lerrick, thank you for >> dr. lerrick, thank you for coming. we look forward to hearing your testimony. >> i want to recapitulate what happened. the europe crisis is not a currency crisis. the euro maintained its value. it's at $1.3 which is in historic range. europe has a fiscal crisis compounded by a failure to take corrective action. that's just destroyed its credibility in the capital markets. it is a self-inflicted crisis. the european monetary union set out rules that limited deficits to 3% of gdp and debts to 60% of gdp. and the markets accepted this as a fiscal performance guarantee. they thought that homogenized the credit throughout the union. you saw the interest rates of greece's debt fall from 8% of germanys to less than a quarter of a percent above germany's. but the rules were never enforced. by 2007, you had ten of the -- seven of the original 12 members over the debt limit. by 2010, it was ten of the members. what had happened was weak governments had used massive borrowing to offer their citizens a standard of living, their pr

lerrick and dr. johnson probably aren't in agreement with a rosie scenario. >> i think i'm actually more optimistic than dr. bergsten. i believe it will drive europe to a stable financial union. we have many more summits to go but they'll get there. i believe. but there is a large risk. one of my colleagues uses an analogy. he said this is a dangerous operation. you could have the most skilled surgeon in the world but things can go wrong. and so something could go wrong. i believe that the europeans will manage this process. i think the germans have now found the tools do that, which are just to keep interest rates really high on all the politicians that are of the weak countries and that will force them to do what german threats and pleading and reasoning did not succeed in doing for two years. and secondly the new strategy, which is if you agree, that's great and you'll get our support. if you don't go, with god. you're on your own. >> that's basically the same discipline that will be imposed on th

lerrick it was a number of years ago i remember an article in which warren buffett was replacing his effort -- the threat out there could have profound consequences both enormous shocks but it's also an instrument or a change that would have an impact on the cost of our goods to the world. and to the degree the dollar becomes weaker, making them more affordable to the world. that's another interesting conversation, i'd love to have. i'm sorry i'm going to miss the sweden solution, but i look forward to hearing about it. thank you. >> thank you, senator merkley. >> senator thune, would you like -- >> i can ask a couple quick questions. >> then we're going to go to a second round. >> thanks for holding the hearing. i think it's a really important issue. it critically important to our country both in terms of the impact on our economy but also helping us to recognize fiscal challenges we face in the long term as well. i'd like to get your perspective, if i might, on the panel to certainly that's been reported, and that is many of the u.s. banks and money market funds have significantly

adam lerrick, visiting scholar at the american enterprise institute, someone who is deeply knowledgeable on european affairs, having spent the last two years there. your testimony and welcome you to the senate budget committee this morning as well. i'd like to begin by briefly reviewing the situation as i see it in europe. to be clear, what is happening in europe has ramifications across the globe, certainly including the united states. here's the front page story in the "washington post" last weeks risk of major recession." the article highlights the international monetary fund's europe could have serious consequences for the global economy. yesterday, we saw reports that european leaders had agreed to new measures to address the debt concerns in their countries. here was "the new york times" headline on the agreement. "european leaders agree to new measures to enforce discipline." i'd very much like to hear the views of our witnesses on this agreement, and whether it's the right answer for europe at this moment. most economists believe the eurozone is already in recession. we can see t

lerrick. if you look at the ten-year outlook here, i think on a realistic basis, we're looking at trillion deficits as far as the eye can see. you said that, dr. bergsten. okay. i always like to attribute to it the right place. thank you all. i know we committed to ending at noon. somebody's got to make a plane. but we appreciate very, very much the testimony. i think this has been an outstanding hearing. >> thank you very much. >> federal reserve chairman ben bernanke will be on capitol hill tomorrow morning to talk about the health of the u.s. economy. he is also expected to be asked about inflation and economic growth. live coverage at 10:00 a.m. eastern here on c-span 3. >>> u.s. manufacturing continued to grow in the month of january. up next, a conversation with ohio congressman tim ryan about manufacturing jobs and the economy. and then house and senate republicans talk to reporters about the federal budget. congressman tim ryan joined us on washington journal to talk about u.s. manufac

lerrick. >> i echo simon's comments about the bazel rule. i would raise two points. first, there's one true law of economics. that was first enunciated by the governor of the bank of england in the 19th century. every regulation will be circumvented. when you start setting out very precise rules, you are setting in motion an entire system of people. certainly spending their lives thinking how to circumvent them. remember, regulators are always one crisis behind. they're always thinking of that last crisis, they don't know where the next crisis is coming. they are paid far less, work far less hard. and are not as highly skilled as the people that are attempting to get around the regulations. you must keep in mind when you set out clear regulations, you have a problem. the second is, i was looking -- i saw an old photograph of a bank that had been closed back in the 1920s. but the front -- the window front was very interesting. in 19 -- before the federal reserve in the 1920s and '30s, on the front window of every bank it said capital, $10 million or $12 million or $5