they'll try to balance it. it's a communications management issue. david: i'd like for a more harmonic greek chorus there, but thank you very much for being with us, jason pride. >> thank you for having me. >> the sthow down between two retailers who want martha stewart the brand, not the legend. more on that after the break. ♪ [ engine revving ]

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>> 20 minutes past the hour, your fox news minute. secretary of state john kerry is in berlin, germany pushing for a free-trade agreement between the u.s. and europe, the deal would help create jobs and growth on both sides of the atlantic. the agreement is a priority for president obama in his second

term. the death toll from the hot air balloon accident in egypt has risen to 19 after a british tourist died from his injuries. that accident occurred when the balloon that was flying over the city of luxor caught fire and crashed to the ground. one tourist send the delusion's times are the only survivors. 20 years ago today the first attack on the world trade center took place. six people died and 100,000 were injured when a bomb went off in an underground garage below one of those hours. a ceremony and moment of silence is being observed at the site of the 9/11 memorial. that is your fox news minute. tracy: i remember is that like it was yesterday. it is a soap opera department store silage macy's and j.c. penney waging battle over the clean of home goods, that would be martha stewart. macy's ceo terry lundgren took the stand saying he hung up on stewart after she called with

the news of her j.c. penney deal. stewart takes the stand next week, here is a take on the case. this is just like you got to wonder. is it worth fighting over martha steward at this point? >> i don't know if it is worth fighting over but it will be a good product for pennies, whenever the wind up with. they will wind up with martha stewart and 3, they will wind up with some goods in the paper wrapping things like that and they will call rest of what would have been marred the steward every day when they lose this case. i think it is good for them in general. i think it was an okay business for macy's up to the end. it ran its course but i think they wanted to keep it. it was perhaps the hottest new brand out there but it was a good stable solid brand. tracy: macy's claiming they made her who she is as far as that stuff goes but with the penneys customer in particular, if a spatula is on sale will buy it doesn't matter who makes it.

>> macy's brought her back from the point of view of renewing business after things were so difficult after she was in prison and it was a big deal to market. now at penney's, they are having more of a macy's customer a little high end, a little younger, that is not martha in my opinion but it was the old penneys customer and i'm sure they would like to have the old penneys customer back. tracy: let's talk about retail stocks, consumer confidence up, we saw better numbers out of macy's. >> me see that a great number that came out at 205 earnings for the quarter, nobody thought they would be above 202 including me. the street had been 199, they had a great january. nobody has a great january in retailing but they did. tracy: they had the week of wonderful so that works, use a by j.c. penney at 17, why won't you go near this? >> i was very negative on pennies from the first meeting

at forty-three dollars a share all the way to 17. i felt really smart. at $17 i said they're not going broke, these shops will work, they get better at the back end of the year. is probably time to take a hard look at them. could they go lower when the release for the numbers tomorrow? they could, but i think they are interesting by in the 17 range. now there are $20 a less. they could be a $30 stock this year and positive in the back half. tracy: thank you for being here. dennis: stocks every 15 minutes, nicole petallides on the floor of the stock exchange where home depot is coming. nicole: it is topping, humming, hot, whatever you want to call it. will get the stock, it is up 5.7% at $67.55 for home depot. this after they announced quarterly report and certainly beating out lows once again, 15

straight quarters, the margin even wider than it was before. a lot of folks head into home depot for hurricane sandy rebuilding of hurricanes after hurricane sandy, the outlook isn't so great however it is the latest quarter that really was stellar and as i noted below, the buyback at $17 billion and raising the dividend, the quarterly dividend 34% and that makes this a real winner and the best performer on the dow industrials. as far as a major market averages the dow is up 1/2% and we are seeing deicing be with an up arrow but the ticket the nasdaq composite as the down arrow. couple things pertaining to ben bernanke, but that is with their tools, ready to continue bond buying and talking recession in europe and the last thing we should note, stronger dollar which has declined the blast several days. dennis: thanks very much, $17 billion buyback over the period of years, $100 billion in stock the past three months or

so, a big market out there. home prices end 2012 with their biggest gains in six years. and it is time for government to get out of the housing market. tracy: facebook is a breeding ground for cybercriminals who want to steal your money. liz macdonald will investigate that ahead. dennis: take a look at today's winners on the s&p.

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dennis: home sales up in the case chiller home prices index seeing its biggest year over year gains in six years, the report, there robert schiller still cautious. >> the housing market has more momentum than a stock market so i expect it to go up in the short run. the long run is always unclear. suspected market, i am not joining the crowd who is saying that this is a major turning point. we don't know that yet. dennis: joining us now is ed pinto, resident fellow and tim routes calling the group partner and thanks for joining us. we are seeing recovery that should not be confused with a real rebound. why is that? >> you have a situation where there is very light inventory of homes for sale and demand being pushed up by low-interest rates,

lowest in 100 years a you get an imbalance the drive the prices, the government is supporting this market in major ways, half of all buyers put down down payments at around zero and 90% of credit guaranteed by the federal government and the fed is buying roughly half of all the mortgage debt, largest investor in the world. dennis: we heard that half of all new home buyers right now are putting down basically zero. the government makes that possible. does that disturb you? >> it doesn't disturb me but it needs to be a complete picture. we all recognize the housing indicators are clearly of headed up and that is a good thing. the disturbing part is their heading up despite high unemployment rates and near recession levels confidence levels. those are the disturbing things we need to watch. the fact that 50% of the buyers are government-backed opening in zero down. it is a reaction to the reality of the times.

i don't know what new normal looks like. dennis: is it the good news the federal government is helping stoke those terms of -- home purchases or bad news? if it is that when its stock? >> it is bad. f h a 2 is the main participant in the low down payment lending has been a nightmare for 60 years. i calculated over three million foreclosures in the last 37 years, 14,000 in the month of december. these are outrageous numbers, average foreclosure rate over the last 37 years is about 13%. that is one in seven loans. that is not for building a long-term sustainable recovery. at h a has got to stop financing failure that has to stop hurting working-class families in neighborhoods which it has been doing predicted. dennis: i think we need to make

the distinction between bad economic policy and that f h a policy so f h a has had 80 years of evidence that it can successfully in the right and support low to moderate-income home buyers. we have to recognize as a country what is good public policy because it is the last legitimate wealth creation opportunity for these low to moderate-income borrowers. dennis: it is good public policy is the public policy that led to the entire meltdown. if we don't want government to start pulling back on the problem now, when should it? ever? never? >> timing is everything. there are a couple reasons you shouldn't do it now. we already recognize the wealth creation, the wealth gap between haves and have nots is unprecedented when you can do something to arrest that. we recognize fannie mae has got $140 billion bill to the treasury department so we would like to preserve every opportunity from a revenue perspective that we can for period of time and at h a same thing. we recognize there will be losses, those are baked in the cape.

it is a matter of who is going to underwrite them, borrowers? dennis: they're not getting it. when should government pool back on this? >> they are not getting it. at h a has been practicing will destruction over the last number of years. needs to turn to wealth creation and you do that by putting people in loans they can actually afford and don't leave them on a tight rope where it takes that broken water heater to send them into default. or how about just renting? if you don't have the down payment how about you don't buy house and you run like i do? humiliating as it is. dennis: thanks for being with us. you can see the entire interview with robert schiller in the next hour of markets now. melissa and lori will have that at 1:00 eastern. taxing to advertisements, revenue hungry states. tap advertisers to make up for their budget shortfall. the put back ahead. tracy: the midwest getting hammered by snow and energy

markets are certainly watching this. dennis: take a look at the ten year treasury. with the spark miles card from capital one,

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wall street paid out this year for 2012, second rise in a two year high. and before the financial crisis according to new york state comptroller, snappily total bonuses for the security industry are expected to hit $20 billion. and honda is planning to roll out three new models by 2015 with a joint partner in that reason. the japanese automakers said two of the models will be featured in the chinese market and the third will be part of a global rollout. according to the international federation of phonographic industry, the music industry broke a three year losing streak in 2012 posting a small but symbolic rise in revenue. the digital sector shows its strongest growth and that is good news. that is the latest from the fox business network giving you the power to prosper.

dennis: just now quarter till the top of the hour. stock

>> caller: minutes. nicole petallides on the floor of the stock exchange with the markets. nicole: it is worth noting we are up 100 points, triple digit gains for the dow jones industrials, back to these bigger swings. late yesterday you may remember we sold off late in the day, down 200 points, a lot of concerns about europe. stronger dollar brings uncertainty about a global economy, coupled with what we have been hearing from ben bernanke over the last hour-and-a-half that obviously the fed is on and ready and that is where we stand, up 100 points, 13,900. dennis: thanks. tracy: cu in 15 minutes. officials warning you may be exposing yourself to international networks of criminals believe it or not if you go on social networking sites like facebook.

more here is liz macdonald with the bottom line. this sounds really not. liz: identity theft from the facebook wording from the kansas city federal reserve. there is such a king as social networks are breeding grounds for cybercriminals and social network victims are tricked into revealing bank account and personal details. kansas the federal reserve warning along with the fbi i that fraud rates are double on social networks and gaming sites on the internet, double what they are insights like amazon. here is the name of the game for these criminals and from the fbi and kansas city, crooks are setting up a virtual caller accounts where they do transactions on the social gaming or social network sites be a virtual dollars and what they are worried about that the fed and the fbi, money laundering, international crime networks, could be overseas, basically transferring money

around the globe via these websites. it is a real serious problem. they are seeing a leading edge of a rise in crime via social network sites. not just facebook. also other social network sites, possibly linkedin and even twitter. it is not just signing up for rewards programs or online surveys. has to do with those virtual dollar accounts on the websites where essentially you can transfer money on the web site to anybody else around world and it is not just paypal but wire transfers and 3 arrests checking accounts, no credit card protection if these people do that and they are submitted or subject of fraud. it is a real serious issue. we are in the leading edge of a developing story and watching this one. tracy: you got to wonder how people could be so gullible. dennis: things are revealed as it is. tracy: despite the criticism, we will tell you why or how much

criticized oscar host says mcfarland may be having the last laugh after all of this. i thought he was great. dennis: let's take a look at today's winners on the nasdaq. i thought he was juvenile.

tracy: that nasty. it continues to pummel chicago

and the midwest causing a major headache for travelers but with massive spending cuts to kick in at the end of the week the travel industry could be in for a lot worse. jeff flock live in chicago with the details, talking about cutting those the as as. >> i will give you the latest from o'hare but let me show you what is happening in chicago. this is the leading edge of the storm which we are getting here and the downtown area, perhaps you see it is not too much fun. is what forecasters affectionately dubbed a winter remix. look at the pictures out of kansas where it has been coming down heavily. a foot of snow a lot of places headed for us in chicago. take a look at the radar. let you see what it looks like all-around midwest. as you point out, this is some of what we could be in store for at the end of the week or next week as we get those cuts from the sequestered.

so far account 172 cancellations on board according to flight stats, 767 points may be delayed, average the layout there, 144 minutes. moret and secretary low hood said would be the delays next week when there are fewer air-traffic controllers as a result of the sequester. i would point out, more air traffic than they have now and 23% fewer controllers, and there is a fact in the system even though they need all the controllers they can get right there right now at o'hare but as you can see this is not very pleasant thing. snow and ice, umbrellas are out, flying backwards. it is a good time in chicago. tracy: me too. in today's media minute,

farewell daily variety. kelly would trade paper stops its daily print edition next month the says one agent of the paper's demise, thedraft.com. and breaking news in gaza, the hollywood legend founded 100 years ago famous for inventing its own lingo. box office sales are boffo, the studio will -- mixed picks. weekly variety print paper will they leave in late march and taking down the payroll online going against the recent trend. what is better than soaking the top 1%? a new tax on advertisers. ohio and minnesota mulling a new sales tax on advertising other professional services, quite clear how running a national spot on a local channel in minneapolis raise in minnesota's cost of government. anyway, oscar's file numbers are in from nielsen. forty million people tuned in up

3% from last year but family guy's seth mcfarland getting a surge in young adults, up 9%. that is the target advertisers seek. tracy: i liked him. dennis: so that i. he was all right. stocks are swinging wildly as federal reserve chairman ben bernanke defense his bond buying program. tracy: melissa frances and lori rothman ask new york congressman michael grim what he wants to hear from the fed chairman when he testifies to his committee tomorrow. don't go anywhere. we will be right back. dad, i'd put that down.

ah. 4g, huh? verizon 4g lte. 700 megahertz spectrum, end-to-end, pure lte build. the most consistent speeds indoors or out. and, obviously, astonishing throughput. obviously... you know how fast our home wifi is? yeah. this is basically just asast. oh. and verizon's got more fast lte coverage than all other networks combined. it's better. yes.