tv Today in Washington CSPAN December 18, 2009 2:00am-6:00am EST
objecti objectives given right here in this commitá bm)%gg rr@ @ rr i do not believe that the monetary policy in the recent crisis, that was effective with the fiscal policy, was coherent or predictable. in 2005, bernanke said that a monetary policy -- that the monetary policy will become increasingly transparent with the financial markets, and this is a trend that i strongly support. i do not believe that there is any transparency in some of the actions that were taken in the crisis by the fed. bernanke said, and i will quote this, the fed will work with the other regulators to make certain of the safety of the families of the u.s. banking system. they have played a role in
mitigating the worst kinds of the financial crisis. mitigating diverse types of financial crises. if i'm confirmed, he said, i will work to enhance the stability of the financial system and to ensure that the resources, procedures and expertise are in places needed to respond to any threats to stability that may emerge. now, not only were there evident threats to the stability of our financial system prior to 2006, but, also a complete lack of regulatory response by the fed. and finally, in 2005, dr. bernanke said, the federal reserve, along with other regulators, is, also, engaged in trying to ensure that consumers are treated fairly in their financial dealings, that their privacy is protected, and that they receive clear and understandable information about the terms of financial agreements and that they are not subject to discriminatory or abusive lending practice. is there any doubt at this point
that we were experiencing a system-wide breakdown in mortgage underwriting and the fed did virtually nothing until it was too late? chairman bernanke is a distinguished scholar, we know that and he's a student of monetary policy and financial markets. under his leadership the fed engineered some innovative ways to inject liquidity in distressed markets during the recent financial crisis and while there may be some agreement on his handling of the crisis, we must, also, take into account his role leading up to the crisis. many have said that changing horses in the middle of the stream will introduce an unacceptable level of uncertainty into the markets. on the other hand, i would argue that it can be equally damaging to our economy and our form of government if we, the united states senate, fail to use our constitutional authority to disapprove and a nomination when a particular nominee has not executed his responsibilities in a manner consistent with his own claims and our expectation. we talk a good game when it
comes to accountability but we rarely match our own rhetoric with actions. in this instance, i believe we must not only express our disapproval of this particular nominee but we should, also, signal future nominees that we have expectations and that those expectations should be met. for this reason and others, i have articulated here, i will be opposing a second term for dr. bernanke as chairman of the board of governors of the federal reserve. >> thank you, nart. senator johnson. >> thank you, mr. -- thank you, mr. chairman and ranking member shelby. as we are tasked with the renomination and confirmation of mr. bernanke to be chairman of the federal reserve board of governors today, our nation is also faced with finding ways to restore financial stability, remote economic recovery, and to find solutions that ensure that
an economic crisis like the one we faced last year never happens again. while there has been criticism of the federal reserve for not doing enough to protect consumers and for unprecedented actions it took during last year's financial crisis, there is also [ inaudible ] mr. bernanke's energetic response to the economic crisis kept our nation out of a depression. going forward, there is no doubt that the fed can be better. it can be more proactive and it can better communicate with congress. but, let's not forget what mr. bernanke and the fed did right during the last many challenging months. as our nation continues on the path to economic recovery, there is no doubt, having one of the
world's foremost experts on the great depression at the helm of the federal reserve is a benefit @@@ @ @ '@ @ @ @ @ @ @ @ @ @ @ i will support him as the chairman of the board, by the federal reserve, today. i am confident that he can assist the nation in helping -- helping us to be a more fiscally stable nation. >> thank you very much. senator bennett? >> thank you, mr. chairman. we deal in alternatives around here. and initial reports of whom president obama might have nominated to be the chairman of the fed had me quite concerned.
so, by comparison, i was relieved when he decided to stay with ben bernanke. i've spoken with chairman bernanke, made clear in no uncertain terms that my continued support is contingent on his fulfilling the commitments he made to me that he will, one, implement a plan to pull government support back from the private sector and allow companies to fail or succeed on their own, two, fight inflation aggressively and protect the value of the dollar through monetary policy decisions and, three, work with the congress in a meaningful way to enhance the transparency of the fed. given the large size of the fed's balance sheet, i think taxpayers should expect nothing less. he's made those commitments to me. in anticipation of what might happen if we defeated his nomination, i have told him i will support him in this committee and on the floor. thank you, mr. chairman.
>> thank you, senator, very much. senator tester. >> thanks, but this is one of those days where i'll forego my opening statement. >> this is a corker, the corker rule here. >> fine. let me then turn to senator bunting. >> thank you, mr. chairman. i am not going to forego mine. >> i thought maybe a trend might be setting in here. >> two weeks ago at this hearing of ben bernanke's nomination, i explained the case for opposing his nomination for a second term. i'm not going to repeat that entire statement today but i want to talk a little bit about those reasons and a few more that have come up since the hearing. first i must take this opportunity to comments on chairman bernanke being named "time" magazine person of the year yesterday. one financial blogger wrote yesterday that this was like rewarding the captain of the "titanic" for getting everyone off the sinking ship after he
rammed it into the iceberg. and chairman bernanke may wonder if he really wants to be honored by an organization that has previously named people like joseph stalin twice, yasser arafat, adolf hitler, the ayatollah khomeini, vlad mire putin, richard nixon twice as their person of the year. but, i congratulate him and hope he at least turns out better than most of those people. four years ago when chairman bernanke was first nominated to be chairman of the federal reserve, i was the only senator to vote against him. in fact, i was the only senator even to raise serious concerns about his nomination. i opposed him because i knew he would continue the legacy of alan greenspan and i was right. but, i did not know how right i would be and could not imagine
how wrong he would be in the following four years. from monetary policy to regulation, consumer protection, transparency, and independence, chairman bernanke's time has fed chair has been a failure. we must put an end to his and the federal reserve's failures and there is no better time than now. as i said two weeks ago, the greenspan legacy on monetary policy was breaking from the tailor rule to provide easy money and, thus, inflate bubbles. not only did chairman bernanke continue that policy when he took control of the fed, but he supported every greenspan rate decision when he was a fed governor before he became chairman. sometime, if you read the minutes of the fed, he wanted to go even further and provide
easier money than chairman greenspan. yet, at recent -- as recently as last month chairman@@@@@ @ @ @ this continued after he was promoted. the most glaring example is that it took him two years to finally regulate the subprime mortgages, after the fed had done nothing for 14 years. 14 years after we the congress, had given the fed the power to do that. even though he acted only after pressure from the congress. well, as proof that there is justice in the world, it turns out chairman bernanke himself would have benefited if the fed
had acted sooner on consumer protection. in an interview in the "time" magazine issue where he got his award, chairman bernanke said he recently had to refinance his adjustable rate mortgage because, in his words, it exploded. if that doesn't give you confidence in the man in charge of our financial system, i don't know what will. as the economy started to slide in and the housing bubble peaked and then popped chairman bernanke failed to notice the problems or do anything about them until it was tomb late. during that time, he made many statements showing just how he did not understand what was really going on in the economy or how severe the crash would be. i want to read a few of those statements so that everyone understands just how wrong he
has been. on march 28th, 2007, he said, the impact on broader economy and financial markets of the problem in the subprime market seems likely to be contained. on may 17th, 2007, he said, we do not expect significant spillover from the subprime market to the rest of the economy or to the financial system. on february 28th, 2008, he said, among the largest banks, the capital ratios remain good and i don't expect any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system. on june 9th, 2008, he said, the risks that the economy has entered a substantial downturn appears to have diminished over
the past month or so. on july 16th, 2008, he said this -- fannie mae and freddie mac are adequately capitalized. and in no danger of failing. and just a few months ago, may 5th, 2009, speaking about the unemployment rate, he said, currently, we don't think it will get to 10%. well, we all wish he had been right on that one. i could read many more quotes, but these are enough to show how wrong he has been about the major economic issues facing our country. of course, everyone makes mistakes. everyone up here has made mistakes. so, i asked chairman bernanke about these errors in a written question i gave him after his
hearing. his answer did not make me feel any better. he said, the fed did not understand the relationship between financial firms, how the problems in the financial sec ter would move to the real economy or how severe the financial crisis would be. that was his answer to me. in those -- i thought those were the kind of things regulators, or the fed in particular, were paid to understand and address. we shouldn't be paying fed chairmen to get it wrong or to learn on the >> he did not take this job seriously. under the supervision of the most dangerous banks, he allowed them to grow the balance sheet and increase the risks. and the same is true about derivatives. after taking over the fed, he
did not see any need for serious regulations of derivatives until it was clear that they were going into a financial meltdown, because of the projects. with those fears and flawed policies, bernanke destroyed the independence of the federal reserve. he bowed to the political pressures of the bush and the obama administrations, and turned the fed into an arm of the treasury. walking arm in arm with treasury, he bailed out of the large financial institutions, including many foreign banks. he put the printing press into overdrive, funding the government spending out of cheap money to the wall street firms.
out of cheap money to the wall street firms. instead of taking money and lending to consumers and cleaning up their balance sheets, the banks started to pocket record profits and pay out billions of dollars in bonuses. after the hearing we held two weeks ago, i submitted a long list of questions to chairman bernanke. i, also, mentioned his disturbing answer to one of those questions. and now, i want to talk about an answer and more accurately the non-answer chairman bernanke gave to some other questions. i apologize to the chairman, but this is very important. >> senator, i know your strong interests and i'm not going to put any clock on you. >> thank you. >> but i also hope you'll respect other members here. >> i'll try my best. i'm picking up for the people who passed. [ laughter ] >> the price of gold in dollars
has more than doubled since chairman bernanke took over the fed in 2006. and the price has set several recor records, higher records, this year. this has been matched by the slide of the value in the dollar. so, i asked chairman bernanke what he thought that meant, particularly about the dollar and inflation. his answer was that it meant nothing. meant nothing. ask the senior citizens of this country that are on a fixed income if the dollar they had at the time ben bernanke took over as chairman and now it's worth 76 cents, if that means nothing to them, the reduction in the buying power of that dollar from $1.00 to 76 cents. i just don't see how he can make such an observation. i asked chairman bernanke what
he thought the fed's legal authority to purchase freddie mac and fannie mae securities is since they are not government securities as required by section 14 of the federal reserve act. his answer was that the fed had determined by regulation that they are government securities. in other words, because i say so. in response to a question about the fed's decision to pay par -- now, this is a beauty -- to pay par on the aig credit default swaps, chairman bernanke stated that the foreign banks were prohibited, by their regulators and some foreign laws, from taking haircuts. is that's just not true. as european banks have, indeed, taken haircuts on their
derivative positions with other trading partners. in other question i asked him and secretary paul -- about secretary paulson's claim that the first nine banks that got t.a.r.p. money were all healthy. when citigroup and the bank of america later needed much more bailout money. this is just my concern as the t.a.r.p. inspector general said later to paulson and bernanke should not have lied to the public about the health of those banks. chairman bernanke's response was that "healthy," they maintained that the banks were viable. and not in imminent danger of failure. based on the new definition of "healthy," he hope my doctor never tells me i'm healthy @@@@
i ask for specifics about how this has helped the monetary policy. but i receive only general talking points. the only specific example that was provided about the bailout lending facility and the monetary policy -- this was pointed out by the financial blottegger. this was not designed by the supervisor. bank supervisor at the fed but by the market division in new york. i will stop going through the individual questions, because most of them his answers just ignored the question or repeated fed talking points. for this committee and the senate to do our jobs, evaluating his performance, we
need real answers, not talking points. we have all heard chairman bernanke talk a lot about transparency. he brags about it. but, his actions speak a lot louder than his words. he promised congress more transparency when he first became chairman and he promised us transparency when he came begging to us for t.a.r.p. money. while he has published some more information than before, those efforts fall short and he still refuses to provide details on the fed's bailout last year. it has become clear chairman bernanke is not going to open up the fed's action to review by the taxpayers. but, i thought he might at least provide more information to this committee as we considered his nomination. so, i asked for a list of documents for us to review, all
of which i think are reasonable for congress to see. here is what i asked for. a transcript of all fmoc meetings, chairman bernanke has participated in. transcripts of all board meetings he has participated in. transcripts of meetings of the board of the new york fed while he was chairman. details of any exemptions granted to federal reserve act section 23 a and 23 b while he has been chairman. details of all discount window transactions while he has been chairman. details of all transactions at facilities created under section 13-3 of the federal reserve act and legal opinions on the facilities. copies of any swap agreements with foreign central banks, legal opinions related to those
agreements and any economic analysis about those agreements. economic analysis regarding the need for and effectiveness of any federal reserve facility created under the federal reserve act section 13-3. economic analysis regarding the need for and effectiveness of unconventional monetary policy facilities or actions. and finally, other relative documents, the bailout of aig, bank of america, citigroup, bear stearns, lehman brothers, general motors, chrysler, cit and gmac. instead of those documents, what i got in return was a folder full of paper that printed off the fed web page. just in case anybody was
wondering, those documents did not provide any new or useful information. that kind of response is not only disrespectful to the senate, but it raises the question of what they are trying to hide. i think we should know the answers to that question before we move forward on this nomination and every member of this committee should demand the same. while it turns out we actually may have an opportunity to find out some is of the information. i hope every member of the committee listens to this. earlier this week i was informed that despite the fed's refusal to provide individual senators or the public with the information i requested, they have let committee staff of@@@@
we were told that this could not be told because they were protected. members of the united states senate, members -- that is a tremendous insult to the people on this committee, and the people elected us. this committee should not move forward. his nomination should not continue until he provides the documents that we have requested. documents i requ forward until every member of this committee has been given the opportunity to review the documents your staff has seen. we must know what the committee staff knows but refuses to tell the senators. we must know what other
documents they have seen but we have been denied. we should bring them before this committee today to tell us what they know. what they are trying to find out. and what the fed has refused to tell them. i hope and ask every member of the committee will join me in demanding that we begiven this information without moving forward. we know -- we must know what the fed is hiding from us and from the american people. thank you, mr. chairman. >> thank you, senator. let me just say to members here it's 10:20 and i know members are leaving because of other obligations. and i won't be rigid about this but i would like to at least tentatively schedule a vote for around 11:00, 11:15 if we could. we'll let officess know. obviously if that slips for some reason we'll let them know as well but give people an indication when we'd like to get to a vote, if we could. >> mr. chairman, i would object to setting a time certain.
>> i appreciate that. >> thank you. >> is there a -- senator reed was out. is he going to come in? not going to come in. excuse me, senator merkley. >> thank you very much, mr. chairman and i appreciate the opportunity to say a few words regarding the confirmation of dr. ben bernanke as chairman of the federal reserve system board of governors. i will be voting against this nomination and the reason is short -- in short, is that as chairman dr. bernanke failed to recognize orem dee the factors that paved the road to this dark and difficult recession. following the collapse of our economy, it apparent that dr. bernanke has not changed his overall approach of prioritizing wall street over american families. my decision is based on my belief that our economy cannot recover if we do not put main street first.
our nation is just beginning to emerge from the greatest financial crisis since the great depression. and there is no guarantee we will continue on the road to recovery offer the long term or the short term. unemployment remains far too high. credit is unavailable to far too many businesses. families are plagued by falling home prices and high foreclosure rates. even as we move forward with our efforts to get our economy back on track, it is critical that we examine what led us to this point. for too many years, federal regulators turned a blind eye to the signs of an impending financial crisis. tricks and traps proliferated in the credit card and consumer lending businesses, predatory mortgage loans exploded, fueling unsustainable housing bubble. regulators lifted rules requiring banks to keep adequate capital and a lay
as a member of the board of governors, and the chair of the council of economic advisers, bernanke supported each of these decisions. failing to take the cautionary steps that could have mitigated the financial collapse. we have to know that the key to meaningful economic recovery should be financially successful families, not oversized wall street profits. indeed, it should be recognized that although wall street was prosperous in the short term, the securitization of the fall to mortgages, the americans did not prosper. the expansion that occurred
between 2002 and 2007 became the first expansion in which the working families were worse off at the end of the expansion than they were at the beginning. this is not a pathway that we can afford to travel once again. dr. bernanke is an honorable public servant. and i appreciate his willingness to serve. quite frankly, i appreciate his humble and engaged style, in responding to the dialogue about -- >> those factors in my mind on the concerns of fundamental issues and rebuilding the economy. let me say this more succinctly. the approach of dr. bernanke said the economic house on fire.
this has destroyed jobs and health care, retirement savings of millions of americans, and working families. since then, he has shown himself to be willing to use the fire hose to put the fire out. adroit with the firehose, helping to put that fire out. but as we look to the future and we look beyond the stage of putting the fire out, i think we need to look for leadership that will be e department at rebuilding our economic house. for this reason, i will be voting no on dr. bernanke's confirmation for a second term as federal reserve chairman. thank you. >> thank you, senator. snark corker. >> mr. chairman, thank you. i'll be fairly brief. i think this may be our last meeting of the year and i want to begin by thanking you, as chairman, and senator shelby as ranking member for the effort that's under way right now to
have a bipartisan bill. i want to thank you both for the way your staffs are working with each other and the tone that's being set towards -- towards working to that end. obviously today is an important vote regarding the chairman of the fed. i realize when anything's controversial like this, the no is always a safe vote. i mean, there's no question when there's controversy, no is a good vote. did bernanke get all the calls right? absolutely not. did he make many mistakes? absolutely. depend the tight tans of our financial world make a lot of mistakes? absolutely. are there any real -- are there many major ceos in the financial industry that didn't make some large mistakes? no. so, i think there have been a lot of mistakes made there. are a lot of conspiracy theories
floating around. we've chased a few of those. and i will say that, while we're voting today on this committee, i reserve the right to the extent i find something different occurring by the time it gets to the floor, i may change my vote. but, so far, i haven't been able to find any end. in fact, as it relates to those theories or some of the discussions that have taken place regarding intended mistakes. so, let me just say, i want to sum up and say that i plan, i will vote for chairman bernanke for a second term today. i plan to do that on the floor unless something changes. i'm going to do it for a couple of reasons. you know, i was a young business guy, i think each of us can give experiences in our own lives like this. but, starting when i was 25 and built a company that grew to about 80% a year for 12 years. and some people talked about my business success during those
days. it was modest, certainly, compared to a lot of people in this room. then i went through a tough time in 1990 where i laid in bed for about a year and a half, actually, trying to calculate my net worth at night and understand whether i could pay everybody back. i did. paid everybody on time and made it through. but, was i a better business person before that event or after? i can tell you that after going through some incredibly difficult experiences, i was, by fr, by far, better equipped to deal with business after that event than before. my guess is that everybody in this -- in this dias could say the same thing. it's not those things that occur during good times that make you strong. it's those things that occur during bad times. do i think that there's anybody, anybody in this country that has been tested more and has the ability to be chairman of the fed right now than chairman
bernanke, i don't think so. i know there have been comments about mistakes leading up to this, huge mistakes by many, many people. by the way, if we were going to basically fire all regulators that made mistakes we'd have to start with a clean slate, right? i mean, i don't think there's any regulator that didn't make mistakes leading up to this. do i think that the experience that chairman bernanke has had over the last year and a half makes him, by far, of the people that i know of, the most well equipped person to lead the fed over the next several years, i do. i don't know of anybody i could think of that would be better after what has occurred. did he make mistakes? absolutely. the second thing, we've all watched what happened in this presidential race and i don't say this to be partisan t. doesn't matter which side of the aisle it happened on, it would have happened but what we've seen is a president, as you might expect, divorcing himself from the economic crisis that occurred.
it's only natural. i think anybody elected would do that, if they came in and faced the ib kind of economic climate we had. i think the last thing we need right now is a fed chairman coming in and divorcing themselves from the balance sheet that the fed has. i want -- i want somebody dealing with this expanded balance sheet that has the capabilities, if dealt with incorrectly, to create huge inflation in this country and create all kinds of other problems throughout our country and in relationship to other countries. so, have there been mistakes made? yes. is the fed balance sheet huge? yes. do we need to get it back to normal state? yes. but, i'd rather someone who owns that balance sheet and put us in that particular place manage that balance sheet back down than having another person come in who has no ownership of that and has the ability to maybe do some things and divorce them self from the results that i
think might not be good for our country. so, look, i think chairman bernanke gets up every morning, i think he tries to do those things that he believes are best for this country, i believe that. i don't think he has a political cell in his body. has he turned me off some trying to build an empire for the fed? yes. and does he need to stop that? absolutely yes and i've talked to him specifically about that. and i know that -- i know that this committee is going to going to through some reg reform that may clip back some of the responsibilities of the fed. and would i ask him, assume he is listening to this, my guess is he is, does he need to quit trying to expand the empire of the fed, absolutely. but i do think based on where we are today with the balance sheet issues, with what has been learned through this last crisis, i do think he is he is in a good position to make prudent decisions for our country as we move ahead, i do, i plan to vote for him and, mr.
chairman, i thank you for the time. >> i thank the senator very much. senator mendez? >> thank you, mr. chairman. mr. chairman, let me thank you for your leadership of the committee during -- throughout this year but particularly in this confirmation process. i think everybody's had the opportunity to make their views very well known in an unfettered way and that process should be reassuring to the american people so i thank you for your leadership. let me also say i don't envy chairman bernanke's difficult position. he's served in what can only be referred to as one of the hottest seats in american government for the last year, make something of the toughest decisions that have come before the country in probably well over a generation. shielding himself from what has become a populace attack from both sides of the aisle. faced with an economic that was -- economy that was headed into the abyss, chairman bernanke and the fed had what appeared to be a series of hops and choices, take it or leave it, do something or do nothing.
and i think we hopefully can all agree that doing nothing was not an option. whatever other disagreements we may have had, chairman bernanke took forceful action at a pivotal moment when the economy could have fallen off a cliff. there may be some legitimate debate about changing the tools the fed has, as well as debate about the choices chairman bernanke made. we could debate both of those issues and i know, mr. chairman in the coming months, we will continue to do so but i believe in the end what we should not do is change leadership at the fed at what appears to be the very beginning of an economic recovery. having said that, i do believe there's more the fed could have done to mitigate the housing bubble, supervise the banks, enact consumer protections, and provide credit to small businesses. i believe in chairman bernanke admitted himself, he could have done more to mitigate risk and require higher capital standards. but, at the same time, i do
believe, at this point, we are better served by someone who has learned from those experiences, someone who did bring us back from the brink of a depression. i remember mr. chairman, november of 2008, after having been told that everything was fine in the economy and then that fateful meeting with the chairman and then secretary paulson saying -- painting a pretty dire picture and saying that, if we did not act between three and four weeks that we would have a global economic meltdown. a global economic meltdown. and you know, we constantly say now that we have the worst economy since the great depression. there are some who have short-term memory as to how that all came about but the reality is we've also undermined it what that means. i don't think the american people know how much -- how close we were to the brink of a
major economic collapse in this country. that's what this president inherited. that's what chairman bernanke was dealing with. and so, as someone who made decisions that we can equivocate with, maybe, but he did bring us back from the brink of a depression and with these experiences, i think he can steer us to fiscal policy that not only is safe harbor but sails towards economic growth. having said that, in the future, i hope the fed will be more responsive to the needs of main street in america, where there is small businesses developing something, selling something, innovating, creating the new products and jobs of the 21st century. i expect it will be more vigilant to prevent a repeat of the economic crisis we've experienced and we'll get ahead of the next problems we will face such as commercial mortgage market and credit card defaults. so, it is with that expectation, mr. chairman, they will vote for
confirmation. i think he did what we needed at a time of crisis. i think he has learned from those experiences. and the final point i'll make, mr. chairman, which you have done and which needs to be a constant effort of this committee, is that whenever we have a regulator, whether it be the fed or anyone else, it needs the oversight of congress to make sure that the laws we pass and that they are enforced to regulate that ultimately that we are at their heels making sure that that enforcement takes place. thank you, mr. chairman. >> thank you, senator very much. senator hutchinson? >> well, thank you, mr. chairman. i left to go make a quorum at commerce where we're having a markup, but i did want to make a few remarks. i won't read my entire statement, but i am appreciative of many of the things that the chairman has done and i think that he has tried very hard to
steer this ship in a very tough time. however, i am going to vote no today, for two major reasons. number one is the handling of t.a.r.p. and, of course, he was very much involved in that. we were told that there would be one plan for t.a.r.p. and that was basically to buy the bad assets of financial institutions so that they would have the ability to lend with their good assets unfettered. before the end of the year last year, the plan had changed twice. and i cannot, in good conscience, condone that kind of behavior with so much trust that congress put in the group that put forward the t.a.r.p. and then, of course, we know
that since this administration has started, it has changed yet again. and secondly, i am as concerned about the debt ceiling, where we are today, as any of our financial problems. and i think the chairman spoke too positively about needing big stimulus without raising the spectre of a debt that is insupportable. and i think that if he were going to speak for the big stimulus, that there should have been a huge warning signal about the amount of debt that this country was incurring. and it is for those reasons that i will vote no. however, i will say that i respect chairman bernanke in many ways. i think he's very bright and i think he has worked tire lessly in every way that he saw fit to try to shore up our financial
system. and i will say that he has been most accessible to members of thank you, very much. >> anything that this committee does, and anything that this senate does, should all be about jobs. and i think that we are -- so many of you have heard me, talking about the importance of manufacturing. manufacturing jobs of course. this results in hundreds of other good jobs, in creation to what he does. i appreciate the comments about main street. my reservations are that the chairman is not focused on job
creation or understanding that this is not the central purpose of the fed. he is not focused on job creation. this is what i hoped that he would do. i had breakfast with the president of the cleveland fed. they are particularly representing a manufacturing area. this includes ohio, and the northern panhandle of west virginia. this is one of the districts that is most focused on manufacturing. i have spoken to her, as many have, particularly for the problems that were mentioned. this is giving credit to the small businesses and manufacturing. to small business, especially credit to manufacturing, especially credit to the supply chain for auto manufacturing as that supply chain begins to transition into alternative energy, those companies that make glass for
automobiles can make glass for solar panels, those companies that make gears for trucks can make gear boxes for wind turbines. so far, obviously, we've not done the banking system hasn't done nearly as well as all of us hope in -- in unfreezing that credit, especially getting it to manufacturers. i hope that chairman bernanke understands that. i think that he understands that. i hope that he understands the urgency of using the powers of the fed, using the powers of the cleveland fed and the others to encourage member banks to -- to do what they can can to unfreeze credit and provide that credit to -- to local small business, especially. i'm going to vote for chairman bernanke today. i think he does understand the urgency. it's a tough vote for me because i share some of the concerns. i'm not quite the depth of them and the breadth of them that senator bunning but i share some of those concerns. i plan to vote for him today. i'm not at all certain yet what
i will do on the senate floor but my concern is that chairman bernanke and my hope and my belief is that he's beginning to understand that his job is the job of all of us, is really about job creation and what he needs to do to focus on that. thank you, mr. chairman. >> thank you, senator. snart crapo? >> thank you very much, mr. chairman. i'll help us get a little back more on schedule and yield back my time. >> okay. let me turn to senator vitter. >> thank you, mr. chairman. >> wonder how i'm doing this? i was given a list by the staff when people arrive. it's not an arbitrary decision. >> thank you, mr. chairman. before we get to the question of the actual nomination, i want to suggest that we shouldn't be moving forward with a vote and moving forward with this nomination today and i strongly oppose moving forward today for two, i think, compelling reasons. the first is something that i
think is really important for every committee member, our role as senators and that's what senator bunning mentioned regarding the document request and how that has been handled with regard to aig and other bailouts. there are a lot of questions yet to be answered about the loans that the federal reserve made to aig. some, quite frankly, firmly believe that the loans were made in clear violation of the federal reserve act. these loans were not adequately collateralized, resulting in the federal reserve bank of new york having to exchange debt claims on aig for equity stakes in two insofrl vent insurance underwriting units. now, senator bunning, as he mentioned, put in his questions to chairman bernanke for the record a number of document requests, all sorts of very relevant, very important things,
transcripts, minutes, legal opinions, economic analysis regarding these specific loans and specifically federal reserve act action 13-3 and similar actions with regard to aig and some other firms. the chairman declined to provide -- chairman bernanke, that is -- declined to provide senator bunning any new information in response to that request. instead, he basically provided a defense of further secrecy of the federal reserve decision-making process and a few links to their website. now, as senator bunning mentioned, it's my understanding that chairman bernanke has now agreed to allow certain committee staff in his office to review some of the material related to aig. but, some committee staff has reviewed that and will not share it with all committee members and our staff.
now, i think that's clearly just untennable. completely untennable, as we are asked to vote on this nomination. the staff isn't voting on the nomination. the staff that's gotten to see at least certain documents doesn't have a vote and doesn't have to vote one way or the other. we do. and i believe every member of this committee needs an opportunity to first, at a minimum, see whatever the staff has seen for ourselves with the help of our staff and then be open to requesting access to additional documents and additional information because, certainly, even the committee staff has not been given access to everything that senator bunning and others have asked for. so, mr. chairman, i would specifically ask that we postpone this vote today and come up with some reasonable
bipartisan way to give all members and our immediate banking staff access to, number one, the documents that the committee staff has had access to, and then possibly additional information and documents which we would request coming out of that. again, i think it's just completely untenable that committee staff has seen certain things that the senators on the committee, who are being asked to vote yes or no on the nomination have no access to. and i -- i trust and look forward to discussing this and hopefully resolving it in a reasonable way before the vote -- any vote on a nomination today. the second broader reason i would like this particular committee vote delayed is that this committee, under your leadership, is looking at major regulatory reform legislation
hopefully in a truly bipartisan way and, as lots of different drafts, including your draft released suggest, that discussion involves possibly fundamentally restructuring the role and the responsibility of the federal reserve in terms of the regulatory rejeechl. i think it's really putting the cart before the horse if we're confirming the chairman of the federal reserve before we're deciding the role of the federal reserve. and clearly, that role of the federal reserve is very much up for discussion and debate in terms of regulatory reform. and i think we need to come to a consensus and hopefully we are moving in a bipartisan way toward that first and understand what the federal reserve is first, or will be first, before we confirm a chairman of the federal reserve. moving on to the chairman
himself and this nomination, i have strong concerns that have been expressed by other members. one which has been expressed is that chairman bernanke was simply wrong on many, many different occasions on a number of key points under his authority leading up to the crisis. now, as has been said, nobody's been right throughout this. nobody's been perfect in predicting or resolving these issues. and certainly, i'm not suggesting we use that standard. but, some of the statements he's made, in terms of issues under his direct authority, really are pretty startling and worry some and i'll just repeat a few of the ones that have been mentioned. july 2008, fannie mae and freddie mac are adequately capitalized and in no danger of failing.
june 2008, the risk that the economy has entered a stngs downturn appears to have diminished over the past month or so. may hey 2007, we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. and on and on. the second specific reason if have so many concerns about the nomination is what senator hutchison mentioned, which is the whole rollout and presentation of the t.a.r.p. program, which the chairman was clearly a main architect and advocate of. and how that program was never used as it was sold, never executed as it was sold to the congress from day one. and i have major, major concerns about how t.a.r.p. was first presented to us and then used in several substantially different
ways to really become a slush fund for bailouts, too big to fail without -- without end. so, mr. chairman, those are my two big concerns about proceeding today and my two biggest concerns about the actual nomination. i look forward to hearing from our other colleagues and then i look forward to a discussion and some, hopefully, proper resolution of the issues i've brought up before any vote. thank you, mr. mr. chairman. >> thank you, mr. chairman. i cannot support the confirmation of mr. bernanke and i agree with some of my colleagues. i believe that it is irresponsible for us to proceed with a vote today. this is not a partisan move.
we often dismiseach others' opinion here because of partisanship. but mr. bernanke was nominated by a republicanment. i supported mr. bernanke. i have every reason to try to justify that support by trying to find good that he has accomplished. he is from my home state of south carolina and i like him personally. there is no reason for me to oppose his nomination except the failure to achieve the goals at the federal reserve and his own personal goals for his time in office. we can't overlook the fact that he has presided over one of the biggest economic ka tast if is that we have had as a country. certainly we cannot blame everything that has happened in our country on mr. bernanke. perhaps it has something to do
with three years of democratic control of both houses of congress, but we will discuss that at another time. it has to be about performance. to promote employment in our country. there is nowhere we can look to find that he has achieved the goals that we have delegated to him or his stated goals when he took office. we have expressed many concerns on this committee. many who are supporting him, including the chairman have expressed these concerns. but frankly there has been no commitment to actually make changes to increase accountability or transparency.
i have met with mr. bernanke personally because i am one of the ones promoting a general accounting office audit so that members of congress and the american public can at least have a general idea of what this agency is doing. i offered him to come up with his own prescription for what that audit should be so that he could protect the independence of the we are not a step closer than we were last month, were last year. for us to provide the oversight here in the senate, we are required, constitutionally, to do this. the job here in the congress is to protect the value of the currency. we have delegated that to the federal reserve. we know that the world is losing confidence in the dollar and the ability to pay the debt. but we do not hear any changes from the federal reserve.
and we have to be clear here, we are not talking about another regulator. we are not talking about another appointment. bernanke, arguably, is holding the most powerful position in this country and possibly the world. the economic system is resting on the currency. the whole world economy, in many ways, is resting on that currency. the prosperity as a nation, and the savings, everything involves what they do at the federal reserve. but we have very little idea about what they are doing. we have very little idea about what hthy are doing. we know their mission has expanded well beyond what congress delegated to them. how can we provide the accou accountability and oversight and how can we find ourselves in a
situation where we request documents that we, as a congress, should legitimately have the right to see. we are in a situation today where we know that some of the staff has read part but we don't know what part and we don't know what it says. how can we wave this nomination by when it is such an important. we ignored it with fannie mae. we were encouraged and assured that it was well capitalized yet we now know they were the primary player in creating these toxic assets and telling them around the world. we now know that loose monetary policy contributed to the
creation of the housing bubble and other problems that we had in our economy. yet as we consider the confirmation of mr. bernanke we have not heard from him one commitment to change those policies. one new idea. we have heard some say he has learned from the mistakes. he will be better for it. but folks in the hearing we did not hear mr. bernanke say we will ease the loose monetary policy we have had, there is going be more accountability. we did not hear that yet he agreed he did not reach his goals. the constitution gives us the responsibility. we have delegated it to him. for us to wave the nomination by. i think we have had mixed respon
response. we are told by many that we have been saved by a great depression. that is impossible to prove. had told us that if we did not buy a trillion dollars of these toxic assets that the whole worldwide economy was going collapse. and we had to do it immediately. how can we say that he saved the economy when we allocated this money but we never bought one of these assets. forcing a lot of banks to take this money who didn't need it,
didn't want it and didn't use it. that somehow that has saved oush country. what saved us is a very resilient free market system. we have heard esspoused by mr. bernanke, mr. geithner, and others. mr. chairman and my colleagues, this is far too serious for us to take as another confirmation. for us to rush through by 11:45. we have yet to get to the bottom of what the problems are and how we are going change them. we may be on the verge of changing how the fed operates within this system, yet we want to move ahead with the nomination as quickly as we can before we consider it. we cannot have a federal reserve system that the americans no longer trust and that's where we are today. we cannot have a federal reserve that rating agencies are
beginning to say that they no longer trust and we are on the verge of losing our good credit rating. ecan't rush through this when the rest of the world is looking at us and now doubting that we will continue to be the reserve currency. i hope that we can look past our normal partisan bickering. and look at this as people who are responsible for the well being of our whole country. millions of people have entrusted us with their economic well being and they are counting on the value of the dollar to be sound so that the work and sacrifice will mean something. at the bottom of all of this is our federal reserve. folks we have literally failed to get to the bottom of the problem and we have nod heard
the chairman say that we are going make any changes and we are hearing today despite the concerns, stay the course. it makes no sense. i think we are irresponsible in moving ahead. let's make a better decision at a later time. i have a whole lot more i would like to say but i don't want to abuse my time or my colleagues so thank you for the opportunity to speak. >> thank you. i am -- as a new member of this committee, i was not here when this it is extraordinary to me
to hear finger pointing and blaming as if one person or one political party is responsibility for the 20 year plus over-leveraging of our economy. somehow to say that this was all down to partisanship is an extraordinary comment. i think there are no clean hands. i think we do need to get it right. i think working together to try to refocus the fed on its most important aspect, monetary policy, and that we make sure we create a 21st century regulatory system that never ever allows
the whole notion of too big to fail. and the implications that allows the americans to take place again. i commend you who are diligent in trying to get that done in a by partisan fashion. looking at this as somebody who spent 20 years around the markets there are a lot of things that you all did and the fed did that were extraordinary. most of them very politically unpopular. but i absolutely believe and basically every reasonable economist believes that without those actions we could have faced economic ka tast if i. monday morning quarter backing is, i guess, part of the job.
i look forward to supporting the chairman in terms of his second term. >> thank you, mr. chairman. are we ready to vote? >> i thought you had comments. >> oh, okay. that caused us to take a second look at what we do. we need to take a second look at whether we even need a fed. there are a number of people that believe that the fed is a mistake and should not have monetary policy managed outside of the congress.
the monetary policy should be tied to some basket of goods whether it is gold or silver or soybeans or i don't know. i think we have to understand that the fed was developed for a very distinct purpose as the result of the nation having been through a time when our currency was set arbitrarily and tied to commodities. when the bank after the united states charter was repealed and president jackson sent the money back to state banks. until the fed was formed there was no central banking in the item and we went through massive periods of disruption. we were on a tremendous roller coaster relative to the value of currency. then with the fed being created, we went to the gold standard and
to have the fed be abolished or significantly influenced in determination of the monetary policy by the congress. we are political people here. you know? we live for the next election. we are moved by the intensity of the moment. maybe not so much in the senate but certainly not in the house. you don't want monetary policy being set by somebody who is living by the intensity of the moment or the politics of the day or the moment or the next election. you want that independence. i think it is absolutely critical to the strength of our currency and the strength of our economy and it would be a huge mistake if we were to move away from that position. are there things that need to be
improved in the fed? absolutely. the strong statements in this area, even a lot of what the house talked about is pretty darn good. but we still need a strong independent fed. this is important moving forward because we are confronting a time when our debt is so large that our capacity to fiscal policy will be significantly prescribed. and an independent fed will be critical to us as we move through this period of trying to straighten out the debt situation or our nation. on the specifics of chairman bernanke, it is obvious that mistakes were made.
had a much more who terrific economic event as a result of that. would it be a depression? i don't know. the chairman has already set up the procedures and protocols for how they will do it and they have been fairly public about it and they made sense. can it be done? i don't know. certainly i hope it can be done. we certainly don't want the inflation if it is not done correctly. that is the issue going forward. i think on that issue that this chairman is out in front, taking leadership and that is the key
they go to the -- they will not provide them unless the chairman of the ranking member, generally the chairman but it helps to have the ranking member sign on. in this case we did. what they did not understand at the time and i just want to say that i strongly disagree with and that is the idea that staff would have access and any member who wants to back this would not. my point is to those of you who would be interested, there are rules. otherwise it would become chaotic. the process information is
available. those kind of requests can go forward. and we also state the problem that i face here. come january 30th, if we do not complete this process then chairman bernanke cannot serve as chairman. he can be a member, not a chairman. a member of the board. we are under somewhat of a tight schedule as well in terms of how we move this. while i appreciate the concerns of those who disagree with the nomination, it is important having had a confirmation hearing. i want to go forward with the vote this morning and members will have opportunity over the next month before we come back. i will not consider the nomination between now and when we adjourn for the holiday season. so we don't come back until the 19th of january.
it will be sometime after that. again, depending upon the leadersh leadership. there will be ample opportunity. >> do i understand this will be a commitment that we will adjourn for the holiday season? >> either that or we will be sitting around the fireplaces in the marble room singing jingle bells. >> mr. chairman? >> briefly. >> briefly. it's my understanding that what you said about the 30th of january is in correct. >> i was told he could be a member of the board but could not serve as chair. >> temporarily appointed as chair. >> vice chair would serve.
if anyone wants to be heard on the matter. if not, people can submit comments on the nomination. i am deeply grateful. go ahead. >> i want to respond since i was one of the members who brought it up. agai again. >> we can go on. there is always a request and i would go on indefinitely. this committee doesn't have such a rule. >> i would just offer one obvious alternative which doesn't delay the ultimate consideration on the floor one minute as far as i can see, which is simply we schedule a committee hearing for this vote, january 19th, so we can look at
the documents before a vote and have discussion among members that could affect votes before and not after. and if we do that january 19th, which is when we are coming back anyway, how does that change anyway what any floor schedule might be. >> i appreciate the recommendation but i will move ahead with the vote. >> can i ask the chairman how that would change the schedule, any schedule on the floor? >> i don't control the floor time. >> we have to move on. the clerk will call the roll. >> chairman? >> aye. >> mr. johnson? >> aye. >> mr. reid. >> aye. >> aye by proxy.
16 voting yay, 7 voting no, the nomination passed. >> let me thank my colleagues. the committee will report this accordingly and i will let members know when we can talk with leadership about scheduling the vote on the floor. and again the invitation, obviously on these documents and so forth, the members and or staff, i would urge both the minorities to get in touch with senator ñcçcñcñcñcñcñcçcñcñcñcñc
i particularly want to thank kent conrad and chairman and ranking member respectively of the budget committee and i say for purposes of this hearing, i will unofficially designate you as leaders of the rebelian against our national debt. -- rebellion against our national debt. let me just say a few words in opening. our focus here this morning is on our exploding national debt, and what we can and must do about it. i want to say that the committee is holding this hearing because under our traditional governmental affairs jurisdiction before we got to also be the homeland security committee with oversight of all government
operations, including the office of management and budget and the major budget committee is the one led by the two gentlemen before us, but we oversee o.m.b. we hear the nominee -- nomination of director of o.m.b. it leads us to hold this hearing this morning. look, the facts and numbers of our current national debt which is literally exploding are so large that i think sometimes they're numbing and hard for individuals to appreciate. when you think that we're now approaching $12 trillion in debt, trillion. the budget office tells us that we will run at least another $9 trillion into debt over the next 10 years. if you consider unfunded liabilities related to medicare, medicaid, social
security and pensions, it totals over $40 trillion. by one estimate this is more than $480,000 of debt per american household. it's astounding. and more than being astounding, it represents it seems to me the most serious threat that our nation faces here at home. in some senses, and i want to be care offul about this, it's -- careful about this, it's as much as dangerous as the islamist extremists on september 11. it's a different kind of threat because@@@@@ @ @ @ ha@ @ @ @ @
don't like to raise taxes. and you don't have to be alan greenspan to know if you keep doing that over a long period of time you're going to run an unsustainable debt. the rebolon has taken specific -- rebellion has taken specific form in this congress and it is to push, as senator voinovich and i have done in the so-called safe act and senator conrad and senator gregg has done in their bipartisan task force for responsible fiscal action, which is really the leading vehicle of this rebellion today with more than 30 senate co-sponsors to create a process, a commission that will bring key decisionmakers from congress, perhaps the administration, perhaps from
outside together to make the tough decisions in the national interest and then to bring it back to congress on a kind of up or down vote. and the reason for this i think we've all concluded ourselves that we're not capable for dealing with this problem as quickly as we have to deal with it. it's the old, i'm dating myself, but the old cartoon, we've met the enemy and it is us. and so we have decided it's a kind of congressional fiscal 12-step program. we've got to discipline ourselves. and the way to do it is with a commission. and a group of us have said under the leadership of jat here, and i'm proud to see including a dozen democratic senators we're not going to vote to extend the debt limit beyond a $12.1 trillion that it's at now unless such a commission, such a process to deal with our debt is set up. and we've had a partial victory so far in that the house didn't approve a $2 trillion extension
of the debt as it wanted, but $300 billion, which will take us to february. but we're still talking and i'll be interested to hear from senator conrad how he feels about that this morning about at least getting a vote for our proposal in the statutory commission before we agree to a short-term debt. so this morning with our two colleagues at the beginning, with chairman greenspan and dave walker, who's leading the rebellion out in the provinces against the debt, we're going to consider what will happen if we don't deal with this and then how can we best deal with it to literally secure the future of our country. i tell you one reason why there's such anger at washington today among the american people is, of course, about the economy. but it is also because the economic troubles have let most every family i know to tighten
their belt, to put their money away to save some, not spend so much, but they're watching us and we're not doing it. and this concern has obviously agitated people, affected the current debate over health care reform. it's certainly part of what i was so concerned about creating a new public government insurance option and expanding medicare at this time. anyway, that's my opening statement. i thank everybody for being here. i hope this hearing can help, frankly, to build a rebellion against the national debt to the point where we finally do something about it. senator collins. >> thank you, mr. chairman. for conducting this hearing on a matter of such importance to our country. i want to join you in commending senator conrad and senator gregg for their extraordinary leadership in this area. as you pointed out, they're not johnny come latelys to this
debate. they have be sounding the alarm on the fiscal crisis for a long time now. now, i hadn't thought of describing them as leading the rebellion, but then i thought of senator gregg's state motto, which as you know, is live free or die. and i guess it's really live free of debt or die. so it's appropriate that they are here today. and i also want to thank mr. greenspan and mr. walker for their service to our country, for their leadership and for their participation today. earlier this year, mr. walker brought the concord coalition fiscal wake-up tour to the state of maine, and i will tell you the numbers are a clairian call to action. to paraphrase the senator for
whom this building is named, a trillion here, a trillion there, pretty soon you're talking about a real fiscal catastrophe. nothing underscores the scope of the crisis we face more than the fact that the billions of taxpayer money that so concerns senator dierkson just a few decades ago paled by comparison to the prospect of annual deficits exceeding $1 trillion that we confront today. the dire consequences are found in new mexico rabble charts, graphs and spreadsheet -- in numerable graphs, charts and spreadsheets.
the basic problem is that government has promised more than our citizens can afford to pay. one has described it as the coalition between the high and rising demand for government services and the capacity of the economy to produce the tax revenues to pay for those demands. historically, americans have paid about 18% of g.d.p. in federal taxes. but with the explosion in entitlement spending that is tied to the retirement of the baby boom generation plus interest on the debt, americans would have to pay taxes equal to 34% of g.d.p. to keep pace with spending 25 years from now. even if that were possible, the remedy would do tremendous
damage to our economy. it would crush job creation, devastate our already battered small business community and dash the aspirations and can-do spirit of our citizens. thus, our decisionmaking must begin by reconsidering spending that although popular simply cannot be justified during this fiscal crisis. it is also wishful thinking to think that we can simply grow our way out of this problem. the safe commission act introduced by the chairman and senator voinovich and the bill introduced by senators conrad and gregg are thoughtful approaches to addressing this crisis. we'll hear more about that so i won't repeat in my testimony exactly their approach. let me say, however, that this
examination is not merely necessary. it is urgently needed. we simply cannot continue business as usual, and there's no better evidence of the need for change than the budgets we have recently approved. i oppose the budget because i believe it accelerates our journey down the pimm rose path to fiscal ruin. -- primrose path to fiscal ruin. it will double the public debt in just five years. this is a moment in history in which we must confront the conflict between what we want and what we can afford. it is time to reassess our national priorities to make the hard decisions and to set a new course. the budget reform proposals, the thoughtful legislation presented by our colleagues
would begin to move us forward as a nation in facing our fiscal challenges. i do want to say that i believe the legislation could be improved. instead of legislation that would not be amendable, i believe that members of congress should have some ability to amend the budget commission's recommendations. what i would suggest is that ability should not be unlimited and that amendments should be required to be revenue neutral, not effecting the overall balance. we can put this country back on track. we can do what needs to be done to ensure that future generations of americans enjoy what every american generation has proudly proclaimed as a birthright. and that is the promise of a better quality of life than the
generations that preceded it. thank you, mr. chairman. >> thank you very much, senator collins. senator voinovich, you've been so active in this quest for so many years. and i know because you announced you're retiring after this term that you really focused on this as something you want to feel you made some progress on before you leave public office after an extraordinary career at many levels of government. so i would with respect invite to you fwiff an opening statement this morning. >> thank you, mr. chairman. thank you for holding this hearing and after national security i think the most important issue congress and our nation faces today is this issue of our debt and budgets that aren't balanced as far as the eye can see in the future. and as you said, if we don't deal with it it will affect our national security and will have an impact on world peace. so i want to thank you for your work and our work on the safe
commission. i want to thank our panel, the chairman, the ranking member of the senate budget committee, senators conrad and gregg, for your leadership to unite efforts of the members of the senate to come up with a bill that we can get passed and that will start to make a difference. the bill would force congress to fully address our nation's fiscal crisis. it forces us. it recognizes that despite all our good intentions congress has failed to balance our budgets and stop our rapidly declining debt. $1.4 trillion deficit last year, over $12 trillion in terms of our debt limit. i think it's important to point out that the american people as well as the international community -- i think it's really important the international community recognizes the crisis our
nation faces. all around the world people are asking, what are you guys doing? the canadians, they said, if you don't get your house in order, we're dead because our economies are intertwined. you must face up to doing something about it. so our nation does stand on thin ice, and our credit and our credibility are in jeopardy. and it doesn't take an economist to realize our courses -- course is unsustainable. the united states is the worse credit card abuser in the world. we are putting everything on the tab of our children and grandchildren. so today we're here to discuss senator conrad and gregg's bipartisan task force. we had our press conference. i told you there's a big smile on my face. that's something i've been working on for a long time around here, as senator conrad knows and senator gregg. the thing that tickles me is last count we have 33 sponsors.
that's pretty darn good for the united states senate. i just heard, though, yesterday that president obama is considering an executive order to create a bipartisan debt commission, but i think it's important to recognize that that authority does not mandate congressional action. and i'm going to ask chairman greenspan, he was the last one that had a successful commission around here, what the differences are between today and when he did it in 1983, but the fact is that should be made up of members of congress. if we get the 14-vote majority, those members who worked their you know what off on that committee and their staff should know that their hard work is going to result in some action and not be dilly-dallied like so many other things where people bust their back and nothing happens. i know that some members of congress say this should be
done over in regular order, particularly over on the house side. in a regular world that's what we do. unfortunately, for my entire time in the senate we have not been able to address this crisis. congress is simply not willing or capable of enduring short-term pain for long-term gain. it's the way it is. it's a reality. so that's why we need a commission to provide solutions and an expedited procedure for an up our done vote so that the reform proposals don't die in committee or become an exercise in political messaging. i'm fed up with political messaging. we have it all the time on both sliles. and you want to know what -- both sides of the aisle. and you know what, the american people see through it. that's why they're so upset. i won't use another word that i would normally use. this is a hearing. but conrad-gregg fiscal task force is an example of bipartisan compromise to
achieve a productive process to tackle an enormous problem. i hope this committee and my colleagues tonight make the mistake that we otoo often make and that is we let the perfect get in the way of good. ok. and that's what i think you guys were able to do. you put this together. you combined a lot of good ideas. i think the legislation you have you put together is terrific. and i'm hoping that it gets the support of the senate and the house and it's a strong message, i think, to the president that we got to act now. and i think the president and our o.m.b. director realize it needs to be addressed. as both a policy and a political issue. you know, we're going into november. what are the people up for election in november say to the american people about what they have done, what they have done to deal with this problem? and the american people are going to want to know it's real and not another saturday night special. and we got people out there
that are saying, what are you doing? some are saying, we are losing america. i was really upset the other day, and i think senator lieberman, you were there when we had the expert on china saying that the chinese once looked at us as the model and now they concluded that we are on our way out. i think that this can't be the last generation of americans like senator conrad said that they're not going to have an opportunity to -- for the same standard of living that we have had. and i think that this is a moral issue for us and our country and frankly for the world. thank you. >> thanks so much, he -- senator voinovich. i want to make clear that it's a patriotic rebellion to help the government.
so thanks very much for being here. we'll begin with chairman conrad. >> i will be mindful of the others as we move hopefully to the end of another session. mr. chairman, thank you for holding this hearing. thank you for your strong leadership on this issue. i personally appreciate it very much. senator collins, to you as well. you have been a stall wart. and we very much -- stalwart and we very much appreciate it. senator voinovich, there couldn't be a more passionate, articulate advocate for taking on the debt of this country than you are and that you have been. and we thank you for your willingness to partner with us,
to try to get something done. it's in the important interests of the country. as always, it's always good to be with the former chairman of the budget committee and my friend, senator gregg, to discuss this critical issue. senator lieberman, you've been a leader in the senate bringing attention to our long-term fiscal crisis. along with senator voinovich, you've introduced securing america's future economy commission act, or safe commission act, which would establish a special process to develop legislation to significantly improve our long-term fiscal condition. i believe that you are exactly right, that a special process is required. those who say, leave it to the regular order, it won't happen. we all know it won't happen. we only need to point to the most recent effort on health care reform which i believe does make modest improvements.
but it doesn't fundamentally address the long-term imbalances. and it is the nature of the beast here. i've been here 23 years. if there's anything i'm certain of i am certain that the regular order is not going to take on this burgeoning debt. as you know, last week senator gregg and i reintroduced our proposal for a special process. we call it the bipartisan task force for responsible fiscal action. that bill already has the support now of 34 of our colleagues. we had another colleague join just last night. 20 republicans and 14 democrats, including senator lieberman, senator mccould you say key, who is the one -- senator murkowski, who is the one who joined yesterday. i thank you for your support. 34 co-sponsors in that short of
period, because we just circulated this proposal days ago. i thank all of the members who have signed up and some of them under pretty fierce lobbying by those who do not want to see us proceed in this way. you know, we have colleagues who are very dug in on the notion that this invades their turf. and this upsets the normal distribution of responsibilities to the committees of congress. i would just say to those members, i respect the jurisdiction of your committees. but even more than that, i believe the threat posed by the debt crisis in this country supersedes any commitment to the jurisdiction of any specific committee because the committees of jurisdiction have had years to face up to this
problem and have failed to do so. that is a fact. before i discuss the specifics of the conrad-gregg task force, allow me to take a moment to discuss how i see our economic future and why i think some special process is absolutely essential. nothing short of the economic future of our nation is at stake. here is "newsweek's" cover story from december 8, 2009. i note paraphernalia theyically that december 8 -- paraphernalia theycally that december 8 is pearl harbor day. the cover is entitled "how great powers fall ". steep debt, slow growth and high spending kill empires, and america could be next. if you go inside the magazine
and read the article, this is one paragraph. this is how empires decline. it begins with a debt explosion. it ends with an inexorable reduction in the resources available for the army, navy and air force. if the united states does not come up soon with a credible plan to restore the federal budget to balance over the next five to 10 years, the danger is very real that a debt crisis could lead to a major weakening of american power. we can't allow that to happen. the dead explosion in our country has already begun. the chairman referenced it as did senator voinovich, as did senator collins. under one 10-year scenario, gross federal debt could rise to 114% above our gross
domestic product by 2019. that is approaching the 100% above our gross domestic product, a debt level reached at the end of world war ii. i don't know what it's going to take to convince some of our colleagues that we have to act and we have to begin to act now. if this isn't a warning sign, if this isn't an indication that it is imperative that we take on this burgeoning debt, i don't know what it would take. but you know, the longer term outlook is even more serious. mr. chairman, according to the congressional budget office and their long-term fiscal outlook, over the next 50 years with rising health care costs, the retirement of the baby boom generation, the permanent extension of all the 2001 and 2003 tax cuts, federal debt could climb to more than 400% of gross domestic product.
that is totally unsustainable. and you don't have to have my word for it or senator gregg's word for it. we have had the head of the congressional budget office tell us that's completely unsustainable, the head of the government accountability office when the distinguished david walker was in that position who will be testifying before you shortly. we have had testimony from the secretary of the treasury in the previous administration and this administration. we have had the testimony of the chairman of the federal reserve, and you'll be hearing from a former chairman of the federal reserve a little later in this hearing. no doubt he'll make the same judgment. we have never had a debt in this country's history of 400% of the gross domestic product. we believe that our task force proposal will work because it's based on several key principles.
first, it's based on the bipartisan of accountability. all of the members will be directly accountable to the american people. the panel would include 18 members. 10 democrats, two of whom would be from the administration, and eight republicans. so in terms of members of congress, it would be eight democrats, eight republicans, two representatives of the administration. it would be made up of currently serving members of congress selected by the democratic and republican leaders in congress. the administration officials would be the treasury secretary and one other official selected by the president. this means the bipartisan leadership at the highest levels of the government would be responsible for the panel's outcome. second, task force would have broad coverage. everything would be on the table. including spending and revenues. we can't solve this problem, i believe, by looking at only one side of the ledger.
third, the task force would follow an expedited process. to minimize politicization of the task force, its recommendations would be submitted after the 2010 election. if there is a broad bipartisan agreement of the task force members at least 14 of the 18 members agreeing, the recommendations would get fast-track consideration in the senate. no amendments. no filibustering. and i know there are many who are concerned about the no amendment provision. senator collins, you referenced it. let me just say there are some who have suggested alternatives such as actuarily equivalent amendments. let me just say the reason senator gregg and i reached the conclusion to no amendments is because in watching the process here, we've concluded if there are amendments the republicans would put up an amendment that will say we'll address the
deficit but just in one particular way. democrats will do the same. everybody will have their amendment to explain to their constituents why they didn't support the final package and therefore we never get to implementation of an actual solution. the final vote on the recommendations would occur before the 111th congress adjourns. that is what we call the voinovich provision. senator voinovich, after all this effort, deserves to be here to vote as does senator gregg. senator gregg has also announced, and i lament this, that he is going to be retiring . and he and senator voinovich, if we don't vote in the 111th, won't have a chance to do something that they have worked so hard to achieve. fourth and perhaps most important, the task force would ensure a bipartisan outcome. as i noted, it would take 14 of
the 18 task force members to agree to report the recommendations to get fast-track consideration. final passage would require 3/5, supermajority, in both the senate and the house. and the president would still have to sign the bill. of course, he would reserve and of course, he would reserve and preserve his ability to veto.@@
congress. both require that everything be on the table and both guarantee that the task force recommendations get a vote. i cannot overemphasize that point. we have got to structure a circumstance that allows the recommendations to get a vote. your proposal would have some private citizens serve on the safe commission and require the commission to hold public town
hall meetings. certainly those are worthy ideas. we held a budget committee hearing on this topic in november and you testified about the safe commission. and we appreciate your testimony. and as a result of that hearing, senator gregg and i made changes to our task force that would allow it to benefit from the assistance of knowledgeable and reputable citizens as part of an advisory panel. these same people could help the task force, engage the public and build support for the ideas contained in the recommendations. one area where our proposals different is the use of alternative ways of budget scoring to evaluate the long-term effects, discussion about whether there are better ways to evaluate the budgetary effects of legislation is complicated. i personally prefer traditional c.b.o. scoring, but, again, i don't think we should let any of these issues stand in the way of a resolution.
the single most important thing we can do in terms of our fiscal future is to put in place a process, a process that can lead to a conclusion and can lead to the implementation of a solution. senator lieberman, chairman lieberman, the work of any task force like you and i have proposed will not just be formidable but it is critical to our country's future. thank you and senator collins for this opportunity and, again, special thanks to my colleague, senator voinovich, for his leadership over a very long time on this issue. and he just doesn't talk the talk. he's walked the walk, as of you, chairman lieberman, senator collins. and i noticed that senator carper has joined us. he, too, has been somebody who is a -- as a member of this committee and as a member of the senate finance committee who has shown a real willingness to take on this threat. i've said to my colleagues on many occasions, the debt is the
threat. that's where we must focus our energy and attention. i thank you very much for this opportunity. >> thank you, chairman conrad, for an excellent opening statement. senator gregg, great to see you. thank you for your leadership. long time here. i can see a theme building. we are going to win this one for george and jud. >> i like that. >> -- >> george and judd. >> i like that. >> and anyone else who is retiring. >> all our grandchildren, hopefully. >> amen. >> well, thank you, mr. chairman. thank you for holding this hearing. senator collins, senator carper, senator voinovich, thank you for your interest and your proactive approach to this issue. a lot of good statements and thoughts have already been given. i just would like to tie together a few. unfortunately, i am going to have to leave before i speak because we are about to confirm the chairman of the federal reserve and the banking committee and i want to make sure i make that vote. as you said, mr. chairman, this issue -- i view this issue as the most serious issue or
nation confronts after the issue of a terrorist getting weapons of mass destruction. and possibly using it against us. because the implications of the numbers that senator conrad have -- has outlined here in a very stark way are pretty clear . essentially we will reduce the quality of life of our nation and our children and our children's children if we don't do something about the burden of the debt that we're passing on to them. we are already seeing signs of this. this used to be an issue that was over the horizon. no longer. it's coming at you, it's on the horizon. we are seeing signs of it in the world community. we are seeing nations which are confronting the problem today. greece, ireland, potentially spain, maybe austria. where they basically have run up so much debt as a result of not running proper fiscal policy that they are essentially collapsing.
we have the unique luxury of being able to monitorize our debt because we are the world currency. but even that luxury and strength cannot confront and stand up to the debt numbers that are copping at us. we know that for a fact. and we're being told this. we're being told it by independent groups, moody's just put us on a special list. there are 17 industrialized nations which they have in a certain category in rating bonds. they have decided that mongse those 17, the united kingdom and america won't be on a special group. they haven't put us on a warning or watch list. but they have given us a new title. i think it's called relevant or something. it's reflecting the fact that there's -- they know the problem's coming unless we address it and atres it soon. the -- and address it soon. the issue, of course, is, why don't we do it in regular
order? i mean, that's our job, isn't it? that's what we're paid for. that's why people send us here. and it's pretty obvious why we don't do it through regular order, because the political system doesn't allow it to happen. it's that simple. you quoted pogo. i've used that line a few times myself. another way to express it is we keep looking around for the next systemic risk in our economy. the systemic risk is the congress. it's that simple. because as a very practical matter, what happens here is when you put policy on the table, when our side of the aisle, for example, suggest something on social security or your side of the aisle suggests something on tax policy, immediately there is this massive qadry of interest groups out there who make their living of demonizing whatever the proposal is and poisoning the well and making it impossible. we cannot get the policy -- sometimes we can't get it to
the start line but we can't get it off the start line when it's big issues like this. and so we concluded, senator conrad and i, that starting at the policy in inevitably leads to virtually nothing happening. what we have to do is set up a procedure that drives policy. and that's what we tried to do with this proposal. the proposal itself has obviously some differences from your safe act and from concepts that are on the house side. but, let me talk about why we came to the conclusions we proposed and are obviously nothing is written in stone around here but the concepts -- at the core of this, the american people have to believe that whatever is proposed is absolutely bipartisan and fair. these issues are so all encompassing. they impact every american in
such a personal way. social security, medicare, tax policy. that unless you do in a bipartisan, fairway, the american people will reject it. they simply -- fair way, the american people will reject it. they simply will. the policy must be seen as fair and bipartisan. so a lot of effort was put into the issue of the makeup of the commission what the membership would be and how the vote process would occur. and that's why we have these supermajorities, 14 to report out of the 18 people. that means that the majority, which will be the democratic party in this instance because you'll have eight members from the house and senate and two members from the administration. and the minority, which will be eight members from the house and senate, are assured that neither side can game the other. four people have to be there from the minority to vote for it. so a majority and minority basically has to vote for the final product.
assuming they got in that conflict which hopefully they wouldn't. the message is it has to be fair and bipartisan which i think is critical to this effort. the commission has a co-chairman. one republican, one democrat. so it's very clear that the purpose is to have bipartisanship. why didn't we put outsiders on the commission? well, that's a legitimate point. i mean, how do you handle it? our conclusion was this. we wanted people who had skin in the game, knew the process because we -- this has to be done. the people that reach these conclusions have to be able to execute the conclusions. and that means we think they should be members of congress and members of the administration. and the secondary issue which concern us about the outsider issue is, who do you pick? i mean, there are so many people that have a legitimate right to be on this -- in this undertaking that once you start choosing from one group how do you say no to the next group? and you end up with a massive
commission, probably unyielding, and there would be questions of whether or not it was going to be fair and bipartisan because these different issue groups would bring so many things to the table that would be singular in their sense of purpose. so we went with purely members of congress and members of the administration. the issue of amendment, that's probably the key issue, in my opinion. i think senator conrad explained it. amendments make people hide in the corner. you vote against the amendment and vote against the final package. the brac commission didn't allow amendments and i think it worked because it didn't if there would have been amendments the brac commission probably would have nevada passed. so i don't think you can do amendments and have this work. -- would have passed. so i don't think you can do amendments and have this work.
i think the way the place works, people vote for the amendment and vote for final passage and claim simply their amendment wasn't included. you take this root that people sitting on this commission and come to this conclusion aren't going to do anything that isn't bipartisan and fair. and it's structured so they can't. so you really -- the amendment process, while it was stressed in the development of the issues the policies. it is obviously time to act. you know, even if we were to put this in place today and have this fast time frame, the voinovich time frame, that it's concluded, the policies that's going to correct this aren't going to be precipitously undertaken. you know, you can't do that precipitously. it would be too much dislocation to the economy. it's going to take probably years for these policies to be implemented.
most -- many of them are going to require fairly significant phase-in times. and yet the debt's going to mount all the time. so we need to start acting now. as a very practical matter, if we pass this commission today or within the next -- within the near term, we would be sending a message, an unequivocal message to the world that america is going to stand up to our problem and we are going to do something about it. and i think that would have a massively positive impact on our ability to sell our debt, on the cost -- on the interest rates in this country and on our economy generally because the american people would see that we're going to do something and the world would see we are going to do something. so i think just the passage of this commission or this task force would be a hugely positive -- would have a hugely positive effect on our nation's economic well-being. i thank you very much for your time. i apologize. >> not at all, senator gregg.
thanks for your time. thanks for an excellent statement. i say for myself, i think you know this, i think i speak for senator voinovich but obviously ell for himself, though we sponsored -- and we may want to tinker with this, but this is the vehicle for finally doing something about this. so i appreciate it. normally we don't ask our colleagues questions. if you got time, senator gregg, senator conrad, and i don't want to keep chairman greenspan and mr. walker waiting too much, maybe we take one question to ask of you. >> i'm happy to answer any questions you have. >> good. and my question -- i am going to try to ask two questions in one. sorry.
a vote up or down in the congress of the united states. senator gregg said it well. i think if any structure that is put in place that does not assure an up or down vote on the recommendations is highly unlikely to succeed. with respect to amendments, we chose, again, only -- the only way you can do it is in a statutory commission to have no amendments is in that way because then it's law.
and an executive order commission you could not restrict the number of amendments. but there are negotiations ongoing to deal with a whole series of issues. one possibility on the amendment front is actuarily equivalent amendments. so, for example, if the commission said you have to save $1 trillion over five years and it's 50% revenue and 50% spending cuts or it's 60% spending cuts and 40% revenue, whatever it is, that you require amendments to be actuarily equivalent, that they would have to meet those same metrics, that same amount of savings, that same distribution. that would be one way to prevent the gaming of the system and still provide an ability to amend. i think senator collins was describing in some way an actuarily equivalent approach. so that is one possibility. >> thanks for that -- that's my one question.
i say as i listen to you and think of this, it's clear that the preferable course is a commission because then we create a process. we may come to pint of decision for some reason we can't enact a statutory commission through both houses of congress. and then we're going to have to decide if the president is intending or willing to issue an executive order because of the urgency of the crisis, is that a better way to proceed and is there some way we can try to do what the commission would do to limit amendments? so i'm going to yield to senator collins. >> thank you. senator conrad, there is a third commission approach that has been proposed by our colleagues. i think it's senators feinstein and cornyn. they have proposed a commission that would focus on the three major entitlement programs --
social security, medicare and medicaid. they argue that those three programs are the big cost drivers in the budget and that it would be best to try to have a more narrow focus and get a consensus on what to do with those three programs. what's your reaction to that approach? >> my reaction is i think you also have to have revenue on the table. and i say that because as i analyze our current revenue system, it is inefficient, it's unfair and it's hurting the competitive position of the country. i say that because by my calculations, we're only collecting about 76% of what's actually owed under the current system. we have an extraordinarily in effect system that's hindering revenue to offshore tax havens, to abusive tax shelters, the tax gap.
i think we are going to have to fundamentally change the tax code in light of the world we live in today. our tax system was constructed at a time where we didn't have to be worried about the competitive position of the united states. we were so dominant. that's no longer the case. you know, so many people say, well, if it's revenue, that automatically means a tax increase. my own belief is before you ask anybody for a tax increase, we ought to construct a tax system that collects most of what is owed in a far more efficient way and a far more fairway and in a way that enhances the competitive position of the country. so i think revenue has to be on the table. finally, what they're suggesting leaves out, of course, is domestic discretionary spending, including defense. and we have found in reactions across the country people want
everything on the table. they want everything on the table. they simply don't believe that there are only a few places where money is being wasted. and, you know what, i think they're right. as chairman of the budget committee, i've often thought about writing a book about what i've seen and what i've -- what i've found. i think the american people get it. they know we can do a lot better. >> thank you. thank you for your leadership. >> senator voinovich. senator voinovich, one question. >> as you know, there's some difference of opinion in the house, i think, on their safe legislation. we have about 100 sponsors, but it's been pretty clear that the speaker and the chairman of the ways and means committee aren't enthusiastic about this.
do you believe this cannot get done without the support of the president of the united states? well, we could -- just as a factual matter, we could put in place a commission through negotiation because there are those of us that have taken the position we will not vote for any long-term extension of the debt without this being included. but as a practical matter, the president i think has to be supportive. now, does that mean he's got to support every outand twiddle of what we've outlined here? no. is there room for negotiation? yes. is it possible we could find ourselves in a circumstance where we can't pass a statutory commission because it would require 60 votes in the united states senate? we have 34 co-sponsors.
34 is not 60. it is also possible even if we passed it in the senate that it would not get passed in the house. so i think we got to preserve the alternative for some other type of commission. my first prrch would be another form of statutory commission. maybe not a bracc-like process, but one that would assure us by law that you would get to a vote on a recommendations of a commission. and certainly an executive order commission properly designed and properly committed to by the leadership, including the president, could result, could result in a vote on the commission recommendations. i think by far the most prmble is a statutory commission -- preferable is a statutory commission, as you outlined and we outlined. >> the answer is the president would have to embrace something
and take a leadership role for this to happen? >> as a practical matter, i find it hard to believe that we could get to the end of this process without a president being engaged and a president being supportive. and i can't speak for the president. i can't speak for the leaders in the house. i believe there is growing momentum behind this idea. in the negotiations i have had with the white house, with colleagues in the house because, remember, the majority leader there, mr. hoyer, is a strong supporter of the commission approach. and i think there is a growing recognition in the house and the senate and the white house that we confront something here that is going to require a special process. >> thank you. senator carper.
>> i am almost reluctant to ask . i want to say thank you so much day-to-day in the budget committee and all the time that you and senator gregg put into this idea. i know it's extraordinary. and to your staffs. just thank you for standing up and saying, all right, this is where we draw the line. i also want to thank you for showing a fair amount of flexibility in taking input and suggestions to modify the original proposal that you started off -- that you started off with. i'm not going to ask a question. i just want to say yesterday in the same room i hosted a charity hearing of another nature. when i was in the house, we sponsored a balanced budget amendment to the constitution. not one that mandated a balanced budget every year but mandated a proposal to the
budget balanced and had the congress to unbalance the budget with a 3/5 vote, allow the congress to raise the debt ceiling by a 3/5 vote. but it put emphasis on the president. i was struck by one comment, it is congress' mess -- congress' fault that we are in this mess. i say it's both the legislative and executive branch. when the hearing that i held yesterday was one that would attempt to allow -- would require a vote, would require a vote on the president's recisions. would allow us to defeat a rescission with simple a majority vote in the house or senate. would compel us to vote on a rescission. i am struck by one of the themes of your -- comes through your proposal is that we have to vote. i think that's part of the beauty of it. in terms -- the question i'll ask is this.
i'm mindful having work with some of my colleagues in this group of 10, five centrist democrats and five progressives, coming up with a decision on a public plan in health care. it's hard for members to spend concentrated amounts of time for an extended period of time. it's very difficult to do that. as you well know. and in terms of constructing the membership where it's largely house and senate members, i would just ask us to keep that in mind. there are a number of people who used to serve here, though, who know a lot about the budget process, who understand government very well. and frankly, who might have a little more time on their hands than we do. and i would ask that we keep -- particularly keep some of them in mind as possible people to serve here and could add a whole lot to the -- not just to the process but to the outcome as well. any thoughts on that? >> you know, all of this is delicate in terms of responses
i might make because we're in a negotiation and i don't want to negotiate against myself. especially in public. >> don't. >> so we've been careful to outline what we think would be the most effective way to approach this. are there other ways? yes, there are. and many of those are on the table. and i think without my referencing what i would support, i am flexible. senator gregg is willing to be flexible. we're interested in getting a result, and we are interested in getting a result that can actually transfer into this country effectively taking on this debt threat. >> thanks. >> senator burres, and we are doing one question in this round because i can't to get to the next panel.
>> thank you, mr. chairman. i have a quick one. is there conflict between 28, 35 and 1056? you have a bill, conrad. is there conflict? >> there are conflicts. there's conflict in the sense where there are different approaches which i outlined in my statement. but by and large, they have a lot of commonality. and the commonality is, it's got to be bipartisan, it's got to have a special process, it requires a supermajority to advance and that the president retains all of his powers. those are commonalities. there are differences but really the differences are in nuance and membership. we have all members of congress and representatives of the administration. the alternative proposal has some outsiders.
and so i'd say that's probably the major difference. whether there should be outsiders as members or it should all be members of congress and representatives of the administration. >> and i still have a little time, mr. chairman. i'll take my time. senator, you know, i assume we are trying to do this after the 2010 elections. and you got a strict timetable and strict restrictions. so you're trying to freeze things as they are and your proposal going forward so we do not do any borrowing, and you look at how you're going to educate the public saying every demand that the citizens make on the federal government cannot be met if we go to this type of process. you do know the reason why we have debt, right? because we believe we have to meet the demand of our citizens and everybody has their little special project that they need.
i hope any commission that takes this into consideration would definitely understand because i spent half my life in government, especially on the state level, and we have balanced budgets. right now those balanced budgets are killing all the states. most all of them have deficits. and they don't know how to meet it. demand of the citizenry. so please, with all due respect, we got to do it but we have to keep that in mind. >> yeah, i couldn't agree more, senator burris. i want to be clear that we recognize, you know, debt can be a positive thing. the problem is when debt swamps you. and we know the united states can handle the debt. the problem is where we're headed. where we're headed is unsustainable debt. and the goal we've outlined here is to try to prevent that unsustainable debt from becoming a reality. we recognize debt financing is healthy for families and for
governments up to a point. the problem we confront is we all know we're headed for a circumstance in which if we stay on the current trend line we will have a debt that totally swamps us. and that's what we have to try to prevent. >> thanks, senator burris. senator conrad, thanks so much. you know, you said at one point, i forgot your exact words, that the process, executive and legislative, seems now to be responding to what you and those of us that support you're asking for and honestly because of all we've said about the process, the only reason i believe it -- well, two reasons. one is that the problem of debt is getting so serious for our country. but the second is that a group of us in the senate, including about a dozen democrats have said we're simply not going to vote in the next week for a long-term extension of the debt unless something is done about
this, unless we create a process, unless we vote on a statutory commission. this is unprecedented. and this is why i called it a rebellion. the stress level is going to get up and the pressure on all of us is going to go up. this is so critical to our country's future and i pledge to you my support as well as we go forward. it's only going to take -- you mentioned about 60 votes. to pass this commission. it also takes 60 votes to extend our current debt limit. and i think that's going to be very hard to obtain before the end of this year. certainly long-term. unless we get a response that a group of us is asking under your leadership. so i thank you for that. if we stick together we can make something good happen.
patience as we were listening to and i think being encouraged and learning from -- >> mr. chairman i sorry i was not here to ask the senator from north dakota how you want to have a commission to cut spending and at the same time approve of and vote for $4 billion in earmark pork barrel projects. sorry i wasn't here to ask the senator from that -- there's a certain amount of double standard there i strenuously object to. >> i'm sure senator conrad is upset that you weren't here to ask him that question. chairman greenspan, changes so much for being here to bring your own experience, voice of authority, all that you know about the economy to bear on this urgent economy. i have spoken about this before. in this moment in this congress, your voice publicly i think
really can be very critical, very important. we welcome your testimony at this time. again, there's a time limit up there, but don't feel controlled by it. just speak as long as you want to speak. i say that to you because you are not a senator. please, proceed. >> thank you very much, mr. chairman. i also want to thank ranking member collins and members of the committee for coming to what i think is the most critical hearing-in quite a long time. for more than two centuries we have been able to hold the level of u.s. federal debt to well below our capacity to borrow. but for the next decade or two on some reasonable-l of -- reasonable sets of assumptions, our borrowing cushion shrinks significantly testing our capacity to raise funds to
finance unprecedented deficits. the challenge to contain this threat is more urgent than at any time in our history. in part because of today's limited flexibility of adjustment, especially of entitlement spending whose constituencies are very well entrenched. compounding this concern is our inability to accurately forecast current services spending. projecting social security 10 or 20 years into the future is not too difficult. it is a defined benefit program whose payments in real terms are narrowly defined by law. similarly, owing to long experience and forecasting nonmilitary discretionary budgets, outlaid projections in this area are also narrowly defined.
projections of medicare and medicaid, however, are far more daunting. unlike social security, these are in kind entitlements whose levels are determined by individuals' particular medical needs. the number of future beneficiaries in say 2030 is readily predictible since they are already born. but future per capita benefits are subject to very wide uncertainties. medical technology and pharmacology are advancing rapidly to previously unimagined heights. with no meaningful restraint on our subsidized fee for service medical care system, demand for advanced technologies and drugs is largely without limit. medicare trustees forecast assumptions, especially beyond 10 years, are of necessity assumptions not forecasts.
short of some form of market price or administrative rationing, a political third rail, obviously, ever-rising medical services will eventually strain the physical capacity of our economy. since demand for medical services by its nature is highly inelastic, medical services' -- service's share of g.d.p. has no immediate upside restraint. the simple fact is that we have promised resources which by any reasonable projection we will not have and morally untenable -- a morally untenable position. those who will retire in the years ahead depend on government's premises to plan their future. we are not dealing with a simple problem of finance solved with the addition of appropriated dollars. it is a physical resource
crisis. if the dollar share of g.d.p. devoted to medical services is rising, so is the share of medical workers in our labor force and medical hardware in our capital stock. importantly, a dollar of the nation's scarce savings employed to finance new medical technology investment is a dollar not available to fund other critical nonmedical cutting-edge technologies that enhance our material well-being. the health of the population, of course, must take precedence over material considerations. an unhealthy population will not be productive. but there has to be a point where diversion of real resources to medical services no longer measurably enhances longevity or reduces morbidity.
our scope for increensing the size of overall -- the overall economic pie to resolve our pending crisis is limited by the growth of our labor force and growth of productivity. short of a significant increase in immigration, the size of our labor force in 2030 is fixed in a relatively narrow range. and if this is any guide, so is long-term productivity growth. since 1870 nonfarm productivity gains over a 15-year period has rarely strayed outside the range of 1% to 3% annually, averaging slightly more than 2%. we and the rest of the developed world are at the cutting edge of technology, accordingly we apparently cannot for a protracted period exceed 3%
productivity growth, presumably because there is a limit to human intelligence, the source of all innovation. the recommendation of senators conrad and gregg for a bipartisan fiscal task force is an excellent idea and i thought the discuss that was -- was very interestingly expanded earlier this morning, is clearly going in the right direction. i hope that you succeed. i trust any such task force will address the very thorny issue of the acie metrical consequences of too much -- aa is ysymetricam consequences would be rained in. the dire consequences of a failure to tighten sufficiently to balance our books, however,
calls for policies that err significantly on the side of restraint. i understand this is politically extraordinarily difficult to do. but our nation has never before had to confront so formidable fiscal crisis as is now visible just over the horizon. thank you, mr. chairman. >> thank you very much, chairman greenspan. very serious, very somber, very insightful. and particularly to hear from you that this really is unprecedented in our history. it's a fiscal crisis the likes of which we have not faced before and it challenges us to respond equally in an unprecedented way. david walker, welcome back. we feel like you are a member of the family at this committee. thank you for the work you have done at the peterson foundation.
really around the country to inform the public and i think inform what i described earlier as a citizen's rebellion, uprising against the debt. we welcome your testimony now. >> thank you chairman lieberman, senator collins, other senators. it's truly a pleasure and honor to be here today, especially with chairman greenspan, really an honor to be here with him on this panel. i can see that now he's no longer the sitting chairman of the federal reserve he's very clear and very compelling on his language. you can understand everything he says, which is great. i'll remember one of his best quotes which was in the critically acclaimed documentary "our u.s.a." where he said, without savings, there is no future. and he's 110% right. and rather than having savings, we have debt. i'm from alabama. i live in virginia. >> where are you moving? >> moving to connecticut.
senator voinovich, senator lieberman for leading the charge here with regard to trying to bring fiscal sanity to this country. we are out of control. and we are reaching a precipice that if we do not take definitive action soon, we could pass a tipping point. a loss of confidence on behalf of foreign lend that's could have serious adverse consequences to the united states, the american people, and for the world. our challenge is not short-term deficits. our challenge is not the current debt. our challenge represents the serious structural deficits that are large, known, and growing that are worse today than they were before the recession and the bailouts and are closer to hitting our shores and that threaten to swamp our ship of state. as chairman greenspan said, for over 200 years this country had a history of not running deficits and accumulating debt
unless we were at war, faced a depression, or serious recession. but that's changed in recent years. everybody wants it all. they don't want to pay for it. and so they charge the national credit card, which at present we don't have a constitutional limit, which we should. we have a limit right now on what our credit is, we just don't know what it is because the chinese, the japanese, and opec nations haven't told us yet. it's important that we recognize that the four factors that contributed to the mortgage and lending subprime crisis exists for the federal government's own finances, there are two big differences. the numbers are much bigger, the risks are much greater. that's one. the second is, nobody's going to bail out america. we have to solve our own problem. and we need to get started soon. chairman conrad already noted the december 7 issue of
"newsweek" i noted he took out the part that said cheney in 2012 on the top of it, but-dirnl' not going to comment on that. but in any event it was pretty clear and compelling. that article is an outstanding article. i think it's important that we can still change course. we can be the first republic to stand the test of time. but we have to change course. because we will not succeed unless we do. theodore roosevelt recognized that sometimes you have to do things differently, you need dramatic and fundamental reforms, you need to engage in movement politics. i think that's where we are here today. roosevelt recognized that the necessities of time and challenges that we face sometimes require breaking out of normal party structures, normal legislative processes in order to leap forward. that's where we are today. at the party g. partyson
foundation which i'm honored to head, we have been engaging in a variety of citizen education engagement efforts, and this represents the results of the latest statistically valid public opinion survey. 80% of americans believe the escalating deficits and debt should be be a top priority. number two only to the economy and jobs. way ahead of health care reform. way ahead of climate change. way ahead of tax cuts. way ahead of proliferation of weapons of mass destruction. not that those aren't legitimate issues, but there are relevant priorities. secondly, 2/3 of americans believe that washington is not paying enough attention to this issue. and thirdly, 70% of americans agree with senators conrad and gregg, lieberman, voinovich, and others that we need a special commission that will engage the american people with the facts and the truth and the tough choices that will make the case
that we need to act soon. the benefits of doing so, the risk and consequences if we don't, and that in addition to that, will result in a vote. in the congress of the united states. one bill will not solve the problem. one act of congress will not solve the problem. but we must achieve a significant reduction in the 60-plus trillion dollars in liabilities and unfunded promises that are growing by trillions of dollars a year on auto pilot. we must do it before we pass a tipping point. and lose the confidence of our lenders, especially our foreign lenders. unfortunately, america is increasingly being mortgaged. and to a greater extent that mortgage is held by foreign lenders. that is not in our long-term economic national security, foreign policy, or even domestic tranquility interest over time. at the end of world war ii we had debt equal to g.d.p. of
122%. but it was all owed to americans. today 50% or slightly over of public debt is held by foreign lenders and growing. we are fortunate that they'll lend us that money at low interest rates, but on our present course, both with regard to fiscal policy and monetary policy, once the economy turns around, we are likely to see higher interest rates. the question is how much higher. i have a lot higher degree of confidence in the fed to be able to make the changes that they need to make to turn around monetary policy than i do fiscal policy. because, quite frankly, fiscal policy is out of control. in the last two years alone, discretionary spending, if the bills end up passing, appropriation bills for 2010 pass, will go up 20%? in a time of no inflation? it's amazing.
absolutely amazing. so we do need a special commission. one that will educate and engage the american people and result in a vote in the congress. some have argued that the commission is not the way to go. that the congress ought to handled the regular order. if the regular order was working that would be a valid assertion. some have argued this is unconstitutional. that ignores the fact in the final analysis the only votes that count are the votes of senators and members of congress. and whether or not the president signs the bill or vetoes the bill. all the constitutional prerogatives are protected. as everybody has said, everything has to be on the table. that is of critical importance in order to achieve a positive outcome. in closing, our nation's current fiscal path is irresponsible, immoral, and unsustainable. our children and grandchildren will end up picking up the bill
while at the same point in time reducing investments in their future. at a time where they face increasing competition in an interconnected global economy. we are approaching a tipping point m american history. we are at a crossroads. we must choose the right path forward. we cannot allow america's future to be worse than its past. we must be the first republic to stand the test of time. we awe it to ourselves, our contry, and our families to do no less. in fact, we have a patriotic, if i disheary -- phi doucheary to do no less and a special commission is the way to go. thank you, mr. chairman. >> thanks very much. mr. walker. that was great. we'll do seven-minute rounds of questions. chairman greenspan, you said something at the outset of your opening statement that i want to ask you. invite you to develop a bit. first paragraph really, for more than two centuries we have been able to hold the level 6 -- of
u.s. federal left to well below our long-term capacity to borrow. for the next decade or two on some reasonable sets of assumptions our borrowing cushion sha rinks significantly, threatening to test our capacity to raise funds to finance unprecedented deficit. you are obviously not just talking about the statutory debt limit, you are talking about our national capacity for borrowing. i want to ask you to speak a little bit more about that because obviously if we run up against that it's as consequential, i suppose even more than extending the debt limit. what -- tell us more about what you mean. >> well, we don't know where our borrowing capacity is. we have never tested it. never thought about it. never thought it was relevant.
when you begin to look now at the potential escalation of debt outstanding, not only in the standard current services projections of c.b.o. or anybody else, because that's pretty much of a guess in the longer term years, but what we do know is that the range of error that that number can hide is very large. and when you see the daily, weekly, rise in the net debt to the public, the federal debt to the public, it's in a wholly different track than any time w through long-term interest rates beginning to move higher very significant pressures on, for example, the treasury, and auctioning off its treasury notes and bills.
at that point we are already beyond the point where simple action will restore balance. because we don't know where that actual borrowing capacity is, it is essential that we take actions well in advance of anything that could occur which would disable the economy because there is no question, as walker has been pointing out, to restore the type of balance unless we do very drastic things. these are exceptionally difficult to implement in a democratic society. >> so that the question of borrowing capacity and what the limits of america's borrowing capacity is not a question, if i'm hearing you correctly, of when it's impossible for america to borrow in world markets, it's a question of when the interest
we have to pay begins to rise so much that it will compromise our standard of living and so much more we value? >> if we ever get to that point we will see it first in rising long-term interest rates. because clearly the credit quality of any entity tends to be very evident on its ability to market long-term treasury issues, or any long-term issue. and that when you see a particular entity in trouble like the city of new york, what you saw first was they couldn't sell municipal bonds. then they couldn't sell intermediate notes, and eventually at the tail end of the process which led almost to the cliff of default, they could barely sell overnight issues. we are nowhere near there at the moment.
we've got clearly time. this is not months or quarters. it is years. but once the process is underway, when you have a highly inflexible budget situation, in other words when we came out of world war ii, we knew what was going to happen to the overall expenditures. we are not going to spend militarily and it came down very dramatically. we don't have that luxury anymore. >> take a moment if you will and explain for people who are listening, watching on tv what -- if long-term interest rates for -- that the u.s. has to pay to sustain a debt begin to rise as they may -- will once we reach our borrowing capacity, in years, if we don't do anything about it, how is that felt by average families, average businesses? what happens? >> it's felt across the board, mr. chairman. first of all, very simply if you
get a rise in long-term treasury rates, mortgage rates will be right with it. and mortgages are $11 trillion market at this particular stage. as rates go up, not only in the third year which is not the biggest issue we have, but as they gravitate back towards the they gravitate back towards the shorter end of the market, the when the debt is low, it is a problem when rates go up, but not a big problem. when you have the average service rates the way that we do now, in the context of swinging over to a very large level, every additional interest rate has an impact on total
spending, on the deficit itself. we have the spiral that begins to occur with the debt service, as the interest rates rise as a consequence of that. the service becomes explosive and this will get directly into the budget deficit. that makes the deficit began to go higher. >> and this is a vicious cycle. as the long-term interest rates are rising, and the region and this has an effect on the interest rates of the society, this will have an effect on with the businesses have to borrow. this will have an effect on
employment, to say that this would lead to more unemployment. t. >> yes, mr. chairman. we could go over item after item in which it would affect it. it also would affect stock prices and equity prices which are not a small issue in an economy such as ours. so i would be very fearful that the ability of the business sector to borrow and invest is reduced, but also, remember, that as the government takes an ever increasing sharexd of our scarce savings, there is less of it available to the rest of the economy. the market based economy. and since government has the prior lien, so to speak, on the nation's savings, the more it draws off, the less there is available, in the mortgage market, in housing for investment, physical investment,
and our capacity to produce. so there are so many avenues in which this process which we have never actually had to observe, there's so manyñi avenues that this carries that its devastation in eroding the economy over the longer run is a frightening expectation. >> i thank you. my time's up. you see i think it's very important for us to try to go down that road, even though it's unprecedented, to begin to think about what the effects would be on every american, every family, every business, and our government because as we confront what you obviously correctly describe as the very difficult political decisions we have to make to turn this around, it's compared to what? and those -- what we will face if we don't do anything is, as you said, devastating. compared to the difficulty of the challenges we are going to
face to try to avoid that. i thank you, senator collins. >> thank you. mr. walker, i cannot help but observe the irony that we are having this debate about what to do with the unsustainable debt load of this country at a time that we are debating on the senate floor a huge health care bill that is in essence creating a new entitlement program that has enormous consequences for our future budgets, and that the chief actuary for the center -- for medicare and medicaid services has estimated will actually drive national health care spending up, not down.
and chairman greenspan mentioned in his opening remarks just how important health care spending is to this whole debate. i know that the peterson foundation commissioned the lewin group to look at the impact of the senate bill on long-term costs for the government. could you comment on what the analysis found and also give us your own views on what we are doing on the senate floor even as we speak. >> thank you, senator collins. it is somewhat ironic. let me just note that the lewin group is owned by united health care but they are an independent operation. they are not controlled by united health care with regard to what they do. the people that are there are former c.b.o. people and they do great work. let me also note that their findings are their findings, not
the peterson foundation's. but generally we have found that the peterson foundation believes that fiscally responsible health care reform should meet four tests. number one, it should pay for itself over 10 years. number two, it should not add to deficits beyond 10 years. number three, it should result in a significant reduction in the tens of trillions of dollars in unfunded obligations we already have. medicare alone is underfunded $38xlár&lion and growing. and number four, it should result in total health care cost as a percentage of g.d.p. that is less after the reform than before the reform. in other words, bend the total health care costs down not up. none of the bills meet that. none come close on number three or four. some meet it on number one and number two.
but the question is will the assumptions they rely upon with cranking down provider reimbursements and other things actually be realized because the track record in the past is not very good in that regard. i think we need comprehensive health care reform. but, frankly, the bill that's being talked about now is a coverage bill. and the only reason that people are talking about cost is to pay for coverage. the one thing that could bankrupt america is health care cost. we are not doing enough to really, truly be able reduce health care cost as well as the rate of increase. that's where we need to keep our eye on the ball. so far people aren't doing that. >> thank you. i couldn't agree more with what you just said. chairman greenspan, you headed a very successful commission in 1983 to deal with a looming crisis in the social security system. reflecting back on that
experience, could you give us any advice as we look at the commission model since you chaired a successful model for constraining the costs of a major entitlement program? >> certain things happened. certain things occurred during that commission which really quite different from previous commissions which ended up with a very thick report gathering dust on everybody's shelf. its recommendations were actually implemented virtually in full, as is. and the reason was that we did several things. first of all, it was a commission which was created by basically president reagan with
speaker o'neill's agreement, and the commission itself worked for quite a long period of time, but as part of the process what we did is kept the political system wholly informed as to what we were doing so that i would report to president reagan and jim baker who was operating as the key staff person in that regard, and bob ball, who was a former social security administrator under lyndon johnson, reported to spiker o'neill. -- speaker o'neill. and he and i worked very closely together. what happened was as the various different proposals went forward , the senior leadership of the congress and the administration were wholly informed so that they could absorb it, react to
it, and feed it back to the commission so that you didn't end up with a report coming out at the end which was a take it or leave it type of report with 20 different issues which nobody could think about in coherent manner. what you avoided in that type of issue, in that type of result, was particular congressmen and senators taking quick positions with respect to various aspects of the report without having time to really think it through. so that process of keeping everyone engaged, then finally when the agreement was made and we all agreed that it was nonamendable because it was a very tightly argued commission report, bob ball and i went up to the hill here and i would, as the republican member, i would answer the republican questions
and he would answer the democratic questions. and we kept a unified position saying you take it or leave it. we'll try to explain it as best we can. but if you try to amend it, it won't work. and it turned out to be a reasonably sensible set of recommendations which is overwhelmingly accepted. now, the existing fiscal task force recommendations all have some of those qualities right off the bat. in fact, having senators and congressmen as well as members of the administration on that taving force -- task force solves the political problem and continuous updating which is essential. i don't want to comment because i don't really know as much as i need to know to talk about the existing structure of what can happen in this context.
there are many commonalities and many differences, though. >> thank you. >> thanks, senator collins. senator voinovich, if you would indulge senator burris, he's got to preside. he's asked for the opportunity to ask one question before he goes. ok. good. >> thank you, mr. chairman. i will be very short. i'm asking for a bernl opinion these two distinguished american citizens. i'm just concerned about the commission that would be created and whether or not we should do something about campaign finance reform in reference to the political process? i don't see us being able to get any control of the financing of programs in the federal government unless individuals who have to run for these offices are not beholding to special interests.
special groups which drives up the cost of government because they want their program to be in place. i just wondered if you have given any thought, the commission, whether or not campaign finance reform should be a part of this. >> i'll start. first, i think the fiscal future commission with everything on the table which would mean statutory budget controls, social security, medicare, medicaid, other spending, tax reform that's broad enough. i think campaign finance would be probably beyond the scope of this. i will say this. we need campaign finance reform. there's no question about that. >> you are not going to be able to do anything about the deficit and debt because politicians have to run for office. they have to raise money. the only way to raise money is make commitment to special interests and special interests drive this whole country. >> quite comment, senator. i have a book coming out in january called "come back
america" talks about policy, operational and political reforms that this country needs, including campaign finance. >> mr. greenspan. >> we have a sitting house of representatives and sitting senate. irrespective of how the -- they came to office, there are some very good people in both bodies and very thoughtful people on a lot of the committees. so i agree with david walker that clearly campaign finance reform is a critical issue. it has to be resolved. but i don't think it needs to be resolved prior to coming to grips with this issue. they are separate as far as i can see. >> thanks. senator carper. >> i thank you very much for yielding. i hadn't planned to go into his point, but i want to start off
say a word or two on health care reform and the implications it has for long-term deficit reduction. i serve now on the finance committee and i have had an opportunity to work this issue on the -- on the issue. i have said countless times and so has senator conrad whoñi was here earlier, if we don't rein in the health care cost, we may extend coverage to people who don't have it but we will not be able to sustain that coverage for long. a lot of the press coverage on what we have produced know cusses on like issues like death panels and abortions and we are going to cover the illegal aliens and stuff like that. there are a number of reforms, i just want to take a minute to mention some of what i think the most important things are part of the bill. we are trying to replicate what works. one of the things that works in delivering health care, better results, lets money -- less money, is health care provided by cleveland clinic, mayo
clinic, they get away from fee-for-service, we need to move away. they focus on prevention and well anye. primary care, all t@p the other thing that we are trying to do is create a system, with a large amount of purchasing, and we will get cheap health insurance. we'll get reasonably priced health-insurance because many of the health insurance companies want to compete for the business. they want to drive down the money that we buy, which is much different than what the other people pay for the individual coverage. what we are trying to do is allow for the creation of a large pool of people in each state. and if they have a large
population, we will have regional purchasing pools across state lines. create regional purchasing pools. insurance can be sold across state lines. those things very rarely get discussed in the media. what we are trying to do is replicate what works. one of the health economists who's followed this closely. if you look at the provision that is are in the bill, for restraining the growth of health care costs, you like throwing everything up against the wall and see what sticks. my guess is some of what we are doing will stick and some won't. that's not my question. i just wanted to mention that. here's what i want to say. same question i asked senator conrad. the role of who is going to serve on this commission, sir, senator lieberman and senator collins, remember when we had lee hamilton here who was good enough to co-chair the 9/11 commission? i asked him how come you were able to get so much done -- virtually everything they recommended we did. and for the most part i think
everybody on that commission, nobody was in the congress. they worked very hard. why were you so successful in presenting to us all these recommendations which we ultimately subscribed to and adopted? he said it was -- we had plenty of time. we got plenty of time to work with one another. we got to know each other. and the vice chair was a former governor of new jersey. he said tom cane and i developed a sense of trust and confidence in one another. we infused that spirit of trust, infused the entire commission. and it led us to a very successful effort. and enabled us to speak with one voice. not unlike what happened in the commission that chairman greenspan led. question, in terms of looking for other people to serve on the commission beyond members of the house and senate, one or two people named by the administration, what -- give us a word or two on the profile? the idea of people like bob dole
or tom daschle, folks like that. people who served, maybe who chaired the budget committee in the past, who have a whole lot of knowledge here and trust and confidence and understand the politics as well as the policy. your thoughts, please. i again want to thank joining voinovich for yielding. thank you. >> i think it's less important toñi who the individual members are than the process of the deliberations and how it ultimately is constructed into a report and eventually into legislation. there are certain critical things which my experience indicate suggests have to be done, namely you cannot drop a whole report after a secretive deliberative discussions by some private group. it will go nowhere. and the reason basically is that when you have a commission, especially in controversial areas, the ideas and notions of
change have to be absorbed gradually by the congress. if you force them to react immediately, they will take positions which they may be sorry about but they will not be able to reverse having taken a commitment and that ends the whole situation. it ends the whole deliberative process. so i would say it's less important who is on the committee than how it functions. >> thank you. mr. walker. >> senator, my view without mentioning names, they need to be knowledgeable, respected, credible, and committed to making it work, to making best efforts to come up with recommendations that actually will be acted on and approved. and last, they have to be willing to dedicate the time. one of the concerns that i have is what you said before, i think for this commission to be successful it's got to do two things. it's got to educate and engage the american people,
representative groups of the american people beyond the beltway, that's going to take time. and it's got to do things with elected officials and others and key stakeholders as well. you have to think about can they dedicate the time? last thing is, keep in mind, we need nonpartisan solutions. a plurality of americans consider themselves to be political independents today. the simple truth is, and i have been to 46 states in the last 2 demaff 1/2 years. the simple fact of the matter is if you got a hard d or r on your sleeve, you are going to be discounted dramatically by the american people. no matter who you are. how good you are. and what your intentions are. that is the reality. >> that's very nice of you to say. >> i was going to ask the chairman who was going to answer the independent questions. >> you did it. thank you. >> again,çó thank you for those responses. senator voinovich, thank you for your kindness. >> senator voinovich.i]
>> mr. greenspan, you talked about 1983 and the unusual interpersonal relationships and -- between the president an the speaker of the house and the fact that you kept people informed as you moved along. and it worked out. the question i have is, compare that period of time, you have done it in your testimony, when in terms of the urgency of the situation. i'd like the same comment from mr. walker. in other words, there are some people who say that we don't have an urgency. we can kick the can down the road. we don't really have a crisis that needs to be met. and i'd like the two of you to comment on that.
the second question is, what do you think it will take to convince the american people and probably just as important, international community that we are getting serious about dealing with this problem? >> first let me say that the first act of the commission in 1983 implemented was to recognize thatñi medicare, whic was part of our mandate, was much too complex to handle. besides we had a quarter century before the baby boomers retired and we would run into trouble. all of the facts that confront us now -- remember, this crisis is to a very large extent a demographic crisis. where we are doubling the number of retirees, we are essentially
altering the structure of our labor force. remember, it's not only the question of the retiree -- of the baby boomers retiring and their impact on the retirement programs, it's the fact that we are losing very productive people and a very large cohort of our population which is going from work to retirement. we knew that 25 years ago. we could see it coming. and we new the implications. but always -- knew the implications but always looked too daunting to endeavor to come to grips with it. so the solution that we had with respect to social security confronted a defined benefit program which was reasonably resolvable once clawed pepper, who was a member of that commission, said, it was
inconceivable that we would use general revenues to solve the problem that seemed to appear fairly quickly in the trust funds. once we had the arithmetic of the social security program, i remember pat moynihan who i miss considerably, said, everyone can have their own opinions about policy, but there is only one law of numbers and one rule of arithmetic. and to solve this problem, meaning the problem back then, we need either to raise payroll taxes or lower benefits. there was no third alternative. if we could get to this problem as simply defined as senator moynihan defined it, i think we are a good way down the road. on the second issue, how they'll
no we are serious. when the american people know we are serious. it's the same evidence. they are watching us very closely. and indeed if it weren't for the fact that the reason why our debt is becoming increasingly held abroad, whereas for reasons other than the quality of our debt, remember the reason it is occurring is in the case of china, for example, they are trying to maintain a competitive position by keeping their exchange rate down. and the only way they can do it is to buy u.s. dollars. itñi doesn't help all that muchf you are exporting to the united states to borrow euros or other types of currencies. they are building up dollar balances not because they want to invest in the united states, but because it's the only means which they can keep their exchange rate at a level which maintains in their context
competitive to keep their labor force employed. at some point that has to stop and it will. it will stop because the markets won't continue to function in a manner which will enable it to do that. >> senator voinovich, first i think the greenspan commission deserves a tremendous amount of credit, especially chairman greenspan and bob ball for the leadership that resulted in the reforms in 1983. but i think we are in a very different situation today. in 1983 the checks weren't going to go out on time. within weeks. tens of millions of americans weren't going to get theirñi social security check. there was no option other than to succeed. that would obviously have been a politically unacceptable outcome. that's not the situation today. but let's explain what is the situation today. first the trust funds are an accounting device. they don't mean the same thing as webster's dictionary.
you can't trust them, they are not funded. there is no phi doucheary responsibility. if they were a trust fund in the private sector, and i used to be assistant secretary of of labor for erisa, people would be in jail. there would be fiduciary breaches. the reality is where negative cash flow in the hospital insurance trust fund. we are negative cash flow in the disability insurance trust fund. for perpetuity, all right. without reforms. we are negative cash flow in the retirement income and survivors income trust fund at least for two more years. the medicare program part a won't be able to pay bills within 10 years. the social security trust fund doesn't go dry for a while, but again, what are we doing? we have to end up borrowing from the public, mainly from foreign lenders, in order to deal with
the negative cash flow situation. within 12 years, acourting to g.a.o., which i headed for 10 years, within 12 years, without an increase in interest rates and chairman greenspan has talked about the risk there, without an increase in interest rates, the single largest line item in the federal budget will be interest on the federal debt. not defense. not medicare. not medicaid. not social security. and what do we get for that? as we say in the south,ñi shino, nothing. that's without an increase in interest rates. these numbers are getting worse every second of every minute of every day. what does it take to -- for people to understand that, you know, we are aproaching -- remember harry and louise for health care? we face thelma and luis. we are -- louise. we are headed for a fiscal flip
and we need to change course before we go over. it's as simple as that. >> thank you. thanks, senator voinovich. senator mccain. >> thank you, david. you have given me great lines. i will not give you any credit, either. i'm entertained, too, when i see these advocacies for by god, we are going to stop this spending. we are going to really get knuckle down here. two days ago we pass a bill, six appropriations bills, three of them never considered on the them never considered on the floor of the senate so they they all voted for this. the majority of them voted for this. $2.9 billion, to study the surgery in our face. they are happy all over america. you should laugh about that.
we can vote at this time, that we should have an increase in spending. this is -1.3%. does anyone have any shame? and now we're going to have a bill on the floor of the senate, and i will go into a debate -- into the debate today, to purchase things that we do not need or want. $2.5 billion. let me ask you a question. how much difference -- this was $4.3 billion worth of the earmarks. i will not talk about the money that is being spent on irrigable bowel syndrome. but you were here. you saw this, and you saw this going out of control. everybody says that this is the way that we do business. this is not how we do business.
we did not have pork-barrel spending. how does it feel seeing this up close? >> in a typical year, the earmarks are about 1 or 2% of all spending and they do not matter. this is a lot of money. of federal spend something a lot of money. they do matter. i personally think that we need reforms there. no question about it. a lot of these earmarks don't have a federal purpose and a number of the earmarks avoid competitive bidding. so there's a lot of reasons why they are a problem. i think there is more than a little bit of -- i could use a lot of words. i'll say irony. there's more than a little bit of irony that people are now wanting to try to get tough when last year discretionary spending went up 8.3%. the congress' budget went up 10%. this year you have already talked about discretionary
spending has gone up over 10%. we have zero inflation. over that period of time. and now we are going to get tough. it's one thing to spend money on a stimulus or financial rescue plans or whatever if they are properly designed. this is the base of government. this is government that will be here for years and years. and i think we not only need a fiscal future commission, which is what this hearing's about, i think we need a rebaselining commission. i think we need a separate commission, not comprised of elected officials, of people from formerly private sector, government, who have transformational success records to relook at the base of government on a smending and tax side and -- spending and tax side and basically start repositioning things. >> three quick questions. one, do you see any in this health care bill that really means significant cost savings? >> i think there are several things in the health care bill that are laudable. one, pilots. there are a number of pilots. if they prove to be successful,
then the secretary of h.h.s. -- >> you have seen some. >> secondly, let me close up. >> let me get the second question. for you and alan. do you believe that the returned or unused tarp funds and unobligated stimulus funds should be spent for further economic stimulus or should be returned to the treasury? >> there are often appropriated funds which don't get spent and they are automatically returned to the treasury. >> as you know there is a proposal to use the unused tarp funds. do you support that? >> no, i do not. >> i agree with the chairman. >> my final question. and i -- you probably don't have an answer to it. maybe you can help us out a little bit. in 1970 foreign investors held 5% of our debt. now it's over 50%. we have deficits, according to mr. walker now and greenspan of
$38 trillion in medicare. i had forgotten the number in social security. what is it? >> a little over $7 trillion. >> $7 trillion in social security. a $12 trillion deficit. and of course $1.5 trillion this year. i guess my question is, given the path we are on, in other words let's say we don't really change anything. at what point, alan, do we have a severe fiscal crisis which requires us to do what we did in the early 1980's only in space, debase the currency, inflation,ets, etc.? i know that's a difficult question, but i think americans really deserve to know when we are going to hit a wall here or at what point this is -- we all know it's unsustainable, but at
what point could we face a severe fiscal meltdown in this country? >> in one sense it almost goes back to the very first question you raised to david, namely this issue of spending seeming going out of control. in my experience, spending is contagious. i remember years ago there was somebody, a congressman, h.r. gross from iowa who used to get up and say, where's the money coming from? now, we also at that time had the seems sort of quaint view that government finances should be like household finances. my recollection of the period was such that i remember president eisenhower apologizing to the american people for what
would now be considered to be a minuscule deficit, indeed it wouldn't pay for the earmarks. the reason he was apologizing is that the culture was that you did restrain. there is no way that i can conceive of that when you have huge amounts of moneys being appropriated for anything, that people don't want to get into the act with a little bit here and little bit there because rounding you never see it. and i think what has to happen here is that we have got to get back to a general view that this is not a bottomless pit. we have physical resources which cannot do all of the things that everyone wants to do. and unless we can get some means to go back to a view where it is
not the most important thing when you are in congress to find ways to spend money to help your constituents, i think that's critically important, but remember, we have had over 200 years of congresses in which that didn't happen. i think this has become an extraordinary country by far the most productive in the world, a remarkable democratcy. the system works. there's nothing in it which says we have to go -- we have to be profligate in spending and creating benefits for constituents. they are not really asking for it. >> how much time do we have? >> i would say the time frame collapses very quickly if we do nothing. it's not going to be the next two years. it's not -- there's no credible scenario. it's out there somewhere in the future.
somebody who says they know exactly when it is merely indicates they don't have a clue what's going on. the critical triggering point will be in the bond market. and we don't yet see that. but when we begin to see that, that is, in fact, the canary in the coal mine. >> could i just say for the record, what would we see in the bond market that would sound this alarm? >> it would show up as i indicated earlier that it would show up largely in the longer end of the market, meaning 30-year treasuries and 10-year notes. yields would start to move up relative to, say, one-year treasury bills. what we call the year curve would tilt up very significantly. that's the first sign that something is emerging. similar to, as i said before, what happened to the city of new
york. >> if i can. >> i'm way over time. >> very quickly you mentioned inflation, senator. this is very important. you cannot inflate your way out of this problem. you can inflate your way out of the burden associated with the $12 trillion in current debt, but the problem is not that. the problem is the $38 trillion in unfunded obligations for medicare. the seven-plus for social security that grow faster than inflation. and in the case of health care, faster than the economy when the economy grows. you have to make tough choices. on health care costs, on social insurance reforms, spending constraints, tks reforms, tough choices are unevidentible. >> did you see any of those choices made while you were here? >> no. they won't be made in my opinion, senator. they won't be made in the regular order because the regular order is dysfunctional.
. there is nothing like a free lunch. at some times, this seems to be. there is the physical world out there, that is responding to all of this. what often like to do when you talk about the budget is forget about finance, think about this in real terms. how much do we have to start with, and how much do we see a demand for these resources to see the total. every single thing that appears before you is desirable.
what you passes something -- and there is the need to do this. but if you add up everything, these exceptional needs, you have the physical requirements that are much larger than the capacity to produce this. there has to be some form in which the total demand is constrained -- constrained to the supply. there is the notion that we can expand the economy at will. economy at will or do increased productivity, the history of productivity in this countryçó -- which means you can't go faster than we think. and indeed, what we have seen over since the data haveçóñr be realistically useable in 1870 is that there is a very narrow
range in which it turns into productivity and growth. we cannot do it any faster which means we have no choice but to find a way to bring down the level of demand of otherwise exceptionally desirable needs of theçó societ we justñr do not have the resources to do that. and if we try to do it, the system breaks down. >> so in the words of the chairman, alwaysxd darkest befo it's totally black. i thank you, mr. chairman. >> even i laughed at that. even though i heard you deliver that line manyñrñi times. it's very -- do you have time for a few more questions? >> sure. >> because i want -- if senator mccain can stay, you -- this is not to the point but you make a fascinating point in here in your opening statement, and you just touched on a part of it where you essentially -- that which is to say increase the
size of the overall economic pie. you just mentioned productivity has certainly historic limits. you mentioned something else fascinating. short of a significant increase in immigration, the size of our labor force in 2030 is fixed in a relatively narrow range. so am i hearing you correctly? forget the politics. from an economic point of view, if we had a significant increase in america in obviously legal immigration, that would be one way to grow the economic pie. >> it would be but i wouldn't have immigration policy focused on the economic need to finance a great number of things. i mean, i'm very strongly supportive of the expansion. >> right. >> and i've also argued before
some committee -- in fact, i think senator schumer's subcommittee that there is a very unusual pattern of our immigration in which we have a very large number of immigrants who are high school or less educated, a significant part of whom are illegal. and then we have remarkably large number relative to domestic -- to our domestic educational system of ph.d.'s who have come to this country and contributed immensely to our economic success. i argue that both groups were actually very importantly affecting the economy in a positive way. positive way. if we tried to send all our
if we tried to send home all of the illegal immigrants, and you would think that something to do with respect to upholding the law, speaking as an economist, and i will tell you, there are 12 million of them. >> this is very significant to hear. i do not think we increased this as a way to deal with the debt, but there are the positive economic implications. >> let me ask a final question to both of you. we have spoken about the horrible things that would happen if we do not do anything, if there is no process like we have been talking about to deal with this in an orderly way, to distance ourselves with a national debt. let me ask you to speculate --
let's say that we do create a commission. they do make bipartisan recommendations to congress, for the methodical reduction of the national debt, down to a lower percentage of gdp or however that we measure this. what are some of the positive responses, within the american economy and the global economy, if we are able to achieve that result. >> i think that we saw that when we were running a surplus a decade back. come down. the effectiveness of capital investment is enhanced. you have all of the reverse effects of rising real interest rates. and the -- the great irony is one of the things that created the huge difficulty for us was
presizely that surplus. those surpluses bass -- precisely that surplus. those surpluses because they undermined pay-go because it was a quite effective program. so i want to say having budgets in balance creates a stability for the future which enables people to invest over the longer run. it's not an accident, for example, at the turn of the 20th century we íuse sellingñi bonds at under 2% for 30, 40, 50-year maturities. and that was a consequence of having a stable fiscal system, but it enabled our infrastructure to be filled with longer term assets. and the longer the average -- the longer the average age of the assets in the society
usually the more productive that society is. and so whether or not we are talking about balanced budgets or whatever, fiscal stability and responsibility has veryñi positive outcomes for a democratic society. >> and, mr. walker, i assume what chairman greenspan has stribed also then feeds through the economy -- described also then feeds through the economy in very real and positive ways to individuals, to businesses, to families. i mean, it's likely to within limits stimulate more economic growth, less unemployment, etc.? >> correct. simply stated, if we do the right thinking our future can be better than our past. if we don't do the right thing, our best years may be behind us. you know, what's going on right now is that we're mortgaging the future of our children and grandchildren at record rates. at the same point in time because most of the budgets are on autopilot, on mandatory
spending, we're reducing mandatory investments in the future, basic research, critical infrastructure, other things at a time where they're going to face increasing competition in the world. that's not right. last thing, on immigration, it's not just quantity, it's quality. we need to change our immigration policy to focus more on skilled and knowledge. we can't compete on wages. we don't want to compete on wages because our standard of living will go down.çó we have to compete on skill, innovation, quality, value added, and that means we got to be more intelligent about our immigration policy and we need to rethink what the priorities ought to be as well as the numbers. >> well said. you know, somebody around here suggested, and we haven't actually acted on it, that as you know, i forget the percentage but somewhat close to half of ph.d.'s, particularly in science, technology, mathematics in u.s.
universities are foreign-born, foreign nationals. most of whom go home. somebody around here said we ought to act on it. we ought to put a green card on their diploma. astuming they pass all the other tests, security, because it's in our interest to keep them here because they'll contribute remarkably to our economic growth. i thank you. senator collins. >> thank you, mr. chairman. just aç'itásq final questions. chairman greenspan, one measure that is looked at often is the percentage of gross domestic product that our public debt is. and it's obviously going up. it is projected to exceed the level that it was at the height of world war ii. but many of us wonder, what is the appropriate level? what do economists believe is a
level of debt measured by a percentage of g.d.p. that is acceptable versus worrysome -- worrisome? >> well, senator, i thought we did reasonably well when the percentage of debt was 20% to 30% of fwpped. i prefer lower than that, but we can tolerate that. the major problem is notñi so much the level of debtçó relati to g.d.p. but what is a sustainable deficit? and that's a more complex calculation. to the extent the federal treasuries are drawing both the savings on the society which are scarce. it leaves more savings for the
private sector to invest in far more productive investments than generally is employed using the savings of the society through government functions. >> thank you. mr. walker, do you have anything to add on that measure? >> the comment i would say is there's two debt-to-g.d.p. ratios. one is what economists use which is the publicñr debt to g.d.p. the other is the private debt to g.d.p. we have to keep in mind that the bonds which are in the quote-unquote trust funds are backed by the united states government. they are guaranteed to principal and interest. they won't default, in my view. if you look on that basis, total debt to g.d.p. is 85%. by the end of next year will be 9 % and headed up. you know, we are the only ones that i know that have these fictional trust funds. we didn't have moneys sitting
in these trust funds back at the end of world war ii at 122%. we were largely pay as you go. i think people ignore trillions of dollars worth of debtñi whic is real. it may not be a current demand on the economy, you know, a current crowning out effect, but we owe it. and, therefore, i think we need to look at both held by the public and total debt and shell both. >> thank you. finally, senator conrad mentioned the importance of everything being on the table for the fiscal future commission. and i agree with that approach as opposed to the more narrow approach recommended by some of our colleagues. on the other hand, c.b.o. has clearly warned us that to sustain the current projected spending levels would require a level of taxes never before
seen in our country. i'm interested in hearing both of your views on whether there is a limit to the level of taxation that can be imposed on our economy before it starts having very detrimental consequences. i'll start with you, mr. chairman. >> well, it's clearly a limit in the sense that as tax rates go up, the tax base begins to shrink. and clearly at 100% taxation you are not going to have any tax base to speak of. so that clearly you cannot range revenues indefinitely through raising rates. and it's not easy to calculate
where that is. indeed, when you get to the point where the actual revenues very small as rates go up you've probably already gone too far. but it's very clear from the outlook here that we have no choice but to work from both the spending side and both the tax side. as much as i dislike the notion , i cannot visualize in any concrete way how we can bring down the level of spending to the capacity of our economy to function comfortably with it. and if we can't do that then clearly we have to go to the tax side. but, again, we have to be very careful there as well becauseñi it's a different type of constraint. the constraint on the spending side is basically political. the constraint on the tax side
is mainly not holy economic. >> thank you. mr. walker. >> well, a few numbers. for the last 40 years the average federalñr taxation has been about 18.3% g.d.p. the highest it's been in history in recent times, at least, is about 20.6% of g.d.p. if we don't do anything, it's going to go up to 40%-plus of g.d.p. by 2040 if we all of añi sudden continue to doñr what we're doing now and then try to balance the budget in 2040. if we don't extend the bush tax cuts -- in other words, if they all expire, taxes will be 24% of g.d.p. within the next 10 years or so and moving up. my view is you can solve the problem for less than 24% of g.d.p. that everything has to be on the table.
that the problem is primarily a spending problem but that you are going to have to have more revenues because there's a new four-letter word that people have to deal with. it's called math. the math doesn't come close to working. you can't grow your way out. you can't tax your way out. you can't just cut your way out. you can't inflate your way out. you have to do a number of things. we want to keep taxes as low as we can. the sooner we act the lower it can be. so the miracle of compounding will work for us. as albert einstein said, the most powerful force on earth is not nuclear energy, it's the power of compounding. when you are inñi debtor it wil work against you. it also means when you act sooner rather than later the less draconian changes has to be made, the better ability to plan. so let's act sooner rather than later. taxes are going up on a lot more than those making $250,000
or more. why? mass. >> thank you. mr. chairman, i want to thank you for being at this hearing today and express my appreciation to our very distinguished witnesses. i have a feeling if we do the model of the commission that were looking at two people who could contribute enormously. so thank you very much and i thank our witnesses. >> i agree with you, senator collins. this membership on the commission would be an appropriate punishment for your good behavior. over the years. and for your excellent testimony today. i think we are really on the verge of beginning to try to do something about this. it's a long way from doing something.ñr but i think we have a reasonable opportunity here, reasonable chance to begin the process that we're talking about that both of you have
supported this morning. and then the hard work begins, of course. and your voices this morning and for a long time really bring us closer to beginning to deal with the problem and then ultimately dealing with it. so i can't thank you enough for the time that you've fwiven us this morning and for the content -- given us this morning and for the content you've given to us. we appreciate it very, very much. we'll keep the record of the hearing open for 10 days for any additional statement or questions. the hearing is adjourned. >> thank you very much. mrs. capito: -- [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009]