carmen rhinehart, professor of economics at the university of maryland. is timely for you to be given developments on the international front. please proceed with your testimony and we will go to dr. johnson and dr. marin. >> thank you anmembers of the committee for the opportunity to comment on the u.s. economy and the budget and the debt. & department of economics at the university of maryland. i suspect that i was invited here today because for more than a decade, my research has been focused on various types of financial crises. that includes the fiscal implications and other economic consequences. one of the main lessons of emerging from this work is that across countries and over time, severe financial crises followed a similar pattern. in a paper written over one year ago with my co-author, we examine the depth and duration of the slump that invariably follows financial crises. the recession's following severe post-world war two crises tend to be protected affairs. asset market collapse were deep, prolonged and realizing -- housing prices declined

carmen rhinehart, professor of economics at the university of maryland.timely for you to be given developments on the international front. please proceed with your testimony and we will go to dr. johnson and dr. marin. >> thank you anmembers of the committee for the opportunity to comment on the u.s. economy and e@@@@@@@g@ @ @ h@ @ @ @ & @ @ @m that includes other economic con sequences. cross-country's and over time, severe crises followed similar patterns. in a paper over your ago, we examined the slump that inevitably followed financial crisis. the recession's following severe post-world war two crises tend to be protected affairs. asset market collapse were deep, prolonged and realizing -- housing prices declined at least 35% for this decline stretched out over six years. equity prices collapsed on an average of 55%. the recovery from the bottom was quicker. to put it in context, in the present downturn here in the united states, a real housing prices have already fallen 36% from their february, 2006 peak. not surprisingly, banking crises are associat

carmen rhinehart, professor of economics at the university of maryland. is timely for you to be given developments on the international front. please proceed with your testimony and we will go to dr. johnson and dr. marin. >> thank you anmembers of the committee for the opportunity to comment on the u.s. economy and the budget and the debt. & department of economics at the university of maryland. i suspect that i was invited here today because for more than a decade, my research has been focused on various types of financial crises. that includes the fiscal implications and other economic consequences. one of the main lessons of emerging from this work is that across countries and over time, severe financial crises followed a similar pattern. in a paper written over one year ago with my co-author, we examine the depth and duration of the slump that invariably follows financial crises. the recession's following severe post-world war two crises tend to be protected affairs. asset market collapse were deep, prolonged and realizing -- housing prices declined

carmen rhinehart, professor of economics at the university of maryland.ly for you to be given developments on the international front. please proceed with your testimony and we will go to dr. johnson and dr. marin. >> thank you anmembers of the committee for the opportunity to comment on the u.s. economy and the budget and the debt. & department of economics at the university of maryland. i suspect that i was invited here today because for more than a decade, my research has been focused on various types of financial crises. that includes the fiscal implications and other economic consequences. one of the main lessons of emerging from this work is that across countries and over time, severe financial crises followed a similar pattern. in a paper written over one year ago with my co-author, we examine the depth and duration of the slump that invariably follows financial crises. the recession's following severe post-world war two crises tend to be protected affairs. asset market collapse were deep, prolonged and realizing -- housing prices declined at least

marin's target and pushes closer to the dangerous threshold that profess rhinehart mentions.taboo subject is fannie mae and freddie mac. the imf would say to you if they were in a position to speak to the united states, they would say that unless you show was a plan for privatizing these entities which have been talked about, we have to start thinking about these as liabilities to the u.s. government. they hold assets. i would not exaggerate losses but if you're talking about debt owed by the public sector, fannie mae and freddie mac would enter into that picture. . . in the official budget that the president put out, there is some money for cash flows from our support for the two of them. but the several trillion dollars are not there. >> the too big to fail banks are also an implicit contingent liability of the u.s. government. if those banks fail, they will continue again and say, we need tarbes, too, senator. -- we need a tartarp, too. i think this is a budget issue, too. a contingent liability of this magnitude -- we have to discuss that and the tax base who hopes to sup

marin's target and pushes closer to the dangerous threshold that profess rhinehart mentions.he taboo subject is fannie mae and freddie mac. the imf would say to you if they were in a position to speak to the united states, they would say that unless you show was a plan for privatizing these entities which have been talked about, we have to start thinking about these as liabilities to the u.s. government. they hold assets. i would not exaggerate losses but if you're talking about debt owed by the public sector, fannie mae and freddie mac would enter into that picture. . . based on the chart you showed earlier, that's not being scored, is it or isn't it? does anybody know? >> in the official budget that the president put out, there's a small amount of money in there which is the future cash flows from our support for the two of them. but the several trillion dollars worth is not in the debt there. >> all right. >> excuse me. >> if i could finish, the too big to fail banks are also an impolicity contingent liability of the u.s. government which is not bad. it's not scored in any

rhinehart was mentioning and why it slows our growth down.? that will be my last question. >> well, i think you summarized the point very well. that money we borrow comes out of something. there isn't a free lunch here. and whether we use domestic savings to borrow or use foreign savings to finance our deficit, it will ultimately reduce our standards of living. i don't think you can get around that. whether the line is as bright as 90% and that ratio, i find that a little hard to swallow in their work but certainly the higher the deficit, the more it impacts negatively on our potential to grow. >> the other two? >> i think that is a good point. i was actually trapped in my car on tuesday trying to get into the line to get to the grocery store only to find that there was no food. the only thing that kept me from having road rage is that i got to listen to the hearing on c-span and it was really an interesting hearing. i think it is important, the public debt matters is when you're looking at financial markets when you're taking this capital ou

economists carmen rhine hard and -- rhinehart and kenneth rogalt wrote "growth in a time of debt."hey write -- "when gross external debt reaches 60% of g.d.p., annual growth declines by about 2%. for levels of external debt in excess of 90% of g.d.p., growth rates are roughly cut in half." remember, the president's bulgt projects debt to reach 77% of g.d.p. by 2020. even though growth could eventually enable us to manage and over time reduce and perhaps even eliminate our debt, there's a point at which the amount of debt itself inhib its growth -- inhibits growth or our ability to grow and, obviously, therefore, we've got to tackle the problem of increasing debt, increasing spending even if we are to hope to grow our way out of the debt problem that we have. over the long term, then, the only way to permanently lower our debt is to hold federal spending in check and promote strong economic growth such as through lower taxes. this is proven to work time and time again. whether we look to the 1920's, the 1960's or the 1980's, history shows us reducing marginal income tax rates is a h