[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
                     THE STATE OF THE INTERNATIONAL

                            FINANCIAL SYSTEM

=======================================================================

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 17, 2006

                               __________

       Printed for the use of the Committee on Financial Services




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                           Serial No. 109-92

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio                  MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             MELVIN L. WATT, North Carolina
ROBERT W. NEY, Ohio                  GARY L. ACKERMAN, New York
SUE W. KELLY, New York, Vice Chair   DARLENE HOOLEY, Oregon
RON PAUL, Texas                      JULIA CARSON, Indiana
PAUL E. GILLMOR, Ohio                BRAD SHERMAN, California
JIM RYUN, Kansas                     GREGORY W. MEEKS, New York
STEVEN C. LaTOURETTE, Ohio           BARBARA LEE, California
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
    Carolina                         HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       JOSEPH CROWLEY, New York
VITO FOSSELLA, New York              WM. LACY CLAY, Missouri
GARY G. MILLER, California           STEVE ISRAEL, New York
PATRICK J. TIBERI, Ohio              CAROLYN McCARTHY, New York
MARK R. KENNEDY, Minnesota           JOE BACA, California
TOM FEENEY, Florida                  JIM MATHESON, Utah
JEB HENSARLING, Texas                STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey            BRAD MILLER, North Carolina
GINNY BROWN-WAITE, Florida           DAVID SCOTT, Georgia
J. GRESHAM BARRETT, South Carolina   ARTUR DAVIS, Alabama
KATHERINE HARRIS, Florida            AL GREEN, Texas
RICK RENZI, Arizona                  EMANUEL CLEAVER, Missouri
JIM GERLACH, Pennsylvania            MELISSA L. BEAN, Illinois
STEVAN PEARCE, New Mexico            DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas              GWEN MOORE, Wisconsin,
TOM PRICE, Georgia                    
MICHAEL G. FITZPATRICK,              BERNARD SANDERS, Vermont
    Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina
JOHN CAMPBELL, California

                 Robert U. Foster, III, Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 17, 2006.................................................     1
Appendix:
    May 17, 2006.................................................    39

                               WITNESSES
                        Wednesday, May 17, 2006

Snow, Hon. John W., Secretary, U.S. Department of the Treasury...     7

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    40
    Baca, Hon. Joe...............................................    43
    Waters, Hon. Maxine..........................................    44
    Snow, Hon. John W............................................    47

              Additional Material Submitted for the Record

Hinojosa, Hon. Ruben:
    Letter from Timothy D. Adams, Under Secretary for 
      International Affairs, U.S. Department of the Treasury.....    54
Moore, Hon. Dennis:
    A Message From the Secretary of the Treasury.................    55


                     THE STATE OF THE INTERNATIONAL



                            FINANCIAL SYSTEM

                              ----------                              


                        Wednesday, May 17, 2006

             U.S. House of Representatives,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:09 a.m., in 
room 2128, Rayburn House Office Building, Hon. Michael G. Oxley 
[chairman of the committee] presiding.
    Present: Representatives Oxley, Leach, Bachus, Castle, 
Royce, Ney, Kelly, Paul, Gillmor, Miller of California, 
Kennedy, Hensarling, Garrett, Pearce, Neugebauer, McHenry, 
Campbell, Frank, Waters, Maloney, Watt, Carson, Sherman, Lee, 
Moore of Kansas, Capuano, Hinojosa, Crowley, Clay, McCarthy, 
Baca, Lynch, Scott, Davis of Alabama, and Green.
    The Chairman. The committee will come to order. Pursuant to 
rule 3(f)2 of the Rules of the Committee on Financial Services 
for the 109th Congress, the Chair announces that he will limit 
recognition for opening statements to the Chair and ranking 
minority member of the Full Committee and the chair and ranking 
minority member of the Subcommittee on Domestic and 
International Monetary Policy, Trade, and Technology or their 
respective designees to a period not to exceed 16 minutes, 
evenly divided between the majority and the minority. The 
prepared statements of all members will be included in the 
record.
    The Chair recognizes himself for an opening statement. 
Today the Financial Services Committee meets to hear the annual 
report of the Secretary of the Treasury on reform of the 
International Monetary Fund and the state of the international 
financial system. This hearing is mandated by the Fiscal Year 
1999 Foreign Operations Appropriations Bill which sought to 
ensure that the IMF would effectively use the funds 
appropriated to it on behalf of the United States. Congress 
included that requirement at the request of Representative Mike 
Castle, the senior member of this committee.
    I look forward to your testimony, Secretary Snow. I am 
pleased to see you here today back before the committee and I 
thank you for serving our country so well.
    Certainly our strong and growing economy is in part a 
testament to the steady hand that you have had at the Treasury 
Department.
    The traditional focus of the Secretary's testimony at this 
hearing is on reform of the international financial 
institutions. This has been a longstanding priority for the 
Bush Administration and the President's Fiscal Year 2007 budget 
request for Treasury international programs reflects a 
continued commitment to these reforms. Despite foreign policy 
challenges abroad, the President has maintained that he will 
remain committed to ensuring the multilateral development banks 
work toward relieving the burden of unsustainable debt for 
countries with sound pro-growth economic policies.
    I have always believed that free trade and growth through 
exports are the fundamental building blocks for economic 
prosperity and democracy both here and abroad.
    The Treasury Department supported the establishment of 
programs aimed at creating market-based economies that are open 
to trade. I am encouraged by the work of the World Bank 
president in eliminating corruption and promoting a level 
playing field to international lending institutions.
    Level playing fields are vital to fair and free trade. With 
that in mind, I am particularly looking forward to Secretary 
Snow's comments on last week's report to Congress on 
international economic and exchange rate policies. After years 
of ignoring free market principles, the Chinese have evidently 
begun to relax the hold over their currency. In the past, this 
currency control has created unfair advantages for Chinese 
exporters, all too often at the expense of American business.
    Since the middle of last year, however, China has 
instituted a 2.1 percent reevaluation of their currency against 
the dollar, and has introduced various regulatory measures to 
free up capital flows across its borders. The Treasury report 
noted that China needs to move quickly to introduce exchange 
rate flexibility at a far faster pace, a subject which is of 
great interest to this committee in light of continued 
engagement with China and maximization of this important 
trading relationship.
    Though China is the country so often cited as driving the 
global economy, we must not lose sight of America's trade 
relationship with Europe, Japan, and our neighbors to the north 
and south.
    U.S. corporations continue to make strides in productivity 
and a rising global economy has created myriad opportunities 
for U.S. multinational corporations and for investors looking 
for growth opportunities in foreign markets. Particularly in 
Latin America, remittences have generated real economic growth 
in emerging markets. Transactions such as these between 
established and emerging economies foster growth in both, and 
merit ongoing considerations. We look to reform the 
international financial system.
    On another topic, this year our colleague Deborah Pryce, 
Chairwoman of the Subcommittee on Domestic and International 
Monetary Policy, Trade, and Technology, led the way in 
reauthorizing the Multilateral Investment Fund at the Inter-
American Development Bank. This is a good time for Treasury to 
take all possible steps to start similar programs at the other 
development banks.
    The MIF is an outgrowth of the Enterprise for the Americas 
initiated by the first President Bush. While this is obviously 
now a multilateral effort, the MIF is in many ways a perfect 
exporter of U.S. values, a forum where a good idea, hard work, 
and fair access to credit can provide a healthy way for any 
number of people.
    The MIF is an incredible success story. Combining modest 
grants for small- and medium-sized businesses, this program has 
encouraged private sector development and leveraged the power 
of remittances through Central and South America. The result 
has been the growth of small businesses here and abroad. As we 
all know, small businesses are the engine of job growth.
    We are all committed to the big projects spearheaded by 
development banks; water and sewer system construction, 
infrastructure development, and the building of hospitals. 
Given the ``bang for the buck'' we get out of the MIF at $25 
million a year, however, we should seek to clone that program 
at the other development banks and try to do the same thing 
bilaterally through the Millenium Challenge Corporation and 
other international financial institutions. We must be on the 
lookout for programs such as this that exhibit the best 
practice of government here and abroad.
    Secretary Snow, I commend your continued oversight over the 
reform of the international financial system and your ongoing 
commitment to opening markets for our financial services firms 
abroad. Welcome back again to the Financial Services Committee, 
and I now yield to the gentleman from Massachusetts for an 
opening statement.
    Mr. Frank. Thank you, Mr. Chairman.
    Mr. Secretary, I appreciate the courteous way you have 
conducted your office, and you have always been very careful to 
try and stay in touch with us.
    First, let me say, I want to agree with some of what the 
chairman just said. I do that with some trepidation because 
sometimes when I agree with the chairman, I get him in trouble 
in other quarters, so let me say, there remain vast areas of 
disagreement between the chairman and myself. And he sometimes 
gets it right, and I do have to acknowledge that.
    This committee, and it actually goes back to the 
chairmanship of the gentleman from Iowa, has a record that I 
think hasn't been fully noted of cooperation on international 
economic matters and particularly with regard to the 
international financial institutions.
    I believe that there has been significant improvement in 
the World Bank and the IMF and some of the other development 
banks. If you go back a few years, there was great controversy, 
the 50 years campaign. There was a major effort to curtail, 
wipe these institutions out, and many of us agreed that there 
were some severe failings in the way in which they had 
operated, but we didn't think termination was the proper 
approach.
    Things like debt relief and pushing for transparency and 
making--setting up a review panel, there is a history of this 
committee in a bipartisan way; because we have done it in a 
bipartisan way, there hasn't been a lot of controversy, people 
haven't noticed it. But it goes back to the chairmanship of the 
gentleman from Iowa who has been a leader in the international 
financial area, been fully continued by the gentleman from 
Ohio. The chairs of the subcommittee and the ranking members of 
the subcommittee have cooperated; we have the gentleman from 
New York here.
    Obviously, there is a lot left to be done, but I think we 
are now focused on specific ways to improve the functioning of 
the international financial institutions as opposed to the 
great controversies when we had these reports and efforts to 
abolish them. This committee has played a major role in 
defusing the controversy not by suppressing dissent but by 
helping to work for improvements.
    We do have a ways to go and the issue that concerns me 
transcends what these international financial institutions can 
do, although they had, particularly IMF, been part of the 
problem.
    I am a capitalist. I think it is very clear that a free 
market system is the way to produce wealth. I also believe, 
however, that there are those who mistakenly think that once 
you have a functioning capitalist system, there is no reason 
for public sector policies that deal with some quality of life 
issues and some equity issues.
    I think the consequence is that we now have in much of this 
world an attack on free market principles based on inequitable 
results that in my judgment goes much too far, but I don't 
think we counteract it simply by saying, but you are wrong. I 
think we have got to do a better job of forging a new 
synthesis.
    The old so-called Washington consensus would seem to me 
excessively to focus on the free market and assume that, in a 
particularly stupid metaphor, the rising tide would rift all 
boats, because if you don't have a boat and you were standing 
on tiptoe in the water, the rising tide is not good news. That, 
unfortunately, has turned some people against the whole notion 
of capitalism.
    We see it now in Latin America--it is a rare election in 
which the presidential candidate, most antithetical to the free 
market system, doesn't start out way ahead. We see a distrust 
of this elsewhere. We see in my judgment, here in our own 
country, an excessive skepticism towards international 
cooperation in a number of areas.
    Now I think there needs to be some tempering. I haven't 
voted for any of the trade bills because I think they need to 
be done better. Many have gone too far. We, I believe, have 
made progress in abandoning this Washington consensus which was 
really more in my judgment religion than economics. It was a 
fundamentalist belief in the free market to the exclusion of 
elsewhere.
    Instead, however, we have not forged the new consensus, and 
I think it is important for us to be actively working, and I 
believe under Mr. Wolfowitz, the bank began to try to deal with 
this. With Mr. Wolfowitz, with whom I agree far more today than 
I did in his former life, and vice versa, I should point out 
fairly, I think we are on the road to that, but we haven't done 
it well enough.
    I think it is in the interest of those who understand the 
value of capitalism to do a much better and more active job in 
addressing the equity issues. It is clear that much of the 
world has said that if all you are going to give us is the free 
market and let us then live with the distributional 
consequences, you can take your free market and peddle it 
elsewhere.
    And so I think we, as the United States and the 
international financial institutions, have to continue the 
movement. We have moved away from an excessive and rigid 
insistence on the free market only, but we haven't moved far 
enough in the other direction, and if we continue this, if we 
continue to neglect--and I think, frankly--and I will take 30 
more seconds--I think people who are strong supporters of the 
free market system underestimate its power, overestimate its 
fragility. I think it has a greater capacity to provide equity, 
a greater capacity to take care of people who will not do well 
on their own in a free market system than people think. I do 
not think the capitalist system is going to be jeopardized by a 
greater concern for equity. And until and unless we begin to do 
this in a better way, we are going to see what I think is a 
continuation of an unfortunate trend away from what is the best 
system for people.
    Thank you, Mr. Chairman.
    The Chairman. The gentleman's time has expired.
    The gentleman from Ohio, Mr. Ney.
    Mr. Ney. Thank you, Mr. Chairman.
    Welcome, Secretary Snow. I just want to focus in my opening 
statement on the economy. In an area I represent in the State 
of Ohio and across the country, we are trying to recover, but 
too many factory jobs have been lost, doors have been closed, 
and jobs have been sent overseas. And even though we are 
trying, we have a continued unfair trade practice because of 
Communist China. And they continue to be a major impediment to 
our growth and our jobs in our Nation, I believe. For this 
reason, I have been an outspoken opponent against a range of 
unfair trade practices by Communist China.
    The continued rise in the U.S.-China trade imbalance and 
complaints from U.S. manufacturing firms and workers of the 
competitive challenges posed by Chinese imports have led 
several members including myself to call for a more aggressive 
U.S. stance against Chinese trade policies that are absolutely 
unfair to American workers.
    I think we are turning a blind eye to this. Among these is 
China's refusal to adopt a floating currency change rate 
system. While the Treasury Department did not go so far as to 
brand China a manipulator of its currency, I am very concerned 
they have made far too little progress in making the exchange 
rate more flexible.
    Last July, China ended a decade-old peg to the dollar 
saying it would manage its currency against a basket of 
currencies, yet the Chinese currency has appreciated just 1.3 
percent since then. So I think it is clear that the Communist 
regime has failed to fully implement its commitments to make 
its new exchange rate more flexible and refuses to increase the 
role of market forces that determine its current value. This 
has led to a significantly under-valued Chinese currency vis-a-
vis the U.S. dollar.
    And as far as the free trade agreements, in 1994, we were 
$30 billion in the hole, and now we are $202 billion in the 
hole. So I think that says what free trade has done for 
American workers. And because we might have a free trade 
agreement, which I don't believe in permanent status for China, 
with this currency situation we are not going to win on jobs. 
As a result, U.S. production and employment have been hurt in 
several key U.S. manufacturing sectors that are forced to 
compete domestically and internationally against artificially 
low-cost goods from China.
    In Ohio, for example, this devalued currency is allowing 
Chinese metal producers to undercut business from American 
mills. There is no level playing field for American workers 
whatsoever. The Chinese government's actions towards its 
currency value are just another example of its complete 
unwillingness to compete fairly in the global marketplace.
    I will just sum it up by saying that Congressional concerns 
about our economic relationship with China will only intensify 
in the coming years unless the Communist party leadership takes 
concrete steps to moderate its export-led growth strategy, 
including implementing a market-based exchange rate. Without a 
proper response, American manufacturing jobs will continue to 
be in jeopardy, and I think we have to push for tougher action.
    Thank you, Mr. Chairman.
    The Chairman. The gentleman's time has expired.
    The gentlelady from New York, Mrs. Maloney.
    Mrs. Maloney. Thank you, Mr. Chairman, and welcome 
Secretary Snow to this hearing on the state of the 
international financial system. We have a great deal to talk 
about because, frankly, I am worried about the state of the 
international financial system and the contribution of our own 
policies to that troubling situation.
    You are part of a record setting Administration, but they 
are the wrong records. We have seen the Federal budget deficit 
set a record in dollar terms on this President's watch. We have 
seen the national debt rise to a record level, over $8 
trillion, and this Administration has raised the debt ceiling 
four times. The budget before us today includes yet another 
provision to raise the debt ceiling for the fifth time. And in 
my district, there is a clock that notes that each American 
owes $28,000 because of this debt. And most disturbing of all, 
we have seen our indebtedness to the rest of the world rise to 
yet again another record level.
    In 2005, the U.S. current account trade deficit, our trade 
deficit was $805 billion, an amount equal to 6.4 percent of the 
GDP. That is how much Americans, including the Federal 
Government, had to borrow from the rest of the world just last 
year to cover the difference between our current income and our 
current spending. We have become the world's largest 
international debtor. The Federal Government is a big part of 
that problem. Since President Bush took office, foreign holding 
of U.S. Treasury securities have more than doubled, rising from 
$1 trillion in January of 2001 to $2.1 trillion in March 2006, 
the most recent month for which we have data.
    The entire increase in the public debt over that period was 
not much larger than the $1.1 trillion increase in debt held by 
foreigners. Think about that. Almost all of the increase in 
publicly-held debt since President Bush took office is account 
for by purchases of U.S. Treasury securities by foreigners, 
including foreign governments and not by Americans.
    It is one thing when we owe the debt to ourselves; it is 
quite another when we owe it to the rest of the world. Repaying 
that debt with interest will erode the standard of living of 
our children and our grandchildren. Foreign holdings of U.S. 
Treasury securities have increased by 106 percent since January 
of 2000. Japan is the Treasury's largest creditor, with 
holdings of $640 billion, an increase of 105 percent since 
2001. China is in second place and has increased its holdings 
of Treasury securities by 423 percent. Much of that increase 
has resulted from purchases by China's central bank to keep its 
own currency from appreciating.
    Mr. Secretary, you may not be willing to say that China is 
manipulating its currency, but you surely cannot be happy with 
China's role in creating the large payments, and the large 
trade imbalances that threaten the stability of the 
international financial system.
    I hope you would be equally unhappy with our own role in 
creating those imbalances. Running large Federal deficits that 
drain our national savings and financing and an increasing 
portion of our national investment through foreign borrowing 
rather than our own national savings are the wrong direction 
and the wrong way to run fiscal policy. Creating conditions in 
which we are a large international debtor is bad for the 
international financial system, and it is also bad for our own 
future standards of living.
    Mr. Secretary, I look forward to your testimony and to 
exploring with you the steps we can take to create an 
international financial system in which the United States and 
its trading partners in both the developed and developing world 
can prosper. I look forward to your testimony.
    The Chairman. The gentlelady's time has expired.
    We now turn to the distinguished Treasury Secretary.
    Secretary Snow, it is good to have you back again, and we 
appreciate your participation in this important hearing on 
international issues, and the floor is yours.

   STATEMENT OF THE HONORABLE JOHN W. SNOW, SECRETARY, U.S. 
                   DEPARTMENT OF THE TREASURY

    Secretary Snow. Thank you very much, Mr. Chairman.
    I am delighted to be back here for this annual opportunity 
to meet with you on the state of the global economy, and I 
always look forward to this opportunity to respond to your 
questions and continue this important dialogue on what is 
clearly a critically important subject.
    Overall, the state of the global economy is good. We have 
witnessed the best GDP growth that the globe has seen in 
decades; sustained growth, not inflationary growth, and it is 
touching all parts of the globe, including Sub-Saharan Africa, 
which has seen growth rates approaching 5 percent, which is 
important to lift people out of poverty in that part of the 
world. Clearly, India and China are growing at very fast rates, 
7, 8, 9 percent and becoming larger and larger players in the 
global economy.
    It is important that the institutions of the global economy 
better embrace the changing nature of the players and the flows 
that make up the global economy. One of the reforms that we are 
pushing, Mr. Chairman, at the IMF is better representation on 
the board at the IMF and through the quotas of the IMF of the 
changed nature of the participation in the global economy.
    As for the U.S. economy, it continues to do well. It has 
done quite well for the last 3 years and is on a good course 
for sustained growth here. As you know, for the last 3 years, 
we have had growth rates at about just under 4 percent, which 
is well above the long-term sustainable trend line. As a 
result, we have drawn many new resources into the economy. 
Plant utilization has risen. Employment has risen. Aggregate 
hours worked have risen. We now have 5.2 million additional 
workers. We are beginning to see wages rising, which is what 
you would expect at this stage of a cycle.
    Business investment has strengthened significantly. Equity 
markets have picked up. And while there has been some increase 
in headline inflation, core inflation remains well contained. 
And we have done this, Mr. Chairman, in the face of some 
serious, serious developments like $75 oil in Katrina and Rita, 
which clearly take a toll on our economy.
    So, overall, I think the American economy, the global 
economy are on a good path, but we need to continue to focus on 
the things that you and I have talked about so often, the U.S. 
deficit, which I think will come down nicely over the course of 
the next few years with good spending control and with the 
very, very important surge in revenues we are seeing.
    You may have seen, CBO is now indicating that the deficit 
will be much lower this year than had originally been 
forecasted. We will do our mid-session review soon. Given the 
surge in revenues, April was the second highest month we have 
ever seen. We are running well above estimates and well above 
last year.
    It is pretty clear that the deficit is on a good path come 
down. We will meet the President's target, I think exceed it, 
and do so ahead of time.
    The fundamental problem the global economy continues to 
face is slow growth rates in large parts of the world and 
Europe, Japan particularly, that are under performing. Their 
growth rates are well short of their potential. That is having 
real effects, material effects that show up in things like the 
global current account, our current account deficit in the 
global flows.
    So we need to work on our savings rates in the United 
States. We need to deal with our deficit. Those industrialized 
parts of the world that are growing short of their potential 
need to take steps to grow faster, create more investment 
opportunities, absorb more of the world savings, and then the 
third part of this equation is that in those parts of the world 
where the adjustment process is frustrated by lack of currency 
flexibility, we ought to continue to encourage more currency 
flexibility.
    Congressman Frank, I agree with what you said, I think this 
committee has played a very important role in focusing 
attention on the global economy and on the institutions of the 
global economy, the multilateral development banks, the IMF, 
the World Bank, and has encouraged a set of reforms that 
clearly have those institutions performing better now and on a 
path to perform even better in the future.
    With that, Mr. Chairman, I thank you very much for your 
comments.
    [The prepared statement of Secretary Snow can be found on 
page 47 of the appendix.]
    The Chairman. Thank you, Secretary Snow, and we, again, 
appreciate your appearing here. I just recently returned from a 
trip with the Speaker in which we visited India and Vietnam, 
and I think neither the Speaker nor anybody on the delegation 
had been to either of these countries, and it was a fascinating 
opportunity to see some parts of the world we had not seen and 
to visit with leaders both in India and Vietnam, and you 
specifically had mentioned India is one of the largest, 
fastest-growing countries. In fact, the Speaker was clear that 
we represented the oldest democracy in the world, and they 
represent the largest democracy. Soon they are going to be the 
largest country in the world, and the issues that we dealt with 
including of course the peaceful use of nuclear energy was 
critically important and particularly India's desire to have 
closer relationships with the United States.
    Then when we went to Vietnam, I don't think anybody knew 
really what to expect. I certainly didn't, and the fascinating 
part about that trip, and I appreciate your comments on this, 
we had a meeting with the prime minister there, and this is 
still a one-party country; they were getting ready for the 
party conference. And all of the banners were out there and the 
hammer and sickle and the like. It is still a Communist 
country. But I was struck by the fact that the prime minister 
acknowledged to our delegation that after the war, Vietnam 
adopted an Eastern European style economy with all of the 
obvious implications. He said that was a disaster. It was a 
failure.
    And since that time, about 10 years later, they adopted a 
market-based economy that has led to significant growth rates, 
stability, and their major plea to us was to give them 
permanent normal trade relations as we did with China, for 
example, because they desperately want to join the WTO and 
become part of the world community.
    I took that as an incredible step forward, given the 
history that we have with Vietnam, that a country which is 
still controlled by one party, the Communist party, has adopted 
a market-based economy and wants to be part of the World Trade 
Organization, and the acknowledgment that there was a failure 
of the past and an embracing really of American principles of 
their economy. I just wonder if you care to comment on that.
    Secretary Snow. Yes, Mr. Chairman. Thank you very much. I, 
too, have traveled to that part of the world. I recently came 
back from India, where I had a series of meetings with leaders, 
as you did, including the prime minister. In India, there is 
real progress being made, but I think more progress could be 
made there, and in Vietnam, with further openings.
    One of the issues that India suffers from is lower rates of 
development of their financial institutions than otherwise 
would be available if they raised caps on insurance and on 
banking in terms of foreign direct investment and ownership. 
The same is true of retailing. I am sure that came up when you 
were there, the restrictions on putting in place investment in 
retailing to create a more modern retailing structure.
    I think the government is committed to moving in those 
directions. I think they know that is the right path, but there 
are internal political issues that affect the pace of the path 
they are on. But the path they are on is a good one, and the 
current prime minister was the finance minister in 1990 or 1991 
when this reform movement began when they said we are going to 
open up, we are going to go to more open trade, we are going to 
go to more open markets, we are going to move in the direction 
of a more market-based economy.
    The economy is showing the benefits of that, I think. I 
think the case is pretty clear that when countries adopt good 
policies, market-based policies, they get better results. One 
of the problems I think we see in the global economy is that 
market economies don't work unless there is clearly an 
environment of anti-corruption. That is where the World Bank 
and IMF are playing an important role now. Unless there is 
respect for law and property rights, market economies can't 
work. These are the institutional frameworks within which 
market economies function, and they only function well if that 
investment is in place.
    To that extent, I would agree with other Members of 
Congress who have spoken to that, and other members of the 
committee who have spoken to that. So we are encouraging a 
market approach. We are also encouraging the environment in 
which markets can work, including, as you said, micro finance, 
which has a much, much larger role to play in creating 
opportunities for small- and medium-sized enterprises.
    The Chairman. Thank you. My time has expired.
    The gentleman from Massachusetts.
    Mr. Frank. Mr. Secretary, I agree with much of your 
statement, but I confess to some trouble with your citation of 
the rise in hourly wages. What is the CPI increase over the 
past 12 months; do you know?
    Secretary Snow. It came out recently, as you know.
    Mr. Frank. 12 months.
    Secretary Snow. 5, 5.1.
    Mr. Frank. You have got 3.8, and I believe that is nominal. 
That is not adjusted for inflation. My understanding is, even 
in the past 12 months, which are your best 12 months, hourly 
wages have barely kept up with inflation, and I think frankly 
you are cherry picking to take 12 months.
    But you would acknowledge that 3.8 percent increase in 
wages is nominal, not adjusted for inflation, correct?
    Secretary Snow. I have to go back and check these numbers.
    Mr. Frank. That is not a tricky question. Is 3.8 nominal or 
real? Adjusted for inflation or not?
    Secretary Snow. For the 12 months, it is nominal. For the 
first quarter, that is the real number.
    Mr. Frank. For 12 months is what you have in your 
statement. So, frankly, I think it is misleading to talk about 
3.8 over 12 months when that doesn't take into account 
inflation, which was very close to that. Also, I ask you to 
submit what has it been over 24 months, 36, 48, because real 
wages have dropped; correct, compared to inflation and the 
nominal increase?
    Secretary Snow. Wages have not, as you would expect, caught 
up with where they will be.
    Mr. Frank. As you expected; my expectations are a little 
lower.
    Secretary Snow. It is just that we have gone through a 
recession.
    Mr. Frank. You are comparing it to previous ones. I think 
it is a mistake to talk about only the past 12 months and in 
nominal terms.
    Let me ask you then, secondly, we have an enormous balance 
of payment deficits, and you talk about your hopes to get the 
budget deficit down. What is the long-term 10-year prospect. 
Ten years from now, are we going to continue to have this kind 
of trade deficit or is our debt that we owe the rest of the 
world going to grow, is there an exit strategy or a downward 
tide path. How do you see this going forward?
    Secretary Snow. I think we are putting in place, the 
finance ministers, central bank governors, leaders of the 
institutions of the global economy are putting in place a 
pretty good adjustment framework which, over time--over time 
will see the imbalances--
    Mr. Frank. What is your projection for the United States 5 
years from now, trade deficit? Are we going to owe the rest of 
the world more?
    Secretary Snow. If we continue to do the things that I 
talked about and the rest of the world does the things that I 
talked about, higher growth rates, flexible exchange rates, I 
can't give you a number, but we are going to see that trend 
line reversing and begin to come down.
    Mr. Frank. Begin to come down; 5 years from now, will it be 
down noticeably?
    Secretary Snow. I don't have a good prediction on that. I 
do think we will see an orderly and effective adjustment 
process that will put us on a course to reduce the imbalances. 
I am confident of that. But it does take these other things to 
happen.
    Mr. Frank. Yes. The poet laureate Rudyard Kipling; ``If'' 
being the poem.
    Mr. Secretary, I am going to ask a question I would rather 
not have to ask, to be honest, and it is not a pleasant thing 
to ask and I respect you and I appreciate how you have dealt 
with this. I don't mean to impute any fault to you, but we are 
talking about serious national and international policy, and I 
think we have to confront this.
    I am troubled by the constant report that your status is 
uncertain, that the Administration has failed to give you the 
kind of confidence it has given other people. There has clearly 
been a contrast between the President's conversations about 
your tenure and that of Secretary Rumsfeld.
    You are a lead person in negotiating a lot of these things. 
You just in your answer correctly pointed out progress in this 
area depends on negotiations with other central bankers and 
other finance ministers with the World Bank, with the IMF. I 
mean, credibility is, I perceive, very important here.
    I assume that you don't think your ability has been 
undercut, but why do we have this? It just seems to me 
unfortunate, and of the major Cabinet officers, you are the 
only one about whom we read this. Have you addressed this with 
the Administration? I apologize for addressing the elephant in 
the room. I wish this elephant wasn't in the room. I wish other 
elephants weren't in the room. Maybe we will change that. But 
that is a separate issue.
    I do think we have to address this. You are a very 
important man holding a very important job in this country. You 
have a major agenda that requires a lot of negotiations and 
acceptance of your word, and it is troubling to have your 
position undercut as it has certainly been in the media, and it 
does not seem to me the Administration at the highest levels 
has done what they should to give you the kind of strength that 
you ought to have to carry us forward.
    Secretary Snow. Well, thank you, Mr. Frank, and I never 
comment on rumors, of course. There is no serious purpose to be 
served by commenting on rumors and speculation. A great leader 
of the Labour Party, Aneurin Bevan, once observed in response 
to rumors and speculation that he was an avid--had an avid 
interest in fiction, and as a result, he read the daily 
newspapers.
    I think we have seen a lot of fiction here, and it doesn't 
do any good for me to comment on rumors and speculation. But 
let me say, I do appreciate that word of support from you, and 
the rumors and speculation have not undermined my ability to be 
effective.
    We just had a very good IMF World Bank meeting, G-7 
meeting, where the objectives of the United States, I think, 
were well advanced. The movement of the IMF into surveillance 
is something that was really our agenda item. The HIPC debt 
deal was one, as you know, we pushed awful hard. I think the 
anti-corruption agenda at the World Bank is grown right out of 
the U.S. book.
    I appreciate your comments and the sentiments behind them 
but I do think that we continue to be able to work effectively 
in the institutions of the global economy.
    Mr. Frank. I just hope that your position isn't further 
undercut as it has been by the fact that you are clearly the 
most conservative Secretary of the Treasury ever, quoting 
Aneurin Bevan, the most left wing of British Labour leaders.
    The Chairman. The gentleman's time has expired.
    The gentleman from Iowa, Mr. Leach.
    Mr. Leach. Thank you, and welcome, Mr. Secretary.
    It seems that in all countries, literally all people seem 
to have a growing angst about globalization, and everyone seems 
to think that the system is stacked against them, and yet 
literally the impact of your testimony this morning is that 
reality rather than fiction as you just referenced is world GNP 
is growing, and U.S. GNP is leading the industrial world, and 
that is very impressive.
    And yet when you look at movements in countries, it appears 
that irrationality is growing. Lots of Latin countries want to 
move away from free markets. There is Latin leadership now 
against joining American free trade arrangements.
    In this country, it appears to many that this 
Administration is a little too unilateral in political policy, 
but it appears that the alternative political party is a little 
more unilateral in economic policy, and by that I mean leans a 
little bit more towards protectionism than the Republicans.
    Since your field is economics, I would like you to comment 
on what the alternatives policy-wise are to your policies in 
this sense; basically speaking, the anchor of your Department 
of the Treasury is free markets and restrained spending and 
restrained taxes. Whether we disagree or agree with all the 
elements of it, that is basically the marker.
    If one were to run it on an alternative policy, it would 
seem to be one of greater protectionism and maybe less 
restraint in spending and taxes. If that were the case, what 
are your projections on whether that would be good for the 
economy or bad for the economy, and what would that do to our 
position in the world?
    Secretary Snow. Congressman Leach, the policies that we are 
following, I genuinely believe, are the right policies to 
advance not only the United States, but global prosperity, and 
lift people out of poverty around the globe. I am concerned 
that we are not making more progress on Doha because the Doha 
round offered more promise for people in the developing world 
than any other single thing on the economic policy agenda of 
the world today. Something like two-thirds, three-quarters of 
the benefits of that will go to developing countries. I think 
the record is just unmistakable here that embracing trade is 
beneficial to the poorest countries of the world.
    In terms of taxes, I think the low tax rates that the 
President has advanced make sense. They remove distortions from 
the code. They encourage work and effort and risk-taking, and 
they encourage investment. You always get less of everything 
you tax, so if you tax those things less, you get more of them.
    But they can only be sustained, and I have tried to be 
clear on this, you can only sustain a low-tax environment if 
you are sustaining a discipline on spending because ultimately 
the consensus breaks down on low tax rates if you have large 
deficits. So we as advocates of this set of policies have to be 
equally forceful on spending restraint as we are on low taxes 
or else we won't be able to sustain low taxes.
    Now I think the other side of that, higher taxes is not as 
well calculated to give us high long-term growth rates, which 
is what we want. You get high long-term growth rates when you 
encourage savings and investment. Today's savings and 
investment creates tomorrow's higher GDP, tomorrow's higher 
real standard of living. Lower tax rates encourage that, but we 
won't get the benefits of those encouraging more savings and 
investing today for higher growth in the future if we are 
ransoming the future by having to borrow to fund large 
deficits. That will just drive up interest rates and defeat the 
whole beneficial cycle that I just described.
    So I think if you want low tax rates as I do, we have to 
also press hard for spending constraints.
    The Chairman. The gentleman's time has expired.
    The gentlelady from California, Ms. Waters.
    Ms. Waters. Thank you very much, Mr. Chairman, for this 
meeting, and I would like to thank Secretary Snow for being 
here today, and for his cooperation. Whenever I have had the 
opportunity or the need to seek information from him, he has 
always been very responsive, and I am very thankful for that.
    I have a lot of questions that I would like to ask you, but 
I would like to focus on Haiti, Liberia, and Sudan. As you 
know, Haiti was not included in the multilateral debt relief 
initiative. I understand that the World Bank and IMF have 
recently agreed to include Haiti in the heavily indebted poor 
countries initiative. However, they may not receive complete 
debt cancellation from IMF and the World Bank under the MDRI 
until 2009.
    Now, Mr. Preval, the newly-elected president, has been 
invited to the White House. The Secretary of State and the 
President have all signaled their desire to be of assistance to 
Haiti. They were responsible for removing the past 
democratically elected president from Haiti.
    Now what are you doing, and what should we be doing to make 
sure that Haiti can be successful? They can't wait until 2009. 
What is going on?
    In addition to that, Liberia is in a very similar 
situation. We had a great ceremony here for President Johnson. 
She was invited to the White House. We have talked about how 
wonderful it is that she is now the President of Liberia. We 
had a codel that is there, and they are in very difficult 
straits there, and there is no way that she can be successful 
without having access to the HIPC debt relief.
    There is a sunset clause, as I understand it, that is 
currently scheduled to become effective as of the end of 2006, 
and that five of the countries--well, Liberia is included, and 
those countries who may not be able to apply for the debt 
relief.
    And then, of course, I see that Sudan is one of those 
countries, but I am not pushing for any help for Sudan. I want 
to know if you are involved in support for any sanctions for 
Sudan for the genocide.
    Those are the three areas; Haiti, Liberia, and Sudan. What 
do you know, and what are you doing?
    Secretary Snow. Thank you very much, Congresswoman Waters. 
You and I have had good discussions on these subjects in the 
past, and we worked cooperatively to advance some important 
initiatives.
    On Haiti, as you know, the United States is the largest 
bilateral donor to the country, and we--I think it was $194 
million last year, and we are requesting a like sum for this 
year in the 2007 budget. Our aid there, we know it is critical; 
it is used for humanitarian needs and strengthening the 
government and improving security and fostering broadbased 
economic recovery.
    On the question of the international institutions, the 
World Bank, IDB, and IMF all have initiatives underway where we 
are working with them. The World Bank has a 2-year strategy to 
make available something on the order of $140 million, 
including the same sort of things that we have talked about, 
transportation, electricity generation, community development, 
and education.
    At the IDB, they are actually very heavily engaged in 
Haiti, with, I think, it is 9 or 10 projects totaling $350 to 
$400 million, covering again the same subjects; economic 
recovery, basic services, agriculture, roads, and those things.
    Finally, the IMF has extended this emergency post-conflict 
assistance program to Haiti in consultation with us. We did 
that last year. That was $25, $30 million, some number like 
that.
    Ms. Waters. Mr. Secretary, I don't want to interrupt you 
but let me stop you because I think that you are struggling a 
bit there, and I think the reason is because there is not a lot 
happening in Haiti at this point. We know that there were some 
attempts to do some humanitarian assistance. No money has gone 
to this new government. No money has been invested in the 
infrastructure. They practically have no water system in Haiti. 
And all of the efforts that you are alluding to are just not 
happening.
    What I would really like, Mr. Treasury Secretary, I would 
like you to go to Haiti. I would like you to get with the heads 
of each of these agencies in Haiti in a summit that is called 
by you along with the Members of Congress who will be happy to 
go down there with you so that we can get a handle on what is 
real and what is not real.
    The Chairman. The gentlelady's time has expired.
    Ms. Waters. I ask unanimous consent for 1 more minute.
    The Chairman. The gentlelady is recognized.
    Ms. Waters. Thank you.
    This is very important. Otherwise you won't have the 
information that you really need to understand. We can either 
advance Haiti, or it can continue to deteriorate, and this new 
president won't have a chance.
    What about Liberia, quickly?
    Secretary Snow. Similarly, we are working with the 
government. As you said, leadership of the country was invited 
to the White House. We had meetings with them, pledged support, 
and are continuing to work directly and through the 
international institutions.
    Ms. Waters. They are desperate, Mr. Secretary. Nothing is 
happening quickly enough. I would suggest that you use your 
leverage and your power with IMF and the World Bank to try to 
speed up some assistance to Liberia or they will be not 
successful.
    Thank you, and I yield back the balance of the time.
    The Chairman. I yield back to the gentleman from Alabama, 
Mr. Bachus.
    Mr. Bachus. Thank you.
    Mr. Secretary, I might account for some of the rumors about 
the job you are doing at the Treasury. I think you have done--
been such a success that maybe the rumors are people are trying 
to hire you away from the government because you--the economy 
is very strong, it is stable, consumer confidence is at record 
highs, and I can't imagine any basis for those rumors other 
than maybe there is some competition for your services.
    Secretary Snow. Thank you very much.
    Mr. Bachus. Thank you.
    Let me pursue what Ms. Waters was talking about. She 
mentioned Sudan. Do you have concerns that the Chinese are 
coming into Sudan as we are--they are eligible for debt relief. 
We are encouraging countries to get out from under debt relief, 
and yet, at the same time, Mozambique and Sudan; the Chinese 
are loaning them money and seem to be to be worsening the 
situation.
    Secretary Snow. Well, China is--there is certainly evidence 
that China is extending its influence around the globe, as you 
are suggesting, and we continue to monitor and see signs of 
that, absolutely.
    Mr. Bachus. Okay. Thank you.
    Eighteen countries have been approved for debt cancellation 
by the IMF, the World Bank, and the African Development Bank. 
But my question is, is the Inter-American Development Bank and 
the Asian Development Bank, they have not gone forward as these 
other institutions have. Can you give me--do you know if they 
have future plans to fully engage?
    Secretary Snow. Congressman Bachus, we are meeting with 
those institutions and making it clear that we think that a 
HIPC-like program there would be desirable, and we will 
continue to press that case. In fact, I have had that very 
discussion with the presidents of--Mr. Moreno, Ambassador 
Moreno, former ambassador, president of the institution of the 
Inter-American Development Bank on that subject. He knows that 
the United States wants to see progress on that, and through 
our ED's at those institutions we are continuing to try and 
build broad-based support for it. It has to get the support of 
the board of those banks, but we are doing our best to build 
support for them.
    Mr. Bachus. I just think the members of this committee 
ought to realize that there have been some laggards in this 
effort. I use that term--
    What about the prospects for opening up debt cancellation 
beyond the 42 countries? I think it is 42 countries now. I know 
some in Britain think that maybe 67 countries--
    Secretary Snow. Well, my own view is we can continue to 
look at that, but the focus ought to be on getting the first 
wave accomplished. We are still a long way off from getting the 
full contingent of countries through that process, 18 or 19.
    Mr. Bachus. Yes, and I agree. Earlier on, there was a 
thought to that. Now the debt relief, we are getting such 
wonderful reports back from these countries about the education 
levels, and, you know, we are seeing health standards, we are 
seeing vaccinations. We now know that it does work if it is 
properly instituted, and I think that ought to give us some 
urgency to extend it to those other countries.
    Secretary Snow. I think it does work. Congressman, you are 
absolutely right. And of all the things I have worked on in the 
last 3-and-a-half years, there is none I think I am prouder 
have having had a handle on, as well as many others, in getting 
the G-7 to move forward on that and then getting it approved 
through the IMF and the World Bank, which was something of a 
struggle, as you know.
    Mr. Bachus. And let me say this, the Administration--you 
have done an excellent job. You have helped stabilize and 
strengthen several of these countries so they are not a problem 
for the United States from a security, national defense case, 
and I guess--because it is good news. And, you know, you would 
think that hundreds of thousands of children attending school 
for the first time, little girls attending school for the first 
time in their lives in some of these countries, that it would 
be headline news, but I guess that doesn't sell newspapers. But 
I think the Administration and Treasury would be commended 
because you have pushed these other institutions and I think we 
have made tremendous progress.
    Secretary Snow. I think it is fair to say that, unless the 
United States has been in the forefront of pushing these HIPC 
initiatives, they would not have occurred.
    Mr. Bachus. All right. I want to just ask one final 
question. I have some concern about this. Some of the economic 
policy reforms includes--one of the conditions is mandating 
privatization of electric and water systems, and I would like 
to revisit that. Because, for instance, in my area we have the 
TVA. Now a lot of us have said we would like to look at 
privatizing a lot of these operations. They would be more 
effective. It is more of an economic argument. I am not sure 
that we ought to tell these countries that they ought to 
privatize their water systems, and their electrical systems. I 
just ask you to take another look at that.
    And my other and final concern, and I won't ask any 
question, just any suggestions you could give me in writing for 
ways to speed or add progress to moving these countries from 
the decision point to completion point would be helpful. You 
know, in certain cases, it looks like it is going to be 6 to 8 
years.
    Secretary Snow. I will do that and look forward to a chance 
to talk to you about that, because it is a concern of ours as 
well.
    Mr. Bachus. Thank you.
    The Chairman. The gentleman's time has expired.
    The gentlelady from New York, Mrs. Maloney.
    Mrs. Maloney. Thank you.
    Mr. Secretary, would you comment and elaborate further on 
China's growing influence over our economy? According to 
Treasury statistics, China's ownership of U.S. debt has 
increased 5-fold since January of 2001, from about $60 billion 
to now over $300 billion; and their overall reserves have grown 
even more. So if China's not buying dollars to keep their 
exchange rate from appreciating, what are they doing?
    Secretary Snow. China and the United States play a critical 
role in each other's economy and in the global economy. The 
Chinese, of course, are running a large current account surplus 
with the United States and a sizable surplus with the world as 
a whole. As a result, they are--in effect, their savings exceed 
their investments; and the savings that they have, the excess 
savings they have find a way into the rest of the world, some 
of it into the United States--not all, but some of it into the 
U.S. markets. And that reflects the numbers you just cited, 
which are the right numbers.
    They have been increasing their holdings of long-term U.S. 
securities. But, despite this increase in holdings, there is 
still a relatively small part of the U.S. Treasury securities, 
about, oh, 7, 7-and-a-half percent, something like that, and of 
course even smaller part of the total U.S. capital market.
    One of the great strengths of the United States is that we 
have, as you have heard me say many times, the deepest, most 
liquid, and most resilient capital markets in the world; and 
foreign ownership of U.S. securities should be viewed as a vote 
of confidence in U.S. markets.
    As I think Chairman Bernanke said when a question like this 
came to him sometime recently, foreigners aren't buying our 
securities because they want to be nice to us. They are 
investing in the United States because they like the returns, 
the best risk-adjusted returns which they can get for the 
quantity of investments they want to make.
    So the important thing here is, we have the best financial 
markets and they are investing in our markets. Foreign 
investment in our markets is really a vote of confidence in us.
    But this policy has kept their exchange rate from 
appreciating, and I would like to know concretely, what are we 
as a government doing, what steps are we taking to encourage 
China to look to its own domestic demand as a source of growth, 
rather than relying on exchange rate management to promote its 
exports?
    Many of us are very concerned with the indebtedness of our 
country to China, and to Japan. It is the largest ever in the 
history of our country, and what would happen if they decided 
not to buy our Treasury notes? Would the value of the dollar 
fall? And what are we concretely doing to get them to stop 
using this policy to basically keep their own exchange rate 
from appreciating and helping with their exports?
    Secretary Snow. Well, Congresswoman Maloney, you are 
absolutely right to focus on that central issue of their 
domestic savings rates, their very high domestic savings rates 
and the failure to develop domestic consumption.
    Now when President Hu was with us several weeks back he 
made a commitment to strengthen domestic consumption, in other 
words, to reduce focus on exports and to drive more of the 
economic activity of China into domestic consumption. That is 
something that we have suggested--we, the U.S. Treasury, have 
been suggesting for 3 years now. They are now committing to 
reducing their surplus with us and the world, to developing 
their domestic consumption market, reducing focus on exports, 
and it is in their own self-interest to do it. In the end, the 
best thing we can do is to appeal to their own enlightened 
self-interest.
    Mrs. Maloney. Is there any enforcement for this commitment?
    And I would like to request that Mr. Hinojosa's opening 
statement be placed in the record and a letter from Treasury 
stating that the North American Development Bank will not be 
closed. If unanimous consent from Mr. Hinojosa--
    The Chairman. Without objection. The gentlelady's time has 
expired.
    The gentleman from Texas.
    Mr. Paul. Thank you.
    Good morning, Mr. Secretary.
    I have three questions for you. I would like to ask all 
three, though, before you answer the first.
    The first one deals with inflation. If we look at the April 
statistics, we find the PPI was up at an annualized rate of 
over 10 percent and CPI was up at a rate of over 7 percent. I 
think that this relates to the comments made by the gentleman 
from Massachusetts that, when prices go up, it is as if taxes 
were placed on these goods, and it is a detriment to the wage 
earner, since, of course, real wages do go down. But most 
economists recognize that prices go up because of a monetary 
phenomenon, when we increase the supply of money, credit prices 
subsequently go up; and many of us believe that M3 has been the 
best measurement of this inflation and what is happening. Yet 
that number is no longer given to us.
    The first question is, do you have any strong objection to 
a Congressional request for that number to be once again 
reported?
    The second question I have deals with China. There has been 
a lot of pressure on you and the Administration to demand that 
the Chinese revalue their currency to strengthen the yuan 
against the dollar. And they give the so-called benefits from 
this, and sometimes they are true and sometimes they are not 
and sometimes they are fleeting. But I would like to know from 
you, what are the disadvantages? Is it a zero-sum game? Do some 
people receive some disadvantages from a weaker dollar and a 
stronger yuan? I think we too often look at the so-called 
benefits, which aren't always forthcoming.
    The third question deals with currency flexibility, which 
you have talked about already, but I am interested in currency 
flexibility here within the United States, and this deals 
with--and I would like to talk about that in relationship to 
gasoline prices. Most people think Iraq and immigration are the 
two top issues, and they are very high in the poll numbers that 
are being taken, but gasoline prices are very high on the 
agenda as well.
    But because of my concern about the appreciation of the 
dollar, I have followed the constitutional mandate that only 
gold and silver be legal tender, and yet legal tender laws 
force us to accept paper money. But because I have been old 
fashioned enough to deal with a gold dollar, the price I pay 
for gasoline is about 9 cents. Five years ago, I was paying 27 
cents, so the price of my gasoline is going down. The more our 
government and our Congress depreciates the money, the cheaper 
my gasoline gets.
    Yet, although I can do that, it is difficult, and there are 
a few things in the way of this. That is the legal tender laws 
which dictate and mandate that depreciating paper money is the 
only currency of the realm, and yet the Constitution is very 
clear that only gold and silver should be legal tender.
    My question is, is there room to start talking about 
fluctuating rates here domestically? We know that trillions of 
dollars are traded internationally, and it serves as a market 
mechanism to adjust these currencies that are created by the 
various central banks at different rates. The market performs 
an amazing service, and I see no reason why that couldn't be 
done domestically, but it would require really two things. One 
would be to repeal the legal tender laws and the other would be 
to adjust our tax codes so that gold would be recognized as 
money and not as a strictly a commodity that has to be taxed as 
a commodity.
    Since this is such a benefit to people who would prefer to 
be on a sound currency where prices go down rather than up, I 
would like to know if there is a time and place for discussion 
of this sort.
    Secretary Snow. Congressman Paul, I think there certainly 
is on all these subjects room for a good discussion. You take 
me back to discussions I have had in the past with my good 
friend, the former Member, Jack Kemp, who has advanced some of 
these ideas in the national debate.
    It is interesting, when you think about the United States 
and the issue of flexible exchange rates, we have a fixed 
exchange rate system really, don't we? A dollar is worth what a 
dollar is worth in Utah, Indiana, Ohio, New Mexico, or 
Michigan. Everywhere we have the dollar, it is worth a dollar.
    The reason that system of fixed exchange rates works is 
because it really is a fixed exchange rate across all 51 
jurisdictions; we have the free flow of capital and the free 
flow of labor. So it is the market processes that allow the 
adjustments to occur, and nobody ever says, is Massachusetts in 
surplus or deficit with Wyoming? Nobody knows the answer to 
that, and it is not relevant to anything.
    On the subject of--so, yes, I think you are raising 
subjects of far-reaching intellectual interest, and sometime I 
would be delighted to sit down and try and understand where you 
are coming from and how I might be able to respond better.
    The Chairman. The gentleman's time has expired.
    The gentleman from California, Mr. Sherman.
    Mr. Sherman. First, Mr. Chairman, the meteorological 
comment. The rumormongers told us that, come spring, Snow would 
be gone, but here we are in May, and Snow is still here. And I 
want to say that the persistence of Snow does not disprove the 
theory of global warming.
    One thing we, as politicians, understand is regimes and 
individual politicians survive when they bring home the bacon. 
That applies in Iran. Even though bacon is not halal, they 
understand the concept, too.
    The World Bank, both under the prior Administration and 
this Administration in your tender, Mr. Snow--Secretary Snow, 
has approved loans to Iran on a concessionary basis. This is 
important to the Iranian regime not only because it provides 
capital at low rates but, perhaps more importantly, what stamp 
of approval could one have from the world economic community 
that would be more solid than concessionary loans from the 
World Bank?
    Now I have talked to your predecessors on this before, and 
they have all responded, we have done enough, we voted ``no''. 
Well, you voted ``no'' because statute requires that the 
Treasury Department cast a U.S. vote ``no'' on sending World 
Bank loans to terrorist--terror states. But what the Treasury 
Department has not done up until now is do anything other than 
vote ``no''. You vote ``no'', you lose. The loans are approved, 
and you go have tea and crumpets with the people who outvoted 
us. The United States has never publicly indicated that our 
continued involvement in the World Bank could be diminished if 
the World Bank is sending, in effect, U.S. tax dollars to 
Tehran.
    Couple of questions, how would you come to my district and 
defend Brad Sherman, who has been in support of foreign aid, 
when some of that foreign aid is going to Iran? And what steps 
is the Treasury Department going to take to make sure that 
these loans, which have been approved, are not actually 
dispersed?
    I would point out that, thanks to this loanness of 
bureaucracy, three-fourths of the money has not actually 
reached Tehran. Any chance that we have a friend perhaps 
running the World Bank who could make sure that it takes 
another decade or so before these funds are dispersed?
    Secretary Snow. Well, thank you very much, Congressman 
Sherman.
    The U.S. position on this, as you know, is clear. We oppose 
that sort of funding. We work with the other ED's to try to 
persuade them to accept our view. We haven't yet been as 
successful as I would like to be.
    Mr. Sherman. Mr. Secretary, because I have such limited 
time, perhaps I can sharpen the question and say, have we told 
anyone our enthusiastic monetary involvement in the World Bank 
would be impaired in any way if they just say, shut up, we are 
sending the money to World Bank whether you like it or not, and 
we are sending the money to Iran whether you like it or not?
    Secretary Snow. We have made it clear that we are totally 
opposed to the policy.
    Mr. Sherman. And the loans have gone through anyway, 
whether we have done anything about it.
    Secretary Snow. We have expressed our serious opposition.
    Mr. Sherman. Effectually and continually, loan after loan 
after loan is approved. We keep doing the same thing even 
though it doesn't work. Imagine coming to a town hall in any of 
our districts if the people there knew that we voted for 
foreign aid and some of that foreign aid was going to Iran, 
sir. Thank God--you know, you can be lucky that you have the 
job you have and not one that involves explaining why American 
foreign aid is going to Iran.
    But I want to shift to another topic. We have had a failed 
trade policy that has failed working Americans. That is not 
just this Administration; it is the prior Administration. We 
have the largest trade deficit in history by far. Do you think 
it is prudent for us to develop a plan to deal with what is a 
real possibility, and that is the sudden decline in the value 
of the U.S. dollar versus other currencies? And when I say 
sudden, I mean 20 percent in 1 week, 50 percent in a month. Do 
you think prudence requires that we have such a plan, perhaps 
involving circuit breakers, or do you think we should just 
dismiss that as a possibility and not have a plan to deal with 
it?
    Secretary Snow. Congressman, as I am sure you are aware, 
prudence requires we take steps to see that the global economy 
functions well, and part of the way the global economy 
functions well is to have an adjustment process so that sharp 
breaks of the sort you suggest don't occur. And I--
    Mr. Sherman. So, Mr. Secretary, are you saying it is 
impossible--it is so unlikely for this to occur that it is not 
worth developing a plan because you are so confident in the 
smooth realignment of currencies that there is no reason to 
have a plan for a sudden and catastrophic decline in the value 
of the dollar?
    Secretary Snow. No, I think that prospect is remote. I 
think the most important priority we have is--
    Mr. Sherman. Mr. Snow, do we have such a plan?
    Secretary Snow. We continue to monitor contingencies.
    The Chairman. The gentleman's time has expired.
    The gentleman from Texas, Mr. Hensarling.
    Mr. Hensarling. Well, Mr. Secretary, you have heard a 
number of members of this panel show a great amount of concern 
about the Federal deficit and obviously try to tag the 
Administration with that deficit number. If I read the Treasury 
reports correctly though, since we passed the President's 
economic growth package in 2003, frankly, we are awash in new 
tax revenues. I think--and correct me if I am wrong--we have 
now had tax revenues increase, I believe, for 3 years, and last 
year we had tax revenues increase by approximately 15 percent. 
Is that correct, Mr. Secretary?
    Secretary Snow. That is absolutely right, Congressman.
    Mr. Hensarling. And do we appear to be on track to do the 
same thing for this fiscal year? Or is it in the 10 to 15 
percent growth for range for tax revenues?
    Secretary Snow. I think we came in at about 11-and-a-half 
percent, just under 12 percent, for April.
    Mr. Hensarling. So if we are awash in tax revenues and we 
continue to have a deficit, that might suggest that part of our 
challenge is on the spending side. I have noticed that there 
tends to be a correlation between those who tend to cry deficit 
the loudest tend to vote for great amounts of spending.
    As concerned as I am about the Federal deficit, I am even 
more concerned about our unfunded liabilities for our social 
entitlement programs; Medicare, Medicaid, and Social Security. 
I guess it was about a week ago, less than a week ago, that we 
received the latest report from the Medicare and Social 
Security trustees saying, if I recall correctly, that in their 
estimation Social Security will go broke a year earlier than 
originally thought, and I believe Medicare will go broke 2 
years earlier than originally thought, and the unfunded 
obligations increased by some astronomical figure that no one 
in America can comprehend because it begins with a ``T'', as in 
trillions of dollars. And yet there are those in the body who 
fight every single effort to do something to reform those 
programs. What are the long-term economic implication if we do 
not address the growth rates in these entitlement programs?
    Secretary Snow. Congressman Hensarling, the long-term 
consequences, as we have tried to point out in the trustees' 
reports, are devastating for the country. They are really just 
not sustainable. Those programs, unless reformed, put on a 
sound financial basis, will absorb virtually all of the 
revenues of the United States, meaning there is nothing left 
for any other programs.
    Now, that clearly can't be allowed to occur. It would take 
roughly a doubling of taxes to cover the--more than a doubling, 
because you never--if you double, you don't get double. You 
have to do more than double to get double because of the way 
people react to higher tax rates. No, we would put the American 
economy in serious jeopardy if we allow these unfunded 
obligations to continue to be on automatic.
    Mr. Hensarling. So is it a fair assessment to say that 
those who refuse to reform these programs have de facto 
advocated doubling taxes on the American people?
    Secretary Snow. Or huge borrowing in the future to fund it.
    Mr. Hensarling. Let me change subjects to the Chinese 
currency issue and perhaps give you a perspective that you 
haven't heard here today. In your testimony, you have spoken 
about a need for China to show greater exchange rate 
flexibility, and certainly, if I was a citizen of China, I 
would want that to happen. But every time the prices change, 
there is going to be somebody who wins and somebody who loses.
    I believe in the marketplace, and I wish the Chinese would 
let their currency flow. But, at the same time, when we have 
bills, I believe, like S. 295, that are threatening retaliatory 
sanctions and tariffs on China if they don't allow their 
currency to flow, ultimately, all this is about making their 
exports more expensive and making their imports less expensive.
    I got into the fatherhood business 4 years ago, so I know a 
lot about toys, and my 4-year-old daughter--I am fairly certain 
I have this right--her swing, her favorite teddy bear, her Dora 
the Dancing Cowgirl doll, and her Wiggles lunchbox were all 
made in China. And I assume they are made in China because 
American consumers can buy them at a cheaper rate.
    Now my family has the benefit of living off of a 
Congressional salary that many Americans can only dream of. So 
if we are going to engage in a policy of de facto trying to get 
China to raise the cost of their exports, aren't you 
essentially trying to take toys away from America's children to 
benefit manufacturers and labor union workers?
    Secretary Snow. I wouldn't put it quite that way, 
Congressman.
    Mr. Hensarling. You wouldn't?
    Secretary Snow. No. What we are trying to do is to get the 
global economy to function the way it needs to function. And if 
it is to function right, one of the fundamental rules of the 
game is trade, free trade, free capital flows and not pursuing 
begger thy neighbor policies with your currency.
    The Chairman. The gentleman's time has expired.
    The gentlelady from California, Ms. Lee.
    Ms. Lee. Good to see you again.
    Secretary Snow. Thank you.
    Ms. Lee. Let me ask you a couple of questions.
    Let me first mention a meeting that you probably are aware 
of that Representatives Blake, McGovern, Waters, and I held. 
This was in March, and it was with the Office of Foreign Assets 
Control and the State Department. We held this meeting to 
discuss religious travel to Cuba, and we wanted to develop 
constructive solutions to allow religious exchanges to 
continue.
    Not only have we not received an answer to that meeting, 
but it has come to our attention that decisions to further 
restrict contact between the United States churches and 
religious organizations and Cuban churches and religious 
organizations are moving forward. And, once again, I understand 
that this is in the absence of any consultation with American 
religious organizations and churches and faith groups that 
might be affected by these limitations, restrictions and 
prohibitions which have placed their ability to meet with their 
counterpart--their religious counterparts in Cuba for spiritual 
and religious fellowship and support.
    We talked about this at length in the meeting, and, of 
course, we understand that if there are those bad actors who 
have violated the law or regulations then you address them 
individually as such. But what in the world is going on and why 
are these restrictions moving forward on religious travel?
    Secretary Snow. Congresswoman Lee, I am aware of your 
meetings and your long interest in this issue. In fact, I think 
you have had some effect on this. OFAC and the Department of 
State, the State Department, have actually been having meetings 
on the question you have raised because you have raised it the 
way you have raised it.
    I don't want to say for sure what is going to come out of 
it, but it is--it looks like we might have an expectation of 
some new regulations that will come out from the Cuba 
Commission here at some point.
    Ms. Lee. Right. That is coming out fairly soon, I 
understand.
    Secretary Snow. Fairly soon. I want you to know we have 
communicated your concerns to both, you know, OFAC, NSC, the 
National Security Council, and the State Department; and we are 
going to stay engaged and maintain the dialogue with you and 
the Commission.
    Ms. Lee. Well, Mr. Secretary, we would like an answer to 
some of the questions that were raised in the meeting. This 
was, quite frankly, raised in March, and if these regulations 
are coming up, we would at least like to see a draft of them 
and know what is going to be in them and weigh in on them.
    Secretary Snow. I will see what I can do to follow up.
    Ms. Lee. Following up on Congresswoman Waters' question 
with regard to the Sudan, as you know, numerous divestment 
campaigns like State pension plans, universities, and State 
public employment retirement systems are moving forward as a 
result of the horrific genocide that is taking place in Darfur.
    I would like to find out how this committee could receive a 
list of United States companies that have investments in 
multinational companies which are doing business in Sudan and 
also just your general thoughts about divestment and sanctions 
as a means of force and an end to these horrible atrocities 
that are taking place.
    Secretary Snow. Right. Well, as you know, Congresswoman 
Lee, the State Department has the lead on that. Deputy 
Secretary Zoellick is just back from a visit there and I think 
has focused a lot of his time and effort on that. Let me talk 
to him and then try to get back to you.
    Ms. Lee. Sure. Because we need this list. It has been very 
difficult to find a list of companies that--and some groups 
want to sell these lists. You know, I think they should be made 
available to the public. So we would really like to have that.
    Finally, let me just ask you, with regard to the progress 
on the G-8 agreements on the 100 percent debt cancellation, you 
talked a little bit about that earlier, but I wanted to find 
out if the President intends to request any additional funding 
to pay for debt cancellation in his remaining years in office, 
and is he willing to put the necessary pressure on Congress to 
ensure that this funding is provided?
    Secretary Snow. Well, the approach we laid out to the debt 
forgiveness contemplated either replenishments being helpful in 
funding that process, so, yes.
    Ms. Lee. So you do intend to--well, hopefully you intend to 
put more money in.
    Okay. Thank you very much, Mr. Chairman; and I will yield 
the balance of my time.
    Mr. Miller of California. [presiding] The gentleman from 
New Jersey, Mr. Garrett, is recognized for 5 minutes.
    Mr. Garrett. Thank you, Mr. Chairman. And as I begin, let 
me just say that I am heartened by the fact that the Secretary 
does not intend to take the Wiggles dolls away from the kids 
across America. If nothing else that we leave with today, we 
leave with that.
    But, on a serious note, along those lines--and I just have 
two questions for the chairman. It was a comment from both 
gentlemen from Texas, Mr. Hensarling and Mr. Paul, and perhaps 
when I am done, you can--you were not able to address all of 
Mr. Paul's questions, but both these gentlemen raised sort of 
the same question with regard to the China issue and the 
currency trading issues. That is, in the capital aversion, is 
it a zero-sum game if we achieve what many advocate that we 
achieve? That is the first question.
    And the second question goes along the line or at least 
down the road of what Mr. Royce was raising. What happens if we 
take an alternative approach, a different approach? Some of the 
suggestions you were making here in your testimony, you have 
indicated that, at the end of the day, your ultimate goal is to 
go to that proverbial level playing field. As far as trade is 
concerned, in order to have capital growth you have to have 
free capital flow and free trade.
    But one of the areas that we have heard from and prior 
testimony in another committee just down a different road is, 
with regard to restrictions that we are placing on ourselves 
here at home, with regard to equity interests and equity 
investments in this country, one of the facts and figures that 
came out was an estimated 90 percent of international small 
companies have chosen to list abroad on other exchanges rather 
back here at home.
    So my question on the second line is, what impact will that 
have on our ability to have free trade and free flow and long-
term--if we don't become on the same level playing field as 
other countries in this area as far as the exchanges are 
concerned, will that have a negative consequence to the U.S. 
economy?
    Secretary Snow. Right. Thank you, Congressman, thanks.
    On the first question, it is not a zero-sum game at all. It 
is very much a positive-sum game. Because by getting the price 
signals right--and that is what exchange rates are; they are 
the price signals for the global economy--we are encouraging 
the better, more efficient use of resources.
    One of the problems with suppressing exchange rates is that 
the price signals get confused and producers are led to believe 
they really are efficient at producing something when they 
aren't as efficient as somebody in some other part of the 
world, which means that resources are being misallocated, that 
the production ought to occur somewhere else rather than the 
way it is occurring. Canada found that out very much when it 
moved for the fluctuating exchange rates, that there was a 
freeing up of resources from less efficient uses to more 
productive uses.
    I think China, as it moves to a market-based system of 
exchange rates, will find a rebalancing within its own economy, 
that some of the export activities that are attracting capital 
and resources won't attract as many and more domestic 
activities will attract more. That would make the resources of 
the world more effectively utilized, which means the size of 
the total output of the world would be greater. And what I just 
gave you is a definition of a positive-sum game.
    On that second question, I think it is an important issue. 
We have got to make sure that, whether it is through our 
regulatory policies or through any changes in the CFIUS process 
or whatever, we don't discourage investment in the United 
States. Investment in the United States is one of our great 
strengths. It has created 5-and-a-half million jobs and jobs 
that pay well above the median.
    So I share your concern. Absolutely. We have to be on guard 
against actions that would send a signal to the world that 
America isn't open for investment.
    Mr. Garrett. Thank you.
    Mr. Miller of California. The gentleman's time has expired.
    The gentleman from Kansas, Mr. Moore, is recognized for 5 
minutes.
    Mr. Moore of Kansas. Thank you, Mr. Chairman, and Mr. 
Secretary, thank you very much for being here. I want to join 
Chairman Oxley's and Ranking Member Frank's comments to you 
about the courtesy and civility and respect you have always 
expended to members of this committee as well as to Members in 
general, and I think you have set a very positive example for 
all of Congress.
    I do appreciate your comments about the sustained economic 
growth of our economy, but I want to ask you some questions, 
too, about the other side of that. I guess to start off with 
the debt--and I want you to correct me if my numbers are not 
correct. But the debt that I read, in 2001, was about $5.8 
trillion for our Nation, the national debt; and it now stands 
at about $8.35 trillion, which is an increase of just about $2-
and-a-half trillion. Is that correct, sir?
    Secretary Snow. The total public debt, yes, sir.
    Mr. Moore of Kansas. And the deficit--and I am going to 
read these numbers, which I believe are correct, but please 
correct me if I am not correct--was, in 2002, was about $158 
billion as reported; in 2003, $378 billion; in 2004, $413 
billion; and in 2005, $319 billion. And the projected debt 
deficit for 2006 is $371 billion, although you said you hope 
that is much lower than that. Is that correct?
    Secretary Snow. That is correct, Congressman Moore, for all 
the years 2002 through 2005. I think the evidence now is pretty 
clear we are going to come in considerably below the $371 
billion.
    Mr. Moore of Kansas. I hope you are right. I hope you are 
right.
    You, as Secretary of the Treasury, are required to issue a 
financial report of the United States, and you did issue such a 
report in December of 2005, is that correct, sir?
    Secretary Snow. Yes, sir.
    Mr. Moore of Kansas. And, in fact, one of the first pages 
in the report was a message from the Secretary of the Treasury, 
signed by John W. Snow, correct?
    Secretary Snow. Yes.
    Mr. Moore of Kansas. And you indicated in there that the 
projected deficit--or the deficit for 2005 was about $319 
billion but that the--on the accrual-based net operating cost, 
it would be $760 billion for 2005, is that correct, sir?
    Secretary Snow. Yes, it is.
    Mr. Moore of Kansas. And, in fact, the first method of 
calculating is using the cash basis and the second, the $760 
billion figure, was based on the accrual method of accounting, 
is that correct, sir?
    Secretary Snow. Yes.
    Mr. Moore of Kansas. What do most major corporations in 
this country use? Do they cash-based accounting or accrual-
based accounting?
    Secretary Snow. Normally accrual-based.
    Mr. Moore of Kansas. In fact, when I talked to corporate 
executives about the numbers $319 billion and $760 billion, 
they kind of smiled at the $319 billion because they are 
required to use accrual and not cash-basis accounting, correct?
    Secretary Snow. That is the standard general accounting 
practice.
    Mr. Moore of Kansas. Mr. Chairman, I would ask that this 
statement be received as an exhibit in the record, please.
    Mr. Miller of California. Without objection.
    Mr. Moore of Kansas. I am concerned, Mr. Secretary--and 
this is not to be partisan at all, because I tell people back 
home that 85 percent of what we deal with up here shouldn't be 
about Democrats or Republicans. It ought to be about taking 
care of our people and our country. I truly believe that, and I 
believe that you act that way as well.
    I am very concerned that we are mortgaging the future of 
our children. Even though the sustained economic growth may be 
up and at a good rate right now, I am very concerned about what 
we are doing. I have children and grandchildren, and I think 
that we are putting them in a hole so deep they may never be 
able to climb out if we don't change the way we are doing 
business, and if Republicans and Democrats don't come together 
and change the way our country is doing business.
    I guess I hear so much talk up here about values and from 
the President, from Members of Congress, and I don't think it 
is a family value to pass on massive debt to our kids and 
grandkids. I am just hopeful all the good people in our 
government--and I think 90 percent of them are good people--on 
both sides can come together and change the way we are doing 
business here.
    And it is not just new spending, but I think we have tax 
cuts sometimes--and I voted for the President's first round of 
tax cuts back in the first year when we had a projected surplus 
of $5.6 trillion, but that turned around dramatically 2 or 3 
years when the President asked for the second round, and I 
voted against it. I am just hopeful we all come together and do 
what is right for our country.
    Thank you, Mr. Secretary.
    Mr. Miller of California. The gentleman from Texas, Mr. 
Neugebauer.
    Mr. Neugebauer. Thank you, Mr. Secretary. Good to have you 
back.
    I want to go back to what I thought was the subject of 
this, and that is talking about our global economy and how it 
is doing. One of the things that I noticed with interest here 
this week is kind of the news that has been coming out that our 
trade deficit is actually for, I think, for the second time--
quarter in a row or second month in a row, is less, even with 
high energy prices--that we look across the globe and economies 
in Europe, in Asia are growing at fairly rapid rates, and the 
economy in the United States is extremely good right now.
    One of the things that I wanted to get your perspective on 
is, we look at this trade deficit. That is good news. Is that 
related to the fact that these other economies are growing at a 
better rate now, and does the falling dollar also kind of 
contribute to that?
    Secretary Snow. You know, one of the great mysteries of the 
global economy is to look at a month or 2 months--and what we 
have now is 2 months--and to say, uh-huh, we really understand 
what is going on. So I am--I have too much respect for economic 
data to take 2 months and say we have a real clear sense of 
what is happening there.
    But Europe and Japan have both reported better growth 
rates, and that is important because if they have higher growth 
rates they create more disposable income. More of that 
disposable income will--if they have more disposable income, 
some part of it will come our way and help our exports.
    And you did see in those two reports that exports were 
going the right way.
    The counter side of that is that, when the United States 
grows much faster than our trading partners, as we have been, 
we are creating more disposable income here. We have a high 
propensity to consume and a high propensity to import. So that 
drives our imports up.
    We don't want to see the current account deficit solved by 
the United States having slow growth rates. We want it to have 
high growth rates. But if we are going to sustain high growth 
rates and not--and see that our exports continue to rise, we 
need stronger growth than the rest of the world. I agree with 
you.
    Mr. Miller of California. Thank you.
    The gentleman from Georgia, Mr. Scott, is recognized for 5 
minutes.
    Mr. Scott. Thank you very much, Mr. Chairman, and Secretary 
Snow, let me just say that I think you have handled your job in 
a first-class manner.
    Secretary Snow. Thank you.
    Mr. Scott. Certainly with all the rumors swirling about 
your future, I think you have handled that situation with class 
and dignity and I want to commend you for that. It is not an 
easy task, I know.
    But now let me talk about the debt, because I think that is 
the most pressing issue facing not just the country but the 
future of this country. You know great civilizations have all 
gone down because of a number of issues--global over-reach, 
dwindling resources at home, like we have with our oil, failure 
to take care of our borders--but, most importantly, huge debt 
in the hands of foreign governments. That spells disaster for 
our way of life and our civilization.
    Let us look at the facts. The facts are these:
    Number one, you and this Administration in the last 5 years 
have borrowed more money from foreign governments than all of 
the previous 42 Presidents and Administrations combined. That 
is extraordinary. To say that in the last 5 years this country, 
under this President and this Administration, with the sanction 
of this Congress, has borrowed more money than in the history 
of the country from 1789 until 2001, that is disastrous.
    In the last 211 years leading up from 1789 to 2001, this 
country borrowed $1.0.1 trillion from foreign governments in 
foreign banks. In the last 5 years under this Administration 
and this Congress, we have borrowed $1.0.5 trillion dollars 
from national--from governments and foreign governments and 
banks; and that is putting us in a very precarious position.
    You talk about the current accounts balance. We have now in 
the last--in 2005, just this past year, we have borrowed from 
foreign governments $800 billion--our government, our 
businesses, our folks. This spells rank disaster; and I am 
wondering, when is this Administration going to come clean with 
the American people and say we need to put some controls on 
this?
    When we also add to that fact that we are putting this 
burden on our young people, on our children and our 
grandchildren, which saddens me, that fact even makes it even 
more dramatic.
    But here is the other point, the tax cuts that we are 
borrowing--and I want to talk about the tax cuts for a minute 
because I, too, voted for the first round of tax cuts because I 
thought it was a prudent thing to do to stimulate the economy; 
and I must say it did. But now to wage this war in Iraq on tax 
cuts, to make a tax cut at the time the country sacrificing as 
it is, is terribly wrong.
    The other point that I would like for you to address is, 
given this go-along cowboy mentality of this President in 
dealing with foreign nations has placed us even in a more 
precarious state--situation.
    Many of our allies have been defeated in elections: Spain, 
defeated; Italy, defeated; and poor Tony Blair is just hanging 
on by his fingernails. And even if we go to some of the oil 
petroleum countries like in Venezuela, Chavez and others.
    So I want you to respond honestly, as we look to the future 
of this country, and we have to, what are the plans in the last 
2 years of this Administration to address this debt, admit to 
what we are doing, and put some pay-as-you-go principles in 
place so that we can bring down this debt and cut not only this 
addiction to oil for foreign nations that we have but this 
addiction to their money. Because there is great worriation 
from financial markets all around this world that the dollar--
our dollar could crash. Then what?
    Secretary Snow. Well, again, Congressman, thanks for those 
nice sentiments. I appreciate your comments. Let me try and 
address your question.
    The debt levels have risen, as your numbers suggest, but, 
compared to most of the rest of the countries of the world, our 
debt levels are quite low; and even if you go back in history, 
our debt levels are quite low today, relative to the levels 
that they have been in the past. So I don't think that we 
should be alarmed.
    And I do think we should address it. There is no doubt 
about the fact we need to continue to address the debt level 
and bring it down in absolute terms and as a fraction of GDP. 
But it is comforting to know that, when you look at the rest of 
the world, we are at the low end of debt; and when you look at 
most of American history, we are still at the low end of debt 
as a percentage.
    One reason that public debt number has gone up so much is 
that we have a number of trust funds, like Social Security, 
that are currently in surplus; and under laws of the Congress, 
of the country, under the laws of the land, those surpluses can 
only be invested in debt instruments of the U.S. Treasury. So 
when the Social Security system wants to make an investment, 
they have to make an investment in U.S. Treasuries, and we 
issue a Treasury note.
    Mr. Miller of California. The gentleman's time has expired; 
2 minutes over, sir.
    Mr. Scott. One second, please.
    Mr. Miller of California. No, the gentleman's time has 
expired.
    Mr. Scott. Will the dollar crash?
    Secretary Snow. I don't comment on the exchange rate values 
of currencies, but I think the set of policies that we have put 
in place are the right policies to ensure stability in the 
global economy.
    Mr. Miller of California. Thank you.
    Mr. Snow, one of my top priorities since I have been in 
Congress is the concept that anybody who wants to own a home in 
this country should be able to. We have had numerous hearings 
with Secretary Jackson. I talked to him privately on numerous 
occasions about the most difficult impediment we have to deal 
with is down payment. Most people--just a lot of people don't 
have the down payment to be able to get in a home.
    There are many organizations that are nonprofits that are 
organized for the purpose of just helping people with down--
buyers' down payments assistance programs. HUD is permitted to 
use these programs in conjunction with FHA. So, basically, I 
would assume that was an approved program. But, recently, the 
IRS issued a ruling that virtually put most of these good 
groups, I thought, out of business. Can you please explain that 
to us?
    Secretary Snow. Chairman Miller, I think what the IRS did 
was to enforce the charitable laws of the country in a way they 
thought were consistent with the intent of Congress. And I did 
not participate in that decision. That is an IRS enforcement 
decision. But, following up with information on what they did, 
it was a desire on their part to see that the tax laws weren't 
being evaded.
    Mr. Miller of California. The problem I think most have 
with this, is that Congress has been encouraging this. We have 
had hearing after hearing encouraging it. In fact, the 
Government is talking about trying to help with down payment 
assistance. We have encouraged these nonprofits. We have had 
hearings where the Secretary has basically applauded them for 
the good work they have done and all the people they have put 
in homes.
    The problem I have with it, and many people that I have 
talked to that are members have said we are going back now on 
people and these organizations for actions in the past rather 
than issuing a ruling that would take place on any transaction 
in the future. How do we justify doing that?
    Secretary Snow. Well, only because the conduct as observed 
and reviewed and analyzed by the IRS wasn't consistent with the 
tax laws of the countries. That was their finding, Congressman.
    Mr. Miller of California. Why did it take so long then?
    Secretary Snow. I suppose because of the inherent 
complexities in the matter. But, as I say, it was an 
enforcement action by the IRS; and, under the rules, Treasury 
Secretaries are supposed to stay out of those enforcement 
actions.
    Mr. Miller of California. I think it something we need to 
look into, because this is going to have devastating 
consequences in the future on the possibility of those with low 
income getting into homes.
    The other one is something I have been working on since I 
have been in Congress, and it is the Spanish-American War tax 
on phones. It was considered a luxury in 1898. In fact, I 
actually got the bill to President Clinton one time in a much 
larger tax bill, and he happened to veto that bill or we would 
have struck it from the law.
    You have long distance services still being taxed. The 
third U.S. Circuit Court of Appeals became the fifth appellate 
court to rule against the Treasury Department, saying that this 
is not a legal tax to collect, and the IRS seems to ignore what 
the courts say, and they are continuing to tax us.
    You think about all the young people who are away at 
college and calling mom or grandma at home or dad, and they are 
being taxed for making that phone call. Or grandma is wanting 
to call the grandchildren, and she is being taxed for that 
phone call. A lot of these taxes are impacting people with very 
low income levels. What do you plan on doing in the future?
    Secretary Snow. Well, we haven't had a very good batting 
average, as you know. The handwriting seems to be on the wall 
with respect to, I guess, the Fourth or Fifth Circuit Court 
that came down that way. We have to review that, meet with the 
Justice Department people, and come to a final determination.
    Mr. Miller of California. Are you going to take into 
consideration the entire phone tax or just on long distance 
calls?
    Secretary Snow. That would be one of the issues we would 
have to think about. I think they have ruled that local is 
still permissible; the long distance isn't. So I think we would 
have to take a look at the whole subject.
    Mr. Miller of California. I hope you take into 
consideration the entire phone tax, and I would strongly 
encourage you to, if you have an opportunity, to look into the 
nonprofit Down Payment Assistance Program. When HUD has worked 
with them in conjunction of making an FHA-insured loan, we send 
a message somehow that this is acceptable. So we have one 
section of the Government, HUD, working with these nonprofits, 
saying obviously it is okay, because we are working together. 
Then we have, after the fact, the IRS coming in and ruling, no, 
it is not a legal transaction; it is taxable. That sends a 
conflicting message, and I would like, hopefully, to get that 
resolved.
    Secretary Snow. At a policy level, I will try and take a 
look at that. I can't get into the enforcement, though.
    Mr. Miller of California. Mr. Green, you are recognized for 
5 minutes.
    Mr. Green. Mr. Chairman, I will yield to Mr. Davis, if 
permitted to do so.
    Mr. Miller of California. It is your time, sir.
    Mr. Green. Mr. Chairman, will I be able to be held after 
Mr. Davis?
    Mr. Miller of California. You have 5 minutes.
    Mr. Davis of Alabama. I would be happy to yield back.
    Mr. Green. I will use my time.
    I thank you, Mr. Secretary for appearing today.
    Mr. Secretary, I would like to talk for a moment about 
currency manipulation.
    Mr. Miller of California. If you want to allow him to take 
your time now and you have 5 minutes later, that is acceptable.
    Mr. Green. That is what our intention was.
    Mr. Miller of California. The gentleman is recognized for 5 
minutes.
    Mr. Davis of Alabama. We will trade the 5 minutes if the 
Chair will allow it.
    Mr. Snow, let me get your attention back, since we settled 
that. Let me make a general observation and get you to respond 
to it in two contexts.
    One of the most consistent criticisms we have had on our 
side of the aisle--but, frankly, on the other side of the aisle 
sometimes has to deal with whether or not your Administration 
is always susceptible to the power of evidence and whether or 
not your Administration is willing to rethink positions based 
on empiricism; something is working well and something is not 
working as well.
    Some of us, again, on both sides of the aisle, have 
occasionally had the impression that you and some of your 
colleagues at 1600 Pennsylvania Avenue tend to dig into a 
position regardless of what the facts appear to be. So I want 
to test that proposition in two areas. One of them has to deal 
with the extension of the tax cuts.
    As you know, both Houses last week narrowly voted to extend 
the cuts on dividends and the cuts on capital gains. You and 
others have argued for extending the personal income tax cuts, 
and I think you have--others have argued making permanent the 
repeal of the estate tax, and the consistent point that you and 
others have made is we can do all of this irrespective of the 
deficit.
    Let me ask you hypothetically, Mr. Secretary, is there a 
point that this deficit could reach that could cause you to 
rethink your support for extending these tax cuts?
    Secretary Snow. Congressman, look, I came to Washington as 
a budget hawk and I will leave it as a budget hawk. Budget 
deficits aren't a good thing, but, as we have discussed 
earlier, the deficit is now coming down.
    Mr. Davis of Alabama. I understand that. Because time is 
limited, I do want to press this point with you.
    Is there a point--let's say the numbers turn around. You 
know very well they fluctuated the last several years, revenues 
fluctuated the last several years, and you know this is not 
just a contemporary question, it is a question the next few 
Congresses will face. At what point does this deficit have to 
reach or what number would the deficit have to reach to make 
you rethink your support for extending all the tax cuts?
    Secretary Snow. Well, I am going to say what I have said 
over and over again.
    Mr. Davis of Alabama. That was my concern.
    Secretary Snow. We are not going to get there. We are bound 
and determined not to get to that point.
    Mr. Davis of Alabama. Let's say that we got there. What 
about a $450 billion deficit? Would that cause you to rethink?
    Secretary Snow. Again, we are on a path to bring this way 
below that number.
    Mr. Davis of Alabama. Let's say that we got to $450 
billion. Is there any number--I am not trying to play a game.
    Secretary Snow. Sure, there is some number. It doesn't 
serve a useful purpose to speculate on it when we have before 
us the chance to avoid that.
    Mr. Davis of Alabama. Let me make my point. I think you get 
my point. I am not trying to play a game with you, but 
hypothetical numbers--I am trying to make the point that there 
ought to be some correlation between our deficits and our tax 
policy. We can't distance the two. I am simply trying to make 
the observation that there could come a point at which we have 
to rethink, which is, frankly, more than your Administration 
has conceded.
    The second point relates to trade. The Administration has 
essentially locked into the policy that we will do trade 
agreements with willing partners as long as they agree to 
enforce their own labor laws. All of the agreements contain 
that provision. The countries enforce their own labor laws.
    Are there countries in the world, Mr. Secretary, who might 
be willing trading partners of the United States whose trade 
policies and whose labor laws are so poor or so weak we would 
refuse to enter into an agreement with them?
    Secretary Snow. That is a good question for your former 
colleague, Mr. Portman, and his successor. Treasury doesn't 
negotiate those trade agreements--
    Mr. Davis of Alabama. I understand that.
    Secretary Snow. --so I don't want to tread on the 
jurisdiction of others in the Cabinet.
    Mr. Davis of Alabama. You do routinely give us your policy 
perspective, and you have done that all day.
    Secretary Snow. Oh, yeah, the policy of open markets, free 
capital flows, flexible exchange rates is the right policy. But 
the details of negotiating trade agreements I better leave to 
people who do that for a living.
    Mr. Davis of Alabama. Let me close on this point, because 
my time is about to run out.
    I know, Mr. Secretary, that you may or may not be moving on 
to something else in the next few months. I would make this 
observation with you. If you have occasion to reenter the 
private sector in the next several months before the Bush term 
is complete, frankly, I would like to invite you to come back 
to the committee. Because I would love to hear your perspective 
on these issues without the constraint of the ``Mr. Secretary'' 
title.
    Secretary Snow. Thank you.
    Mr. Miller of California. The gentlelady from New York, 
Mrs. Kelly, is recognized for 5 minutes.
    Mrs. Kelly. Thank you.
    Secretary Snow, I appreciate your being here and putting up 
with such a long period of questioning.
    I questioned Under Secretary Kimmet about the financing of 
the Dubai Ports World deal through Islamic finance. I did it in 
writing, and I received a written follow-up response from the 
Treasury several weeks later saying, and I am quoting: ``The 
Department of the Treasury cannot comment competently on Dubai 
law.''
    That wasn't exactly what I was expecting, and I appreciate 
their candor, but it wasn't what I really wanted to hear, Mr. 
Secretary. You and I both know that Dubai has long been an open 
financial channel for terror networks and nuclear 
proliferators. You and I both see the signs indicating that 
Iran is financing its acquisition of nuclear weapons through 
Dubai. You and I both know that Islamic financing is one of the 
fastest growing sectors of the global economy. I think we need 
to better understand the vulnerabilities, especially in the 
UAE, so we can address them more effectively.
    I am circulating to all of my colleagues in the House a 
letter to the UAE about the gaps in their financial defenses 
which have implications for our national security. And my 
concern with this whole idea of CIFIUS is that they are not 
looking behind a deal to finance--to look at what the financing 
is.
    So what I hope is that you can give me some guidance about 
what steps are being taken by Treasury to develop expertise in 
the financial laws of Dubai and the UAE for both Western and 
Islamic financing. Are there other resources that we can give 
to you from Congress. What do you need?
    Secretary Snow. Thank you very much. Interesting you would 
raise that question. Because we have had with us at Treasury, 
understanding the importance of knowing more about Islamic 
finance, a leading student of Islamic finance and how they 
carry on financial activities in light of their religious rules 
on interest rates. I think we are getting a better 
understanding of that.
    I will be in Egypt this weekend meeting with the finance 
ministers from that region; and one of the subjects that we 
will be putting on the table both in the general meeting and in 
the bilaterals, where I hope to meet with the UAE as well, is 
just this subject of managing our way through the whole set of 
finance issues in the world of Islamic finance, which does take 
some special attention, I agree with you.
    Mrs. Kelly. I would like your thoughts about some comments 
that were made by the UAE's central bank governor in the 
aftermath of the Dubai Ports deal. He essentially threatened 
the failure of the deal would damage financial and trade 
relations between the U.S. and UAE. You may remember that. He 
talked about selling dollars to boost their Euro holdings. Have 
you seen anything so far that might be construed as a sponsor 
retaliation from the UAE for the failure of the Dubai Ports 
World deal?
    Secretary Snow. No, we have not.
    Mrs. Kelly. I would hope that we would be able to establish 
something with CIFIUS in their background checks, as I repeat, 
in their background checks on any deal that is being 
constructed by--from an outside-of-the-United-States company 
coming here. I think the depth of their research on where the 
finances came from was not enough.
    I think the response that came from Secretary Kimmet was 
honest, but I think that it is very important that we follow 
through with what you said. I hope you will follow through with 
what you intend to do, and that is take a look at both the UAE 
law and the other Arab countries that we are dealing with.
    You and I both know that there are essentially two 
constructs of financial constructs there in Dubai. You and I 
also know that anyone can register with their local tribal 
authority and evade the laws in Dubai. That needs to be looked 
at. I hope you will address that.
    Secretary Snow. We are, and we will, and I will keep you 
fully advised.
    Mrs. Kelly. Thank you. I would appreciate that.
    I yield back.
    Mr. Miller of California. The gentleman from Texas, Mr. 
Green, is once again recognized for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman. It is a rare occasion 
when I have the opportunity to speak twice.
    I thank you again, Secretary Snow, for being here today.
    As indicated earlier, I would like to talk for a brief 
moment about currency manipulation, what I would call initial 
invidious currency manipulation. As you know, the exchange rate 
with the yen broke the psychological 8 yen per dollar level on 
Monday. I believe it is at 7.9982 for the first time. At this 
level, we are finding that the manufacturing sector, they have 
certain criticisms, analysts have Criticisms. The analysts are 
saying that by allowing this to happen and not formally accuse 
China of currency manipulation we are going to allow the yen to 
rise further. Our manufacturers contend that the yen is 
undervalued by as much as 40 percent, giving China exporters an 
unfair price advantage overseas.
    Now with these circumstances in place, assuming that there 
is some degree of credibility in what is being said, are we 
reaching points where we have to officially designate China as 
a currency manipulator? First question.
    Secretary Snow. Well, we looked hard at that question, 
whether China should be designated, and concluded, based on all 
of our analysis that is laid out in that report in some detail, 
that the statutory criteria wasn't met. But we also made it 
very clear we are not happy with where China is today.
    China needs to do more, and they are being too cautious. 
They should move faster. I am pleased to see it is moving some, 
but I think there is a lot of room for it to move more, and we 
are going to continue to make that case.
    Mr. Green. When we accuse China of manipulating, how does 
that technically--once we do that, how does that benefit us to 
do so?
    Secretary Snow. Well, if we make that designation, then 
under the statute we would be required to enter into formal 
discussions, formal negotiations really, under the statute with 
the Chinese; and we are already having effectively those sorts 
of conversations with them.
    The designation would, in my view, play out in ways that 
might not be helpful. If we find that their behavior meets the 
statutory test, we would certainly make the designation. But 
when I say it might not play out as favorable, I cite a number 
of commentators who in recent commentaries on our report have 
said that because Treasury has now taken away the threat of the 
negotiation, China is in a better position to move their 
currency in the direction that Treasury and the United States 
would like to see it move.
    Mr. Green. One final question, if I may, Mr. Chairman. If 
so designated formally and officially, are we required to take 
certain action, and, if so, what actions are we required to 
take?
    Secretary Snow. Congressman, the only action we are 
required to take is have these formal discussions and 
negotiations.
    Mr. Green. Thank you, Mr. Chairman. I yield back.
    Mr. Miller of California. The gentleman from New Mexico, 
Mr. Pearce, is recognized for 5 minutes.
    Mr. Pearce. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary. Following Mr. Sherman's lead, I 
would comment that we have had no snow in New Mexico for 
several years, no spring runoff. You could help me answer when 
the drought is going to end there, so I would invite you out at 
any time.
    I would encourage you to think the opposite direction as my 
colleague Mr. Davis on the tax rates. Looking at the Irish 
America, when they set up the 10 percent foreign tax rate and 
the Europeans said, you have to rethink your tax rates, they 
did; and they came back down from 36 percent to 12 percent, for 
the domestic corporations, too. It created such a strong 
economy that they came in and built a $200 million plant right 
outside the Second District in New Mexico.
    So I would encourage you, if we get the $450 billion 
deficit, we consider cutting our tax rates and getting more 
foreign investment in here.
    The idea of exchange rates is awfully important. In the 
Second District in New Mexico is the last manufacturer of 
Christmas ornaments, glass balls. It is just now down to China 
and the United States.
    When China let their exchange rate vary just a little bit, 
the guy called me--we are not in weekly conversation but in 
constant conversations--and called and said, they blinked today 
on their exchange rate. I got a 2-and-a-half percent increase. 
I will be able to stay in business this last year.
    This stuff is really huge for jobs here, and I would 
encourage you to continue doing the things you are talking 
about in your report.
    Another item that he points out is that the state 
corporations there don't have to repay the loans to the state 
banks. That at some point we must deal with. It is bad enough 
this is the last guy in the world that has kept up with the 
Chinese. He has done it through productivity, through cost 
control, but there is nowhere left to squeeze. The last two 
competitors went out this year that were in the United States, 
so we really do need to take a look at the way the Chinese are 
manipulating the market.
    When Mr. Bernanke was here, he made a comment that is 
directly opposed to your comment that you say we need to 
encourage greater savings rates. He mentioned there is not a 
problem with saving in United States; there is a problem in 
other countries of under-consumption, meaning too much saving. 
That to me was kind of a different take than I had heard. Can 
you help me understand the difference between your position and 
his position?
    Secretary Snow. I don't think there is any real difference, 
Congressman. The current account deficit is simply the 
difference between a countries savings rates and its investment 
rates. The United States has low savings relative to our 
investment opportunities. China has very high savings, India 
has high savings relative to their investment opportunities. As 
a result, a country like China, with high savings rates, net 
savings rates, over-investment, is generating savings that are 
used by the rest of the world. So what I think the chairman had 
in mind is what I said earlier, that we want to encourage China 
to move to stronger domestic consumption markets to absorb 
those savings.
    We were pleased--I was pleased that President Hu, who said 
as much when he was here, pledging to reduce emphasis on 
exports and strengthen emphasis on domestic consumption.
    Mr. Pearce. I agree with you. It would be a strong 
possibility.
    You had mentioned the idea of private property rights being 
essential for the reformation of the world economy. Do you take 
an internal look at the United States? There are certain 
slippages. I look at it like a transmission pulling uphill. 
There is slippage.
    If I look at Los Alamos, New Mexico, I find a town that is 
completely encased in Federal land, and the Los Alamos lab is a 
Federal Government entity. I have said repeatedly, they have 
issued their 5-year forecast. They were going to release some 
land and allow some expansion, but they never quite get to it. 
Along interstate highways, States are increasingly saying that 
same thing.
    This is such a captive market. If we go into the gasoline 
business, then we can really do well. Because people really 
won't go 20 miles for gas. They will stop at the state-owned 
thing, even if it is not as good.
    Then, finally, with regard to the aviation industry, 
hangers of the FAA is encouraging local airports to put fixed 
leases. At the end of 15 years, your hangar belongs to us. What 
we are doing is incrementally--no one--
    Mr. Miller of California. The gentleman's time has expired.
    Mr. Pearce. --incrementally depressing our economy.
    If you would like to make a comment on the U.S. policy.
    Secretary Snow. On the Celtic miracle, I think you are 
absolutely right. At the heart of the Celtic miracle, it took 
the poor man of Europe, about the most prosperous economy in 
Europe, was lower tax rates and less regulation, to your last 
point.
    We are trying to encourage China to have less support for 
those SOE's, those state-run enterprises, which means they have 
to stop these loans that are never repaid, which are really a 
form of indirect subsidy or direct subsidy.
    On the role of the private sector, obviously, Government 
can encroach on the private sector in ways that the private 
sector can't, do what the private sector does best, create 
jobs, invest and grow the community. So I am in sympathy with 
you.
    Mr. Miller of California. The gentleman from Missouri, Mr. 
Clay, is recognized for 5 minutes.
    Mr. Clay. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary, for your appearance today.
    My questions are more along the lines of the domestic side 
of the issues. One, the IRS revenue ruling 2006-27 would take 
away the 501C3 status of down payment assistance housing 
organizations that help low- and moderate-income folks become 
homeowners. Have you answered this question already?
    Secretary Snow. Well, the chairman gave me his views on it, 
and I told him that I would follow up and try and take a policy 
look at the question and answered the rationale for the action 
the IRS took as best I could, explaining, of course, as he 
knows, that we at the Treasury are not engaged in the 
enforcement side of the IRS.
    Mr. Miller of California. If the gentleman would allow, he 
can talk to Mr. Frank.
    Secretary Snow. It has been brought to my attention, 
Congressman.
    Mr. Clay. I look forward to the response, also.
    Let me ask you then, how much money from the war on 
terrorism has been seized in the last 6 months and what is 
Treasury currently doing in this area?
    Secretary Snow. Treasury, of course, is on the front line 
of the financial war on terror, and we continue to track 
terrorist moneys and to try and intercept them, break up their 
networks and follow the flows. When people use the financial 
system--if a terrorist used a financial system, he creates an 
audit trail; and we are trying to follow that audit trail. So 
we are very open about the fact that Treasury is going to use 
every lead we can get, every terrorist lead we can get and 
follow it through and use the leads to deter and detect and 
break up terrorist financing and terrorist networks.
    Mr. Clay. Mr. Secretary, apparently, you must look at some 
of the habits that terrorists have as far as what kind of tools 
they use and where they bank and all of that; and so it must be 
pretty apparent that these systems can be easily stopped. Is 
that your impression?
    Secretary Snow. As a broad observation, terrorists can only 
carry on their evil activities with money. They have to get 
airplane tickets and find a way to live and travel and pay 
people for services. When they use the financial system, we 
want to be in a position to follow any trail that is left.
    They also, though, knowing that we are using the financial 
system to track them and follow them and detect them, use 
couriers and these money changing operations that are below the 
radar screen, which is why we need to continue to enforce the 
laws on things like amounts of currency that can be carried and 
things like that.
    Mr. Clay. I thank you very much for your responses. That is 
all I have, Mr. Chairman; and you have a good day.
    Mr. Miller of California. Secretary Snow, thank you very 
much for your testimony today. You were extremely candid 
responding to the questions. I know you are saddened that there 
weren't more questions, so we are going to allow 30 days to 
submit questions in writing for the record. Welcome, sir. It is 
good to have you here.
    This meeting is adjourned.
    Secretary Snow. Mr. Chairman, thank you very much.
    [Whereupon, at 12:25 p.m., the committee was adjourned.]


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