[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]





                        MONETARY POLICY AND THE
                          STATE OF THE ECONOMY

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 17, 2013

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 113-39





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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

GARY G. MILLER, California, Vice     MAXINE WATERS, California, Ranking 
    Chairman                             Member
SPENCER BACHUS, Alabama, Chairman    CAROLYN B. MALONEY, New York
    Emeritus                         NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California          BRAD SHERMAN, California
FRANK D. LUCAS, Oklahoma             GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            STEPHEN F. LYNCH, Massachusetts
MICHELE BACHMANN, Minnesota          DAVID SCOTT, Georgia
KEVIN McCARTHY, California           AL GREEN, Texas
STEVAN PEARCE, New Mexico            EMANUEL CLEAVER, Missouri
BILL POSEY, Florida                  GWEN MOORE, Wisconsin
MICHAEL G. FITZPATRICK,              KEITH ELLISON, Minnesota
    Pennsylvania                     ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia        JAMES A. HIMES, Connecticut
BLAINE LUETKEMEYER, Missouri         GARY C. PETERS, Michigan
BILL HUIZENGA, Michigan              JOHN C. CARNEY, Jr., Delaware
SEAN P. DUFFY, Wisconsin             TERRI A. SEWELL, Alabama
ROBERT HURT, Virginia                BILL FOSTER, Illinois
MICHAEL G. GRIMM, New York           DANIEL T. KILDEE, Michigan
STEVE STIVERS, Ohio                  PATRICK MURPHY, Florida
STEPHEN LEE FINCHER, Tennessee       JOHN K. DELANEY, Maryland
MARLIN A. STUTZMAN, Indiana          KYRSTEN SINEMA, Arizona
MICK MULVANEY, South Carolina        JOYCE BEATTY, Ohio
RANDY HULTGREN, Illinois             DENNY HECK, Washington
DENNIS A. ROSS, Florida
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas
KEITH J. ROTHFUS, Pennsylvania

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel


























                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    July 17, 2013................................................     1
Appendix:
    July 17, 2013................................................    59

                               WITNESSES
                        Wednesday, July 17, 2013

Bernanke, Hon. Ben S., Chairman, Board of Governors of the 
  Federal Reserve System.........................................     7

                                APPENDIX

Prepared statements:
    Watt, Hon. Melvin............................................    60
    Bernanke, Hon. Ben S.........................................    61

              Additional Material Submitted for the Record

Bernanke, Hon. Ben S.:
    Monetary Policy Report to the Congress, dated July 17, 2013..    70
    Written responses to questions submitted by Representative 
      Bachus.....................................................   126
    Written responses to questions submitted by Representative 
      Kildee.....................................................   132
    Written responses to questions submitted by Representative 
      Mulvaney...................................................   133
    Written responses to questions submitted by Representative 
      Pittenger..................................................   135
    Written responses to questions submitted by Representative 
      Rothfus....................................................   138
    Written responses to questions submitted by Representative 
      Stivers....................................................   142

 
                        MONETARY POLICY AND THE
                          STATE OF THE ECONOMY

                              ----------                              


                        Wednesday, July 17, 2013

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:02 a.m., in 
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling 
[chairman of the committee] presiding.
    Members present: Representatives Hensarling, Miller, 
Bachus, King, Royce, Lucas, Capito, Garrett, Neugebauer, 
McHenry, Bachmann, Pearce, Posey, Fitzpatrick, Luetkemeyer, 
Huizenga, Duffy, Hurt, Stivers, Fincher, Stutzman, Mulvaney, 
Hultgren, Ross, Pittenger, Wagner, Barr, Cotton, Rothfus; 
Waters, Maloney, Velazquez, Watt, Sherman, Meeks, Clay, Lynch, 
Scott, Green, Cleaver, Perlmutter, Himes, Peters, Carney, 
Sewell, Foster, Kildee, Murphy, Delaney, Beatty, and Heck.
    Chairman Hensarling. The committee will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time.
    The Chair now recognizes himself for 5 minutes for an 
opening statement.
    Chairman Bernanke, welcome. We all know your term as 
Chairman of the Federal Reserve is up at year's end, and, to 
paraphrase Twain, we do not know if the rumors of your 
departure are greatly exaggerated. I will not ask you to 
comment, but I at least know there is a possibility this could 
be your last appearance before the committee. I certainly hope 
it is not. We have other matters to discuss with you and the 
Fed.
    But on the off possibility that it is, I did not want to 
let the moment pass without stating clearly for the record 
that, as one who has been in public office for 10 years, this 
chairman considers you to be one of the most able public 
servants that I have ever met.
    I suspect that history will record that at a very perilous 
point in our Nation's economic history, you acted boldly and 
decisively and creatively, very creatively I might add, and 
kept your head. And under your leadership, the Fed took a 
number of actions that certainly staved off an even worse 
economic event, and for that I believe our Nation will always 
be grateful.
    Now, my words are sincere, but they do not negate my 
concern over the state of the economy today and the role that 
the Fed is playing in it. In today's semi-annual Humphrey-
Hawkins hearing on the state of the economy, we once again face 
the legacy of the President's economic policies, a failed 
experiment in fiscal policy that will forever be remembered for 
its three central pillars: persistent weak economic growth; 
higher taxes on working families; and unsustainable, record 
trillion-dollar deficits that one day our children must pay 
off. Witness the debt clock on either side of the hearing room.
    The Federal Reserve has, regrettably, in many ways enabled 
this failed economic policy through a program of risky and 
unprecedented asset purchases that has swollen its balance 
sheet by more than $3 trillion. Our committee has an obligation 
to carefully scrutinize the Federal Reserve's decisions and the 
way it communicates those decisions to the American people.
    Chairman Bernanke has correctly observed that credible 
guidance about the future course of monetary policy is a vital 
tool that the Fed must use to ensure that markets, consumers, 
and producers can plan their own economic futures. My 
constituents back in Texas are concerned about how much they 
must save for retirement or for their children's college 
tuition. They are left to wonder how much longer they will have 
to endure the paltry, paltry returns on the savings created by 
the Fed's current interest rate policy, which favors borrowers 
over savers.
    And yet, recent panicked responses by financial markets to 
monetary policy communications and observations from a range of 
economists suggest the Federal Reserve's forward guidance 
clearly needs some improvement. The market's recent extreme 
volatility resulting from the offhanded comments of one 
individual, our witness today, is not healthy for an economy. 
Again, it indicates a monetary policy guidance system that is 
not working, and it begs the question: Are current equity 
market values based upon the fundamentals or unprecedented 
quantitative easing?
    Former Fed Chairman William McChesney Martin once observed 
that the Fed ``should always be engaged in a ruthless 
examination of its own record.'' Today, we will ask Chairman 
Bernanke to engage in such a ruthless examination of the Fed's 
QE exit strategy, which is both untested and clearly not well 
understood by market participants.
    Based upon the economy's performance since the Federal 
Reserve embarked upon its unprecedented campaign of monetary 
stimulus, many economists have observed, and I would tend to 
agree, that it is fair to conclude that rarely has so much been 
spent in pursuit of so little, and rarely has so much been 
risked in return for so little. The extraordinary measures of 
2008 have become the ordinary, albeit unsustainable, measures 
of 2013 and beyond. Again, as recent events demonstrate, it 
remains very much an open question whether the Fed can 
orchestrate an orderly withdrawal of monetary stimulus.
    Finally, as the Federal Reserve approaches its 100th 
anniversary later this year, it is incumbent upon this 
committee to engage in an honest assessment of the Fed's 
performance and consider just how we can improve the Federal 
Reserve over the next century.
    Chairman Bernanke, I appreciate your cooperation with the 
committee's work. Thank you for being here today.
    At this time, I will recognize the ranking member for an 
opening statement.
    Ms. Waters. Thank you very much, Mr. Chairman. I would 
first would like to thank you, Mr. Chairman, for the words in 
support of Chairman Bernanke's chairmanship.
    And Chairman Bernanke, I would like to thank you for being 
with us today.
    Chairman Bernanke, under your leadership and actions taken 
by the Federal Open Market Committee (FOMC), the recovery 
continues to strengthen. Treasury yields and mortgage rates 
have fallen to their lowest levels in decades, and home values 
have in turn risen between 5 and 12 percent over the 12-month 
period ending in April, resulting in a substantial reduction in 
the number of borrowers with negative equity. Without the 
dramatic actions you have taken to restore economic growth, the 
economy simply could not have recovered to the extent it has 
today.
    Since your last appearance before this committee to discuss 
the economy and the outlook for monetary policy back in 
February, there has been much debate about when and to what 
extent the FOMC might begin to slow the current pace of asset 
purchases. As the economic outlook improves, I would urge you 
not to scale back your monetary stimulus until it is absolutely 
clear that the now-fragile recovery will hold and real progress 
has been made in reducing unemployment.
    Thanks to your efforts, the number of people who are 
unemployed has steadily fallen since the height of the crisis. 
However, we still have a long way to go before we have achieved 
any reasonable measure of full employment. More than 11 million 
Americans continue to search for work, and countless others 
have either given up looking altogether or are stuck working 
fewer hours than they need to get by. With inflation in check, 
well below the 2 percent target, I would ask that you and your 
colleagues on the FOMC continue to give the employment aspect 
of your dual mandate the critical attention it deserves.
    In addition to the important work you are doing to foster 
economic growth, the Federal Reserve has also made significant 
progress in implementing key reforms aimed at strengthening our 
financial system. In particular, I was very pleased to see--
    Chairman Hensarling. Would the gentlelady suspend?
    Mr. Chairman and the audience, forgive us. As my 9-year old 
would say, ``Awkward.'' But it appears that the problem has 
been fixed.
    If the ranking member wishes to start over, we would--
    Ms. Waters. Thank you very much, Mr. Chairman. I would like 
to start over.
    Chairman Bernanke, under your leadership and through the 
actions taken by the FOMC, the recovery continues to 
strengthen. Treasury yields and mortgage rates have fallen to 
their lowest levels in decades, and home values have in turn 
risen between 5 and 12 percent over the 12-month period ending 
in April, resulting in a substantial reduction in the number of 
borrowers with negative equity. Without the dramatic actions 
you have taken to spur economic growth, the economy simply 
could not have recovered to the extent it has today.
    Since your last appearance before this committee to discuss 
the economy and the outlook for monetary policy back in 
February, there has been much debate about when and to what 
extent the FOMC might be able to slow the current pace of asset 
purchases. As the economic outlook improves, I would urge you 
not to scale back your monetary stimulus until it is absolutely 
clear that the now-fragile recovery will hold and real progress 
has been made in reducing unemployment.
    Thanks to your efforts, the number of people who are 
unemployed has steadily fallen since the height of the crisis. 
However, we still have a long way to go before we have achieved 
any reasonable measure of full employment. More than 11 million 
Americans continue to search for work, and countless others 
have either given up looking altogether or are stuck working 
fewer hours than they need to get by. With inflation in check, 
well below your 2 percent target, I would ask that you and your 
colleagues on the FOMC continue to give the employment aspect 
of your dual mandate the critical attention it deserves.
    In addition to the important work you are doing to foster 
economic growth, the Federal Reserve has also made significant 
progress in implementing key reforms aimed at strengthening our 
financial system. In particular, I was very pleased to see the 
balanced approach taken by the Federal Reserve in issuing the 
final Basel III rule, which appropriately takes into account 
the unique needs of our Nation's community banks.
    I look forward to your testimony today, and I yield back 
the balance of my time.
    And thank you, Mr. Chairman.
    Chairman Hensarling. The chairman now recognizes the vice 
chairman of the Monetary Policy and Trade Subcommittee, Mr. 
Huizenga of Michigan, for 3 minutes.
    Mr. Huizenga. Thank you, Chairman Hensarling, and Ranking 
Member Waters. I appreciate you holding this hearing today to 
discuss the semi-annual report on the state of the economy and 
our fiscal welfare.
    Additionally, Chairman Bernanke, I do want to thank you for 
your distinguished service to our country. Certainly, as the 
Chairman of the Board of Governors over the last 7 years, no 
one questions your desire to help our country through some of 
its most difficult times that we have seen in recent history.
    Today, I am particularly eager to hear your insights on 
monetary policy and the state of the economy. As I hear from 
small-business owners across Michigan, and, frankly, being a 
small-business owner myself in the construction and real estate 
fields, it is abundantly clear that small businesses are still 
feeling the negative impacts of the 2008 financial crisis.
    The economy has been painfully slow to recover--in fact, 
the weakest of any of the recent recoveries. And, in turn, job 
creation has lagged. Too many Americans remain out of work, 
while others have simply stopped looking for work altogether.
    These are the forgotten casualties that are oftentimes 
buried in government statistics. I am here to be their voice, 
and not be a voice of Wall Street but to be a voice for Main 
Street.
    Additionally, Washington's addiction to spending remains 
evident. As we can see up here, we are exceeding $17 trillion 
in debt, and our chances for recovery as well as the outlook 
for our children's prosperity dims. For too long, government 
has in many forms looked upon itself to solve the social and 
economic ills that our country faces. The Federal Reserve 
hasn't been any different. Some would argue that may be because 
of the dual mandate and other things.
    The Federal Reserve has chosen to implement government-
based solutions instead of employing a market-based approach, I 
would argue, whether it is artificially lowering and sustaining 
a near-zero interest rate, QE2, Operation Twist, QE3, QE 
Infinity, as some have quipped about, the government-knows-best 
approach has only prolonged high levels of unemployment and 
perpetuated a lack of consumer confidence that has, outside of 
Wall Street, created an economic environment where investment 
and growth remain stifled.
    With our GDP stagnating and unemployment remaining at 7.5 
percent or more since President Obama has taken office in 2009, 
you don't see very many economists predicting the economy to 
take off in the near future. The policies implemented and 
prolonged by the Federal Reserve, I believe have worked hand-
in-glove with that, and have failed.
    So when are these failed policies going to come to an end? 
We know we have had lots of indications. I have already gotten 
an update from The Wall Street Journal and a number of others 
who are looking at your comments. But the FOMC says they are 
planning on keeping the near-zero rate at least until sometime 
in 2015, with a target of a 6.5 percent unemployment rate.
    Questions that I think a lot of us have are: At what cost? 
And if not at what cost, at what benefit? And there are many 
who look at this analysis and have determined that you are 
tilting to a ``dovish monetary easing policy,'' away from where 
we have been going. As a proponent of the free market and 
reducing the size of government, let me point out that is just 
one of the many problems with the Administration's policies.
    Chairman Bernanke, I thank you, and I appreciate, again, 
your service and I look forward to today's hearing. Thank you.
    Chairman Hensarling. The Chair now recognizes the 
gentlelady from New York, Mrs. Maloney, for 2 minutes.
    Mrs. Maloney. Thank you.
    I understand this may be Mr. Bernanke's last testimony on 
Humphrey-Hawkins, as his term expires in January, although I 
hope it is not--I hope you are reappointed--but I did want to 
join my colleagues in thanking you for your extraordinary 
service during one of the most painful periods in the United 
States' economic history.
    You have been a creative, innovative leader. The one area 
where you have always been consistent is you have never been 
boring. As a former teacher, I appreciate your ability and 
willingness to explain the Fed's extraordinary measures in 
clear terms that all Americans can understand.
    While talk of the Fed's tapering its asset-buying program 
has dominated the headlines recently, and the United States is 
still suffering from an unemployment crisis, it was reassuring 
to read in your prepared testimony that the Fed will continue 
its asset-buying program as long as economic conditions 
warrant. So I am glad to see you are shaping Fed policy to help 
people and not just based on rigid ideological dogma.
    I also thank you for listening to the concerns in our 
letter from Chairwoman Capito on the concerns we have for small 
community and regional banks. We asked you to treat them 
differently from large international banks, and that is 
precisely the approach that the Basel III rules took. Community 
banks did not cause the financial crisis, and I am glad that 
the Fed came around to seeing our view on this issue.
    Thank you for your extraordinary service.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentlelady from New York, Ms. 
Velazquez, for 1\1/2\ minutes.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Welcome, Chairman Bernanke. Thank you for your public 
service.
    When I am in my district each week, I hear from people who 
are truly struggling in the current labor market. Some are 
unemployed, others are underemployed, and many have stopped 
looking for work altogether.
    Adding insult to injury, they hear that the stock market 
has recently achieved new highs and the housing market is 
recovering. But for many, this has not translated into new 
opportunities. Cuts to education and worker retraining programs 
as well as reduced investment in job-creating infrastructure 
projects have exacerbated what was an already dire situation. 
The truth is that it is hard for many to remember that just 6 
years ago, the unemployment rate was less than 4.5 percent.
    And while these are anecdotes, the data shows that they are 
reflective of the Nation as a whole. Unemployment has remained 
above 7 percent since December 2008. Gallup is reporting that 
17.2 percent of the workforce is underemployed, and the labor 
participation rate is at a historical low.
    While the Federal Reserve has a dual mandate, it is this 
unemployment backdrop that must be given the greatest weight in 
its deliberations. As the Fed considers when and how to 
transition away from QE3, it must make certain that it does so 
without making a challenging employment situation worse.
    Thank you, Mr. Chairman.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from North Carolina, Mr. Watt, for 1\1/2\ minutes.
    Mr. Watt. Thank you, Mr. Chairman. And I want to--
    Chairman Hensarling. If the gentleman would suspend, if 
staff would please shut the door?
    The gentleman is recognized.
    Mr. Watt. I certainly join in the complimentary statements 
about the chairman's service. And I have a prepared statement 
which I will submit for the record, but I thought it might be 
helpful to just reminisce about some of the changes that this 
Chairman has made.
    I was on this committee for a long, long time and never 
knew where the Federal Reserve was until Chairman Bernanke 
became the Chairman of the Fed. He opened up the process and 
demystified what the Fed does.
    Since that time, we have gone through this whole debate 
about auditing the Federal Reserve, and substantially more of 
the records and proceedings of the Federal Reserve are open to 
the public. He speaks in plain language, as opposed to some of 
the prior Chairs, who tried to make everything seem so 
complicated and made it impossible for people to understand, 
either on the committee or certainly in the public.
    So I think he has contributed greatly to the image of the 
Fed, and I just wanted to thank him for his service.
    I will submit my official statement for the record.
    Chairman Hensarling. Today, we welcome back to the 
committee, in the words of the gentlelady from New York, the 
never-boring, Honorable Ben Bernanke, Chairman of the Board of 
Governors of the Federal Reserve System. I believe we all agree 
he needs no further introduction, so he will not receive one.
    I do wish to all Members that the Chairman will be excused 
promptly at 1:00 p.m. And I wish to inform Members on the 
Majority side that those who were not able to ask questions 
during the Chairman's last appearance will be given priority 
today.
    Without objection, Chairman Bernanke, your written 
statement will be made a part of the record. So, you are now 
recognized for your oral presentation.

STATEMENT OF THE HONORABLE BEN S. BERNANKE, CHAIRMAN, BOARD OF 
            GOVERNORS OF THE FEDERAL RESERVE SYSTEM

    Mr. Bernanke. Thank you. Chairman Hensarling, Ranking 
Member Waters, and other members of the committee, I am pleased 
to present the Federal Reserve's semi-annual ``Monetary Policy 
Report to the Congress.'' I will discuss current economic 
conditions and the outlook and then turn to monetary policy, 
and I will finish with a short summary of our ongoing work on 
regulatory reform.
    The economic recovery has continued at a moderate pace in 
recent quarters, despite strong headwinds created by Federal 
fiscal policy. Housing has contributed significantly to recent 
gains in economic activity. Home sales, house prices, and 
residential construction have moved up over the past year, 
supported by local interest rates and improved confidence in 
both the housing market and the economy. Rising housing 
construction and home sales are adding to job growth, and 
substantial increases in home prices are bolstering household 
finances and consumer spending while reducing the number of 
homeowners with underwater mortgages.
    Housing activity and prices seem likely to continue to 
recover notwithstanding the recent increases in mortgage rates, 
but it will be important to monitor developments in this sector 
carefully.
    Conditions in the labor market are improving gradually, yet 
the unemployment rate stood at 7.6 percent in June, about a 
half percentage point lower than in the months before the 
Federal Open Market Committee initiated its current asset 
purchase program in September. Nonfarm payroll employment has 
increased by an average of about 200,000 jobs per month so far 
this year. Despite these gains, the job situation is far from 
satisfactory, as the unemployment rate remains well above its 
longer-run normal level and rates of underemployment and long-
term unemployment are still much too high.
    Meanwhile, consumer price inflation has been running below 
the committee's longer-run objective of 2 percent. The price 
index for personal consumption expenditures rose only 1 percent 
over the year ending in May. This softness reflects, in part, 
some factors that are likely to be transitory. Moreover, 
measures of longer-term inflation expectations have generally 
remained stable, which should help move inflation back up 
toward 2 percent.
    However, the committee is certainly aware that very low 
inflation poses risks to economic performance--for example, by 
raising the real cost of capital investment--and increases the 
risk of outright deflation. Consequently, we will monitor this 
situation closely, as well, and we will act as needed to ensure 
that inflation moves back toward our 2 percent objective over 
time.
    At the June FOMC meeting, my colleagues and I projected 
that economic growth would pick up in the coming quarters, 
resulting in gradual progress toward the level of unemployment 
and inflation consistent with the Federal Reserve's statutory 
mandate to foster maximum employment and price stability.
    Specifically, most participants saw real GDP growth 
beginning to step up during the second half of this year, 
eventually reaching a pace between 2.9 and 3.6 percent in 2015. 
They projected the unemployment rate to decline to between 5.8 
and 6.2 percent by the final quarter of 2015, and they saw 
inflation gradually increasing toward the committee's 2 percent 
objective.
    The pickup in economic growth predicted by most committee 
participants partly reflects their view that Federal fiscal 
policy will exert somewhat less drag over time, as the effects 
of the tax increases and the spending sequestration diminish. 
The committee also believes that risks to the economy have 
diminished since the fall, reflecting some easing of the 
financial stresses in Europe; the gains in housing and labor 
markets that I mentioned earlier; the better budgetary 
positions of State and local governments; and stronger 
household and business balance sheets.
    That said, the risks remain that tight Federal fiscal 
policy will restrain economic growth over the next few quarters 
by more than we currently expect or that the debate concerning 
other fiscal policy issues, such as the status of the debt 
ceiling, will evolve in a way that could hamper the recovery. 
More generally, with the recovery still proceeding at only a 
moderate pace, the economy remains vulnerable to unanticipated 
shocks, including the possibility that global economic growth 
may be slower than currently anticipated.
    With unemployment still high and declining only gradually 
and with inflation running below the committee's longer-run 
objective, a highly accommodative monetary policy will remain 
appropriate for the foreseeable future. In normal 
circumstances, the committee's basic tool to provide monetary 
accommodation is its target for the Federal funds rate. 
However, the target range for the Federal funds rate has been 
close to zero since late 2008 and cannot be reduced 
meaningfully further.
    Instead, we are providing additional policy accommodation 
through two distinct yet complementary policy tools. The first 
tool is expanding the Federal Reserve's portfolio of longer-
term Treasury securities and agency mortgage-backed securities. 
We are currently purchasing $40 billion per month in agency MBS 
and $45 billion per month in Treasurys. The second tool is 
forward guidance about the committee's plans for setting the 
Federal funds rate target over the medium term.
    Within our overall policy framework, we think of these 
tools as having somewhat different roles. We are using asset 
purchases and the resulting expansion in the Federal Reserves's 
balance sheet primarily to increase the near-term momentum of 
the economy, with the specific goal of achieving a substantial 
improvement in the outlook for the labor market in a context of 
price stability.
    We have made some progress toward this goal, and, with 
inflation subdued, we intend to continue our purchases until a 
substantial improvement in the labor market outlook has been 
realized. In addition, even after purchases end, the Federal 
Reserve will be holding its stock of Treasury and agency 
securities off the market and reinvesting the proceeds from 
maturing securities, which will continue to put downward 
pressure on longer-term interest rates, support mortgage 
markets, and help to make broader financial conditions more 
accommodative.
    We are relying on near-zero short-term interest rates, 
together with our forward guidance that rates will continue to 
be exceptionally low--this is our second tool--to help maintain 
a high degree of monetary accommodation for an extended period 
after asset purchases end, even as the economic recovery 
strengthens and unemployment declines toward more normal 
levels. In appropriate combination, these two tools can provide 
the high level of policy accommodation needed to promote a 
stronger economic recovery with price stability.
    In the interest of transparency, the committee participants 
agreed in June that it would be helpful to lay out more details 
about our thinking regarding the asset purchase program--
specifically, provide additional information on our assessment 
of progress to date as well as the likely trajectory of the 
program if the economy evolves as projected.
    This agreement to provide additional information did not 
reflect a change in policy. The committee's decisions regarding 
the asset purchase program and the overall stance of monetary 
policy depend on our assessment of the economic outlook and of 
the cumulative progress toward our objectives. Of course, 
economic forecasts must be revised when new information arrives 
and are, thus, necessarily provisional.
    As I noted, the economic outcomes that the committee 
participants saw as most likely in their June projections 
involved continuing gains in labor markets, supported by 
moderate growth that picks up over the next several quarters as 
the restraint from fiscal policy diminishes. The committee 
participants also saw inflation moving back toward our 2 
percent objective over time.
    If the incoming data were to be broadly consistent with 
these projections, we anticipated that it would be appropriate 
to moderate the monthly pace of purchases later this year. And 
if the subsequent data continued to confirm this pattern of 
ongoing economic improvement and normalizing inflation, we 
expected to continue to reduce the pace of purchases in 
measured steps through the first half of next year, ending then 
around midyear.
    At that point, if the economy had evolved along the lines 
we anticipated, the recovery would have gained further 
momentum, unemployment would be in the vicinity of 7 percent, 
and inflation would be moving toward our 2 percent objective. 
Such outcomes would be fully consistent with the goals of the 
asset purchase program that we established in September.
    I emphasize that, because our asset purchases depend on 
economic and financial developments, they are by no means on a 
preset course. On the one hand, if economic conditions were to 
improve faster than expected and inflation appeared to be 
rising decisively back toward our objective, the pace of asset 
purchases could be reduced somewhat more quickly. On the other 
hand, if the outlook for employment were to become relatively 
less favorable, if inflation did not appear to be moving back 
toward 2 percent, or if financial conditions, which have 
tightened recently, were judged to be insufficiently 
accommodative to allow us to attain our mandated objectives, 
the current pace of purchases could be maintained for longer.
    Indeed, if needed, the committee would be prepared to 
employ all of its tools, including an increase in the pace of 
purchases for a time, to promote a return to maximum employment 
in the context of price stability.
    As I noted, the second tool the committee is using to 
support the recovery is forward guidance regarding the path of 
the Federal funds rate. The committee has said that it intends 
to maintain a high degree of monetary accommodation for a 
considerable time after the asset purchase program ends and the 
economic recovery strengthens. In particular, the committee 
anticipates that its current exceptionally low target range for 
the Federal funds rate will be appropriate at least as long as 
the unemployment rate remains above 6.5 percent and inflation 
expectations remain well-behaved in the sense described in the 
FOMC's statement.
    As I have observed on several occasions, the phrase, ``at 
least as long as,'' is a key component of the rate policy 
guidance. These words indicate that the specific numbers for 
unemployment and inflation in the guidance are thresholds, not 
triggers. Reaching one of the thresholds would not 
automatically result in an increase in the Federal funds rate 
target. Rather, it would lead the committee to consider whether 
the outlook for the labor market, inflation, and the broader 
economy justifies such an increase.
    For example, if a substantial part of the reductions in 
measured unemployment were judged to reflect cyclical declines 
in labor force participation rather than gains in employment, 
the committee would be unlikely to view a decline of 
unemployment to 6.5 percent as a sufficient reason to raise its 
target for the Federal funds rate. Likewise, the committee 
would be unlikely to raise the funds rate if inflation remained 
persistently below our longer-run objective.
    Moreover, so long as the economy remains short of maximum 
employment, inflation remains near our longer-run objective, 
and inflation expectations remain well-anchored, increases in 
the target for the Federal funds rate, once they begin, are 
likely to be gradual.
    I will finish by providing you with a brief update on 
progress on reforms to reduce the systemic risk of the largest 
financial firms.
    As Governor Tarullo discussed in his testimony last week 
before the Senate Banking, Housing and Urban Affairs Committee, 
the Federal Reserve, with the other Federal banking agencies, 
adopted a final rule earlier this month to implement the Basel 
III capital reforms. The final rule increases the quality and 
quantity of required regulatory capital by establishing a new 
minimum common equity Tier 1 capital ratio and implementing a 
capital conservation buffer.
    The rule also contains a supplementary leverage ratio and a 
countercyclical capital buffer that apply only to large and 
internationally active banking organizations, consistent with 
their systemic importance.
    In addition, the Federal Reserve will propose capital 
surcharges on firms that pose the greatest systemic risk and 
will issue a proposal to implement the Basel III quantitative 
liquidity requirements as they are phased in over the next few 
years.
    The Federal Reserve is considering further measures to 
strengthen the capital positions of large, internationally 
active banks, including the proposed rule issued last week that 
would increase the required leverage ratios of such firms.
    The Fed also is working to finalize the enhanced prudential 
standards set out in Sections 165 and 166 of the Dodd-Frank 
Act. Among these standards, rules relating to stress-testing 
and resolution planning already are in place, and we have been 
actively engaged in stress tests and reviewing the first wave 
of resolution plans. In coordination with other agencies, we 
have made significant progress on the key substantive issues 
relating to the Volcker Rule and are hoping to complete it by 
year end.
    Finally, the Federal Reserve is preparing to regulate and 
supervise systemically important nonbank financial firms. Last 
week, the Financial Stability Oversight Council (FSOC) 
designated two nonbank financial firms. It has proposed the 
designation of a third firm, which has requested a hearing 
before the Council.
    We are developing a supervisory and regulatory framework 
that can be tailored to each firm's business mix, risk profile, 
and systemic footprint, consistent with the Collins amendment 
and other legal requirements under the Dodd-Frank Act.
    Thank you, Mr. Chairman. I would be pleased to take 
questions.
    [The prepared statement of Chairman Bernanke can be found 
on page 61 of the appendix.]
    Chairman Hensarling. Thank you, Mr. Chairman.
    The Chair will recognize himself for 5 minutes for 
questions.
    Mr. Chairman, the first question is probably, in some 
respects, the most obvious question. You are aware better than 
most that, as you testified before the Joint Economic Committee 
on May 22nd, as The Wall Street Journal reports, the stock 
market ``moved up when Mr. Bernanke's congressional testimony 
was released in the morning, near-triple-digit gains when he 
began taking questions, turned negative when the minutes were 
released.'' On June 19th, at the mere hint of tapering, the Dow 
Jones dropped almost 600 points in 2 days. And then recently, 
your comments on July 10th have seen the S&P hit record highs.
    A couple of questions result from this--a couple of quotes, 
first. Warren Buffett has described our stock market as waiting 
``on a hair trigger'' from the Fed. Dallas Fed President 
Richard Fisher describes stock markets as ``hooked on the 
drug'' of easy money.
    You have described your thresholds as providing guidance to 
the market, but you have also qualified that the thresholds 
provide no guidance as to when or how the policy will change 
once those thresholds have been reached. A recent survey of 55 
economists by The Wall Street Journal gives the Fed a D-minus 
for its guidance.
    So can you comment on your guidance, and can you comment on 
Mr. Buffett's and President Fisher's comments?
    Mr. Bernanke. Certainly, Mr. Chairman.
    We are in a difficult environment economically, 
financially, and, of course, we are dealing with unprecedented 
monetary policy developments. I continue to believe that we 
should do everything we can to apprise the markets and the 
public about our plans and how we expect to move forward with 
monetary policy. I think not speaking about these issues would 
risk a dislocation, a moving of market expectations away from 
the expectations of the committee. It would have risked 
increased buildup of leverage for excessively risky positions 
in the market, which I believe the unwinding of that is part of 
the reason for some of the volatility that we have seen.
    And so I think it has been very important that we 
communicate as best we can what our plans and our thinking is. 
I think the markets are beginning to understand our message, 
and that volatility has obviously moderated.
    Chairman Hensarling. I hope you are right.
    Let me change subjects. This committee tomorrow will have a 
hearing on a bill designed to reform Fannie and Freddie. The 
FHA put us on a path toward a sustainable housing policy in 
America.
    The Fed, a number of years ago, released a study that 
estimated that Fannie and Freddie passed on a mere 7 basis 
points subsidy in their interest rates. That was by economists 
Passmore, Sherlund, and Burgess.
    Does the Fed still stand by that study?
    Mr. Bernanke. It was a good study, yes.
    Chairman Hensarling. You have been quoted in the past with 
respect to the GSEs, stating, ``Privatization would solve 
several problems associated with the current GSE model. It 
would eliminate the conflict between private shareholders and 
public policy and likely diminish the systemic risk, as well. 
Other benefits are that private entities presumably would be 
more innovative and efficient than a government agency, in that 
they could operate with less interference from political 
interests.''
    Do you still stand by that statement?
    Mr. Bernanke. I stand by the view that the GSEs, as 
constituted before the crisis, had very serious flaws in terms 
of the implicit guarantee from the government that was not 
compensated, the lack of capital, and the fact that they were 
torn between public and private purposes. So I agree that the 
GSEs were a significant problem.
    Chairman Hensarling. Let me ask you about another one of 
your statements. In 2008, you observed, ``GSE-type 
organizations are not essential to successful mortgage 
financing. Indeed, many other industrial countries without GSEs 
have achieved homeownership rates comparable to that of the 
United States. One device that has been widely used is covered 
bonds.''
    Do you still stand by that statement?
    Mr. Bernanke. Yes.
    Chairman Hensarling. Now, as I understand it, you do 
believe that it is advisable to retain some type of government 
backstop in times of great turmoil, as we saw in 2008. The Fed, 
I believe, has put forth its own plan; is that correct?
    Mr. Bernanke. No, the Fed hasn't put forth a plan.
    Chairman Hensarling. Maybe it is Federal Reserve economists 
Hancock and Passmore?
    Mr. Bernanke. That would be an independent piece of 
research that is not endorsed by the Board of Governors.
    Chairman Hensarling. Okay.
    Regrettably, I see my time has come to an end. The Chair 
now recognizes the ranking member for 5 minutes.
    Ms. Waters. Thank you, Mr. Chairman.
    Mr. Chairman, I am interested in the survey that was done 
by the IMF where they reported that the United States could 
spur growth by adopting a more balanced and gradual pace of 
fiscal consolidation, especially at a time when monetary policy 
has limited room to support the recovery further.
    Specifically, the IMF recommended that Congress repeal the 
sequester, raise the debt ceiling to avoid any severe shocks, 
and adopt a comprehensive, backloaded set of measures to 
restore long-run fiscal sustainability.
    Would you agree with the IMF's conclusion that the 
austerity policies currently in place have significantly 
depressed growth in the United States? And to what extent can 
monetary policy offset the adverse consequences of the current 
contractual fiscal policy?
    Mr. Bernanke. As I have said many times, I think that 
fiscal policy is focusing a bit too much on the short run, and 
not enough on the long run. The near-term policies, which 
include not only the sequester but the tax increases and other 
measures, according to the CBO, are cutting about a percentage 
point and a half, about 1.5 percentage points from growth in 
2013. That would mean, instead of 2 percent growth, we might be 
enjoying 3.5 percent growth. At the same time, Congress has not 
addressed a lot of long-run issues, where sustainability 
remains not yet achieved.
    So, yes, my suggestion to Congress is to consider 
possibilities that involve somewhat less restraint in the near 
term and more action to make sure that we are on a sustainable 
path in the long run. And I think that is broadly consistent 
with the IMF's perspective.
    Ms. Waters. I would like to ask you a question about 
housing finance, since the chairman mentioned that we will be 
meeting to hear about his bill that, among other things, winds 
down the GSEs and effectively ends the government's guarantee.
    While I support reducing the current government footprint 
in the housing market, I am concerned that such a drastic 
reduction will adversely affect homeowners, depress the broader 
economy, and eliminate the 30-year, fixed-rate mortgage as we 
know it.
    How might ending the 30-year, fixed-rate mortgage affect 
access to affordable mortgage credit, the housing markets 
generally, and the Fed's need to continue its extraordinary 
support of the housing market through quantitative easing?
    Mr. Bernanke. I think it is very important that average 
people in America have access to mortgage credit which allows 
them to buy a home if that is what their financial situation 
and their needs require. As long as the product is consumer-
friendly, consumer-safe, protected in that respect, and is 
financially affordable, I don't think it necessarily has to be 
in a specific form. I think there are different ways. Many 
people use different types of mortgage structures.
    I think the main thing, again, it is not the instrument 
itself but, rather, the access of the average American to 
homeownership and to mortgage credit.
    Ms. Waters. To what extent is the structure of a country's 
housing finance system a prime contributor to macroeconomic 
volatility? Would you agree that housing finance systems with 
variable-rate mortgages are the dominant product and more 
vulnerable to extreme bubble-bust cycles in the housing market?
    Mr. Bernanke. That is a good question. I haven't really 
seen evidence on that. In the United States, unfortunately, 
adjustable-rate mortgages were often sold to people who weren't 
really able to manage the higher payments when the payments 
rose, and they weren't very well disclosed. There are other 
countries that have adjustable-rate mortgages where they 
haven't had quite the same problems.
    And I guess one small advantage is that when the central 
bank changes interest rates, it shows up immediately in costs 
of housing, and may be more powerful in that respect.
    But I think the most important issue is disclosure and 
underwriting, making sure that people can afford the costs of 
the mortgage even when the payments go up.
    Ms. Waters. Thank you very much.
    I appreciate your comments about the different types of 
structures. And I suppose your comments about variable-rate 
mortgages are probably consistent with concerns we have about 
no-documentation loans and other kinds of things where we know 
we can't guarantee that those people taking out the mortgages 
are able to repay them.
    Mr. Bernanke. Was there a question? Sorry. I can't hear 
very well.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    Ms. Waters. Thank you very much.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Michigan, Mr. Huizenga, for 5 minutes.
    Mr. Huizenga. Thank you, Mr. Chairman.
    And, Mr. Chairman, I want to quickly cover three areas: 
one, talk a little bit about interest rates; two, talk about 
too-big-to-fail; and three, briefly talk about the Taylor Rule.
    Now, I would be reticent if I didn't pass along a question 
one of my friends had: Should he refinance right now? I think 
that is probably a question a lot of people have. I know I did, 
not that long ago. You may answer if you would like.
    Mr. Bernanke. I am not a qualified financial advisor.
    Mr. Huizenga. That would be part of the problem with Dodd-
Frank. If you don't qualify, then nobody qualifies.
    But I think there is that fear out there, with the increase 
in mortgage interest rates. A lot of us, me coming out of a 
real estate background, I think a lot of us finally said, maybe 
we should be watching what your comments were going to be and 
maybe get clued in.
    But what I am really concerned about is that--and this is 
at some risk to myself of maybe not having a very warm welcome 
next time I am up in New York City visiting some of my friends 
up there. But I am concerned that Wall Street is too dependent 
on the Fed and sort of the signals that you are having, while 
Main Street is really getting buffeted about, whether it is 
interest rates, tax policy, certainly regulatory policy as 
well. And we need to make sure that we are moving beyond that.
    I am sure, who knows, maybe the market just took an uptick 
based on my comments. Or maybe they took a downtick; who knows. 
We know that they are going to be following your comments much 
more closely. But we have to make sure that this is about Main 
Street, not about Wall Street, and how this is going to be 
affecting people back home.
    On too-big-to-fail, we had a hearing last week regarding 
too-big-to-fail, and President Lacker from the Federal Reserve 
in Richmond testified about the new restrictions in Dodd-Frank 
imposed on Section 13.3 of the Federal Reserve Act, an 
emergency provision the Fed used to bail AIG out at the time.
    And he said, ``I think it is an open question as to how 
constraining it is. It says it has to be a program of market-
based access, but it doesn't say that more than one firm has to 
show up to use it. But it certainly seems conceivable to me 
that a program could be designed that essentially is only 
availed of by one firm.''
    Now, do you agree with President Lacker and the new 
restrictions added in 13.3 will not be effective in limiting 
the Fed's freedom to carry out future bailouts? Or even if it 
did, would you have the authority to enforce those limitations?
    Mr. Bernanke. So, on your first point, I just want to 
emphasize that we are very focused on Main Street. We are 
trying to create jobs, we are trying to make housing 
affordable. Our low interest rates have created a lot of 
ability to buy automobiles.
    Mr. Huizenga. Is it fair to say, though, that Wall Street 
has benefited more than Main Street has?
    Mr. Bernanke. I don't think so. We are working through the 
mechanisms we have, which, of course, are financial interest 
rates and financial asset prices. But our goals are Main 
Street, our goals are jobs, our goals are low inflation. And I 
think we have had not all the success we would like, but we 
have had some success.
    I would like to respond to your second one, though, from 
President Lacker.
    Mr. Huizenga. Yes.
    Mr. Bernanke. I don't think that 13.3, as significantly 
modified by Dodd-Frank, could be used to bail out an individual 
firm. According to Dodd-Frank, 13.3 has to be a broadly based 
program. It has to be open to a wide variety of firms within a 
category. It cannot be used to lend to an insolvent firm. It 
requires both the approval of the Board and of the Secretary of 
the Treasury to be used. And it must be immediately 
communicated to the Congress.
    I do not think that 13.3 could be used in that way.
    Mr. Huizenga. Obviously, there may be some disagreement 
within your organization, but I would love to work with you on 
trying to tighten that up.
    The other item, very quickly, in our last minute here, on 
the Taylor Rule. A recent survey of 55 economists by The Wall 
Street Journal gave the Federal Reserve a grade of D-minus for 
its guidance. Now, I would hate to see what it had been 
previously, 10 years ago, let's say.
    But do you believe that these facts indicate a monetary 
policy guidance function that needs more work?
    Mr. Bernanke. I don't know what the grade refers to. It 
could be the fact that there are many different voices at the 
Fed. There are a lot of different views. And I think there is a 
benefit to having a lot of different views. People can hear the 
debate. On the other hand, if people are looking for a single 
signal, it can be a little confusing.
    I think we are doing a reasonable job of communicating our 
intentions and our plans in the context of a complex monetary 
policy strategy.
    Mr. Huizenga. I'm sorry, I have 10 seconds, and so I will 
make it more of a statement, but I would love to follow up with 
you in writing. I think many of us are concerned that when you 
rolled the threshold guidance out, you described it as Taylor 
Rule-like, but many of us are afraid that it may not have as 
much similarity to a rules-based approach. And I look forward 
to working with you on that.
    Thank you, Mr. Chairman.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Missouri, Mr. Clay, the ranking member of the Monetary 
Policy Subcommittee.
    Mr. Clay. Thank you, Chairman Hensarling.
    And thank you, Chairman Bernanke, for being here.
    As you know, the unemployment rate is 7.60 percent. The 
economy added a little over 200,000 jobs per month for the 
first 6 months of this year. In 2012, we averaged about 180,000 
jobs per month. This is a slight increase. And the private 
sector, I would say, added most of the jobs. Under the 
sequester, State and Federal Governments have lost jobs. Any 
forecast on, if the sequester stays in place, what the 
condition of the economy will be in the next year or so?
    Mr. Bernanke. The first observation which you made, which 
is quite right, is that in this recovery, even as the private 
sector has been creating jobs, governments at all levels have 
cut something on the order of 600,000 jobs. In previous 
recoveries, usually the government sector was adding jobs. So 
that is one reason why the recovery has been slow.
    Again, this year, the best estimate I have is the CBO's 
estimate at 1.5 percentage points on growth this year. I can't 
say we are certain about how long those effects will last, but 
our anticipation is that later this year and into next year, as 
those effects become less restrictive, that the economy will 
begin to pick up, and we will see some benefits from that. But 
of course that hasn't happened yet, and we have to keep 
monitoring that.
    Mr. Clay. Shifting to the housing market, which has been a 
drag on the economy for the last couple of years, it has 
recently begun to show signs of turning around. Do you believe 
the increase in housing prices provide evidence that the Fed's 
monetary policy is working, and is there a causal or 
correlative relationship between the two?
    Mr. Bernanke. Yes, I think so. Historically, the two areas 
of the economy which have been most impacted by monetary policy 
are housing and autos, and those are two of the areas right now 
which are leading our recovery. And evidently low mortgage 
rates have contributed, household formation and other factors 
have also contributed, but the housing sector is certainly an 
important component of the recovery at this point. And housing 
prices going up are not only beneficial in terms of stimulating 
more construction, but they also improve the balance sheets of 
households and make them more confident, more willing to spend 
on other goods and services.
    Mr. Clay. And so you are not concerned that recent 
increases in mortgage rates could jeopardize the fragile 
housing recovery?
    Mr. Bernanke. The mortgage rates remain relatively low, but 
they are higher than they were, and we do have to monitor that.
    Mr. Clay. And they are inching up.
    Mr. Bernanke. We will see how they evolve, but we do have 
to monitor that, and we will see how housing and house prices 
go from here.
    Mr. Clay. Do you believe the labor market in which the 
unemployment rate hovers just below 8 percent reflects a new 
normal, as some have suggested? What is a sustainable rate of 
unemployment, in your view, over the medium and long term? And 
what, in your view, could be done to strengthen the aspect of 
the labor force beyond the rate of employment, including wages, 
hours worked, and labor force participation?
    Mr. Bernanke. No. I think we are still far above the 
longer-run normal unemployment rate. To give you one 
illustration, the projections of the participants of the FOMC 
suggests that the long-run unemployment rate might be closer to 
5.2 to 6 percent, but even beyond that, that amount of 
unemployment reflects the fact that there are people who don't 
have the right skills for the available jobs, who are located 
in the wrong parts of the country. So training, education, 
improving the functioning of the labor market, improving 
matching, there are things that can be done through labor 
policy, labor force policy, that could even lower unemployment 
further than the Fed can through just increasing demand.
    Mr. Clay. So say, for instance, in the African-American 
community where male unemployment hovers around 13 or 14 
percent, do you think the Labor Department and community 
colleges and others need to do a better job of connecting job 
training to targeted growth industries?
    Mr. Bernanke. I have seen some very good programs where 
employers, community colleges, and State governments work 
together to try to link up people with jobs, and the community 
college provides the right training.
    Mr. Clay. My time is up. I thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Alabama, the 
chairman emeritus of our committee, Mr. Bachus.
    Mr. Bachus. Thank you, Mr. Chairman.
    Chairman Bernanke, I have not seen a lot of discussion 
concerning the reduction in Treasury issuance with the deficit 
coming down. It seems like that would give you more latitude to 
reduce your purchases of Treasurys. Would you like to comment 
on that?
    Mr. Bernanke. The Fed still owns a relatively small share 
of all the Treasurys outstanding. It is true that as the new 
issuance comes down, our purchases become a larger share of the 
new flow of Treasurys coming into the market. But we have not 
seen that our purchases are disrupting the Treasury market in 
any way, and we believe that they have been effective in 
keeping interest rates low. That being said, as I have 
described, depending on how the economy evolves, we are 
considering changing the mix of tools that we use to maintain 
the high level of accommodation.
    Mr. Bachus. Yes, but the fact that they probably will be 
issuing less is, I think, a factor that you would consider.
    Mr. Bernanke. We would consider that, but our view is that 
what matters is the share of the total that we own, not the 
share of the new issuance.
    Mr. Bachus. All right. Chairman Bernanke, you mentioned 
last year in Jackson Hole that you viewed unemployment as 
cyclical. Do you still believe that it is cyclical and not 
structural?
    Mr. Bernanke. Just like my answer a moment ago, I think 
that probably about 2 percentage points or so, say the 
difference between 7.6 and 5.6 percent, is cyclical, and the 
rest of it is what economists would call frictional or 
structural.
    Mr. Bachus. Have you done any studies--do you think maybe 5 
percent structural and 2 percent cyclical?
    Mr. Bernanke. Most importantly, so far we don't see much 
evidence that the structural component of unemployment has 
increased very much during this period. It is something we have 
been worried about, because with people unemployed for a year 
or 2 years or 3 years, they lose their skills, they lose their 
attachment to the labor market, and the concern is they will 
become unemployable. So far it still appears to us that we can 
attain an unemployment rate--we, the country, can attain an 
unemployment rate somewhere in the 5s.
    Mr. Bachus. Again, the most recent FOMC minutes didn't 
specifically address the 7 percent unemployment target, but you 
mentioned it in your press conference after that. Was that 7 
percent target discussed and agreed on in the meeting?
    Mr. Bernanke. Yes, it was. Seven percent is not a target. 
It was intended to be indicative of the amount of improvement 
we want to see in the labor market. So I described a series of 
conditions that would need to be met for us to proceed with our 
moderation of purchases. We have a go-around where everybody in 
the committee, including those who are not voting, get to 
express their general views, and there was good support for 
both the broad plan, which I described, and for the use of 7 
percent as indicative of the kind of improvement we are trying 
to get.
    Mr. Bachus. Okay. Thank you.
    The FOMC participants have stated, some of them, that their 
assessment of the longer-run normal level of the Fed funds rate 
has been lowered. Do you agree with that?
    Mr. Bernanke. A rough rule of thumb is that long-term 
interest rates are roughly equal to the inflation rate plus the 
growth rate of the economy. The inflation rate, we are looking 
to get to 2 percent. To the extent that in the aftermath of the 
crisis and from other reasons that the economy had a somewhat 
lower real growth rate going forward, that would imply a lower 
equilibrium interest rate as well.
    Mr. Bachus. Okay. You mentioned--GDP estimates also come 
in. They were too optimistic.
    Mr. Bernanke. Yes.
    Mr. Bachus. I think you said earlier you believe one factor 
is the policy decisions made by Congress to a certain extent, 
the sequester, and failing to address the long-term structural 
changes in the entitlement programs.
    Mr. Bernanke. That is right, although I should say that we 
all should keep in mind that these are very rough estimates, 
and they get revised. For example, you get somewhat different 
numbers when you look at gross domestic income instead of gross 
domestic product. But, yes, as I have said a couple of times 
already, I think that Congress would be well-advised to focus 
more on the longer term.
    Mr. Bachus. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from New York, Mrs. 
Maloney.
    Mrs. Maloney. It is my understanding that we are going to 
people who did not have the opportunity to ask questions at the 
last hearing, so the next person would be Mr. Perlmutter.
    Ms. Waters. Mr. Perlmutter was next on the list, not Mrs. 
Maloney, so would you please call--
    Chairman Hensarling. I am happy to do it. It is just the 
list that we received from you, but we are very happy to 
recognize the gentleman from Colorado for 5 minutes.
    Mr. Perlmutter. Sure you are. I thank the Chair, and I 
thank the gentlelady from New York.
    Mr. Chairman, it is good to see you. As always, I think--I 
just want to compliment you on being a steady hand through all 
of this. In terms of fiscal policy, we had a very expansionary 
policy, and now we have had a very contractionary policy. And 
to sort of piggyback a little bit on Mr. Bachus' question and 
Mr. Clay's, and I am looking at page 11 of your report where it 
says, ``The Congressional Budget Office estimated that the 
deficit-reduction policies in current law generating the 2\1/4\ 
percentage point narrowing in the structural deficit will also 
restrain the pace of real GDP growth by 1\1/2\ percentage 
points this calendar year, relative to what it would have been 
otherwise.''
    What does 1\1/2\ percent of real GDP mean in terms of jobs 
and wealth? And, 1\1/2\ percent is just a number. What is that?
    Mr. Bernanke. It is very significant. The CBO also 
estimated that 1\1/2\ percentage points was something on the 
order of 750,000 full-time equivalent jobs. I think with 
another 1\1/2\ percentage point of growth, we would see 
probably unemployment down another 7- or 8/10, something like 
that. So it makes a very big difference. It is very 
substantial.
    Now, again, we are hoping that as the economy moves through 
this period, we will begin to see more rapid growth later this 
year and into next year.
    Mr. Perlmutter. Okay. So let us talk about--you have a 
graph, and I don't know if you have your report in front of 
you, but the graph on the preceding page, 10, graph A, Total 
and Structural Federal Budget Deficit 1980 to 2018. Do you see 
that?
    Mr. Bernanke. Yes.
    Mr. Perlmutter. Can you explain that graph? It looks to me 
like at some point there isn't--you project or there is a 
projection here of no structural deficit in about 2017, 2018. 
What does that mean?
    Mr. Bernanke. That means taking away the effects of the 
business cycle. The business cycle causes extra deficit, 
because with the economy weak, you get less tax revenue. You 
have more spending on social programs of various kinds. What 
that is saying is that if we were at full employment, that in 
2015, I believe it is, the structural deficit would be close to 
zero. That is the CBO estimate.
    Mr. Perlmutter. Okay. I now kind of want to turn to some 
other questions, if I could. Mr. Huizenga and Mr. Clay were 
also asking you about interest rates, and you said we are at 
historically low interest rates. I would recommend to you, and 
you probably already know about, an app that you guys have that 
I can get on my iPad. It is called The Economy, and it shows--
this one shows how we have been doing over the last 40 years. 
And we are--it was way up here in, like, 1980 at about 18 
percent, and then way down here at about 3.3 percent about 2 
months ago. And so we have come way down, except that in the 
last 2 months--see, what is good about this app, you can also 
do it on a 1-year basis. And on a 1-year basis, it shows that 
from April 2013 to the end of June, we went about straight up, 
about 33 percent increase in interest rates, which was from 3.3 
percent to about 4.5 percent.
    Mr. Bernanke. You are talking about mortgages now?
    Mr. Perlmutter. Mortgage rates, yes, sir.
    So how does that come about?
    Mr. Bernanke. There will be three reasons for it. The first 
is that the economic news has been a little better. For 
example, there was a pretty strong labor market report that 
caused yields to go up as investors became more optimistic.
    A second factor is probably that some excessively risky or 
leveraged positions unwound in the last month or two as the 
Federal Reserve communicated about policy plans. The tightening 
associated with that is unwelcome, but on the other hand, at 
least there is the benefit of maybe perhaps reducing some of 
those positions in the market.
    Mr. Perlmutter. The concern I have, and I think it was 
expressed by both Mr. Huizenga and Mr. Clay, is that one of the 
underpinnings of this recovery, you said, is that now housing 
is beginning to get much stronger. It was historically so weak, 
but this kind of increase, if it continues, is going to slow 
that down. Wouldn't you agree?
    Mr. Bernanke. I agree that we need accommodative monetary 
policy for the foreseeable future, and I have said that.
    Mr. Perlmutter. Thank you.
    And I thank the Chair. I yield back.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from California, Mr. Miller, for 5 minutes.
    Mr. Miller. Mr. Bernanke, welcome. I want to thank you for 
listening to us.
    On the recent ruling on Basel III, you acknowledge 
insurance companies are very different from banks, and you 
postponed any negative decision on that. I think that was a 
very, very wise move.
    You are probably aware that the committee is about to 
consider a housing finance reform bill. I have looked at the 
GSEs in the past, and I have always had a problem with the way 
they were fundamentally flawed. You had a hybrid situation 
where the private sector made all the profits, and the 
taxpayers took all the risk, which was problematic from the 
beginning. You can go back to a time when you could say they 
performed their function very well, but they created major 
problems. In recent years, they didn't adhere to underwriting 
standards. They were buying predatory loans rather than 
conforming loans. They were chasing the market rather than 
playing a countercyclical role, and that has been very 
problematic.
    Now we look at a situation and say, what do we do and where 
do we go? And if the United States were to end the function of 
the GSEs as it applies to conforming loans, would the private 
market be able to provide liquidity to the market? And the 
second part of that is, what about the time of crisis? Would 
investors be there to purchase mortgage-backed securities, and 
would interest rates tend to rise in that type of situation?
    Mr. Bernanke. Let me first say that I agree with your 
analysis of GSEs. And the Fed for many years was warning about 
lack of capital, the implicit guarantee, the conflict between 
public and private motives, and so we agree that is something 
that needs to be fixed.
    There are a number of plans out there for reform. I think 
everyone agrees that one of the key questions is what role, if 
any, the government should play. It seems pretty clear that the 
private sector should be playing more of a role than it is now. 
Right now, we have basically a government-run mortgage 
securitization market, but in order to protect the taxpayer, to 
increase efficiency, to allow for more product innovation and 
so on, we would like to have more market participation.
    But, again, the question is what role should the government 
play? I don't know the answer to that, but I would say that, 
first, if the government does play a role, it should be fairly 
compensated; that is, instead of having an implicit guarantee 
that it ended up having to make good on, like the FDIC or some 
other similar institution, it should receive some kind of 
insurance premium.
    Mr. Miller. And I think that is important, because I have 
argued for a position where if you are going to have a conduit, 
let us say a facility to replace the GSEs, then the profits 
from the g-fees should go into a reserve account to make sure 
that is solvent. And then if you have a reinsurance fee when 
the mortgage-backed security is sold, that should also go in a 
reserve account. And when the account goes up large enough over 
7 or 8 years, there is no need for a government guarantee, 
because the reserves will be so huge based on the profits that 
they would turn, based on what they historically have done, you 
wouldn't put the taxpayer at risk.
    But the problem we have had in the past, and I have always 
had a problem with it, is when you have investors investing in 
GSEs, the GSEs at that point in time chase market share to make 
investors happy. That is not their role. Their role is to be 
countercyclical.
    But I am also concerned that if we make a mistake, the 
government is still going to be there on the hook, because they 
are not going to let the housing market crumble if something 
goes wrong. So if you don't have some entity that is self-
sufficient, has huge capital to make sure that it can withstand 
a downturn, we are going to end up in the situation again. 
Maybe you can respond to that?
    Mr. Bernanke. I think that is right. Either you have to be 
100 percent confident in the private thing you set up, or 
alternatively, if you think there is a scenario in which the 
government would come in ex post, then it might be a good idea 
to make sure the government gets paid appropriately ex ante, 
and that the rules of the game are laid out in advance.
    Mr. Miller. But instead of the government, if you can 
create a facility that was independent of government, but 
established by government, let us say, that the profits were 
held, and they were not abused by Congress as a slush fund to 
be able to take the money from, if you just look at the profits 
that GSEs are making today, if there is an entity doing that of 
an equivalent that was backed by some guarantee for ``X'' 
amount of years to allow the market to recover and stability to 
occur, and those reserves--and the g-fee alone probably in 8 to 
10 years would be $800 billion minimum if you charge a 
reasonable reinsurance fee on the mortgage-backed securities, 
that is probably $200 billion in 8 to 10 years. You have a 
trillion dollars, which is 6 times the risk the government took 
in the worst downturn we have ever seen, would that not add to 
market security and stability?
    Mr. Bernanke. The question there, I think, is whether this 
new entity could charge those g-fees if you had competition, 
and would you be allowing private-sector competition.
    Mr. Miller. The goal is to allow the private sector in. 
They are not crowding in today, and that is what we want to do. 
We want to get them in, but we still need to provide a surety 
and liquidity. That is my concern.
    Mr. Bernanke. That is right.
    Mr. Miller. Thank you. I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Massachusetts, 
Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman.
    And welcome, Chairman Bernanke, and thank you for your 
service and your willingness to come before the committee and 
help us with our work.
    I want to stay right on that line of questioning that Mr. 
Miller actually began. As you may know, both the House and 
Senate are actively considering legislative proposals to reform 
the GSEs, and I think most of us on both sides of the aisle 
realize some reform is necessary.
    Now, I won't ask you to comment on any particular 
legislative proposal, I am not sure you would anyway, but you 
are a scholar of the Great Depression, and, as you know, Fannie 
Mae and the FHA are sort of creations of the New Deal, and they 
are--I wanted to ask you, historically the 30-year fixed 
mortgage, which is really a major innovation, prior to the 
government getting in, GSEs getting in and providing that 
backstop, was that available and--
    Mr. Bernanke. No.
    Mr. Lynch. --was the private sector successful in trying to 
create that?
    Mr. Bernanke. During the Depression and that period of 
time, people usually took out 5-year balloon mortgages and 
refinanced them sequentially.
    Mr. Lynch. In terms of the last 80 years of government 
support, and that is really what has created opportunities for 
middle-income homeowners--well, middle-income potential 
homeowners from getting into the market, and as we are 
grappling with this GSE reform, I am very concerned about what 
happens to rates. I can't--I do agree with Mr. Miller, there 
seems to be some requirement of a backstop at some point, and 
obviously you want the taxpayer to be as far back as possible, 
and that the initial cushion or the initial loss, if necessary, 
would be absorbed by the private sector. And we are trying to 
figure out a way of preserving an affordable 30-year fixed 
mortgage, keep that market going, without having the taxpayer 
take all that risk up front. That is what we are trying to 
grapple with, and I am wondering if you can help us with that.
    Mr. Bernanke. Earlier, the chairman asked me about passing 
on subsidies to the consumer. I don't think that government 
backstops are very effective in lowering rates unless they have 
a price control on the interest rate that the--
    Mr. Lynch. Isn't that a function of risk, though? If the 
private sector knows that at a certain point--like with the 
terrorist risk insurance that we debated here, because the 
industry knew there was a backstop beyond which they would not 
be responsible, it did, in fact, result in a lower rate.
    Mr. Bernanke. Right, to some extent, but a lot of it 
doesn't get passed through.
    What I was going to add, though, was that the argument for 
thinking about government participation is exactly the 
situation like we faced the last few years where there is a big 
housing problem, and private sector mortgage providers or 
securitizers are, for whatever reason, not willing to act 
countercyclically, then is there a role for the government to 
support this process? And the question we were just discussing 
is if that is going to happen anyway, is there a case for 
setting up the rules in advance in some sense and figuring out 
what the government ought to charge for whatever protection it 
is prepared to provide?
    Mr. Lynch. Okay. Sir, I want to thank you for your service. 
I have heard stories that this might be your last appearance 
before this committee for this purpose, and I think you have 
served us very well under very, very difficult circumstances--
    Mr. Bernanke. Thank you.
    Mr. Lynch. --and I appreciate your service to your country. 
Thank you.
    I yield back.
    Chairman Hensarling. The gentleman yields back.
    The Chair recognizes the gentleman from California, Mr. 
Royce.
    Mr. Royce. Thank you, Mr. Chairman.
    Chairman Bernanke, I think the risk weighting at the end of 
the day is only as good as the metrics that we develop. I am 
thinking back to Basel I, and now we are looking at the final 
Basel III.
    The Basel III includes a risk weighting of 20 percent for 
debt issued by Fannie Mae and Freddie Mac, and the rule 
includes a risk weighting of zero for unconditional debt issued 
by Ireland, by Portugal, by Spain, and by other OECD countries 
with no country risk classification. Both of these risk 
weightings are, in my memory, identical to the risk weightings 
under the original Basel I.
    So my concern is that we should have learned a few things 
about those metrics, given the consequences of the clear 
failure, and yet here we have the accord of 1988 looking an 
awful lot like this particular accord.
    Given what we have experienced, the failure of the GSEs, 
the propping up of many European economies, do you think these 
weightings accurately reflect the actual risk posed by these 
exposures?
    Mr. Bernanke. Basel III and all Basel agreements are 
international agreements. And each country can take that floor 
and do whatever it wants above that floor. We would not allow 
any U.S. bank to hold Greek debt at zero weight, I assure you.
    Mr. Royce. Yes.
    Mr. Bernanke. In terms of GSEs, GSE mortgage-backed 
securities have not created any loss whatsoever. They have to 
the taxpayer, but not to the holders of those securities. So 
that, I don't think, has been a problem.
    It is not just the risk weights, though, but Basel III also 
has significantly increased the amount of high-quality capital 
the banks have to hold for a given set of risky assets.
    Mr. Royce. But it still seems to me that at the end of the 
day, in which--with respect to what you are working out as a 
calculation, you have a situation where high-risk countries 
like Spain and Portugal, should they receive the same risk 
weight as exposures to the United States? And that is the way 
that would be handled, I think, in Europe, but it just seems 
that should have been addressed in the calculus.
    Mr. Bernanke. One way to address it is through stress 
testing, where you create a scenario which assumes that certain 
sovereign debt bears losses, and then calculate capital into 
those scenarios. So, that is a bit of a backstop.
    Mr. Royce. Let me ask you another question, which goes to 
this issue of the countercyclical role in the housing market 
that the government should play. And such a role obviously 
would be far better than the role government played during the 
last crisis, which was extraordinarily procyclical, if we look 
back over the greatly ballooned bubble and subsequent bust that 
was developed as a result of housing policy and a lot of the 
actions taken.
    Title II of the PATH Act has several provisions meant to 
allow FHA to play that countercyclical role. The goal obviously 
is to greatly expand eligibility, right, during the PATH Act--
if the PATH Act were enacted, and that would get us to the 
point of that borrower eligibility in such a circumstance.
    Would you agree enabling FHA to play an expanded role in 
times of crisis, as suggested under the Act, will help ensure 
continued access to the mortgage market for a great majority of 
borrowers regardless of the market conditions that we might 
face?
    Mr. Bernanke. I am not advocating a specific plan. I am 
just pointing out that we need to think about the situation 
where there is a lot of stress in the market, and then we need 
some kind of backstop. I obviously haven't studied this 
proposal, but it seems to me that FHA could be structured to 
provide such a backstop. It would depend on the details, but 
that would be one way to have the government provide a 
backstop.
    Mr. Royce. I thank you very much, Chairman Bernanke, for 
attending the hearing here today and for your answers. And we 
will probably be in consultation later with some additional 
questions.
    Mr. Bernanke. Certainly.
    Chairman Hensarling. The gentleman yields back.
    The Chair recognizes the gentleman from Texas, Mr. Green.
    Mr. Green. Thank you, Mr. Chairman.
    And thank you, Mr. Bernanke, for appearing again. And I 
trust that this will not be your last visit. I believe that our 
country has benefited greatly from your service, and not just 
the service itself, but the way you have conducted yourself in 
a time of great turmoil, so I am hopeful that you will be back.
    I would like to, for just a moment, ask you to visit with 
us about the issue of certainty and uncertainty, confidence, 
optimism, because while you may do a lot of things, if consumer 
confidence or producers don't have confidence, that can have a 
significant impact on long-term growth. Confidence is important 
to growth.
    I read through your paper, by the way, and I am very, very 
excited about some of the things that you have said, but I 
didn't get quite enough on the question of confidence. Would 
you please elaborate a bit?
    Mr. Bernanke. I think it is quite true that business 
confidence, homebuilder confidence, and consumer confidence are 
very important, and good policies promote confidence. The Fed 
policy, congressional policy, we want to try to create a 
framework where people understand what is happening, and they 
believe they have confidence that the basics of macroeconomic 
stability will be preserved.
    It is a difficult thing. To some extent, it is a political 
talent to be able to create confidence in your constituents. So 
nobody has a magic formula for that, but clearly the more we 
can demonstrate that we are working together to try to solve 
these important problems, the more likely we are going to 
instill confidence in the public, and that in turn will pay off 
in economic terms.
    Mr. Green. I compliment you, and I would like to focus on 
one aspect of what you said about working together. I contend 
that this is an important element in instilling confidence. And 
I believe that the American economy is quite resilient. It is 
strong, notwithstanding some of the weaknesses that have been 
exposed. The reason I know it is strong is because it has 
survived Congress. If the economy can survive Congress, I am 
confident that it will thrive eventually. But things that we 
do, repealing continually, or attempting to repeal some of the 
significant aspects of bills that have passed that will impact 
the American people, I am not sure how much confidence these 
things engender. More than 30, 40 attempts to repeal the 
Affordable Care Act, an attempt to repeal Dodd-Frank without 
replacement, an attempt to repeal the CFPB without a good sense 
of what the replacement will be.
    It seems to me that at some point we in Congress have to do 
more to engender the confidence that will cause the American 
people to want to buy, to want to invest, to want to produce. 
And I think that Congress has a significant role it could play, 
and unfortunately we have not--we have not been able to work 
together to the extent that the American people are confident 
that we will do things to help create jobs, to help build a 
broader economy. You have been very focused on jobs, very 
focused. We have not been as focused on jobs. Legislation that 
can produce jobs, much of it has lingered and has not had an 
opportunity to move forward.
    I just believe that in the final analysis, your good work, 
while it is going to be lauded and applauded, still needs some 
help from the policymakers in terms of working together to 
instill confidence. Confidence is needed. I think this economy 
is ready to blossom, but when I talk to business people, they 
say to me, we need confidence, we need to know that the rules 
are going to be static and not dynamic. Consumers say to me, I 
need confidence. I will buy a house when I am confident that 
the system is going to remain static and not dynamic.
    I thank you for your service, and I trust that we will be 
able to help instill the confidence to augment and supplement 
the good work that you have done.
    Mr. Bernanke. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair recognizes the gentleman from Virginia, Mr. Hurt.
    Mr. Hurt. Thank you, Mr. Chairman.
    And thank you, Chairman Bernanke, for being here today, and 
we thank you for your hard work.
    I represent a rural district in Virginia, one that has not 
seen the same economic growth that other places in this country 
have seen. We still have places in our district where we have 
jobless rates at double digits. And we certainly look to 
Washington to adopt policies that will make it easier for our 
businesses to succeed, our families to succeed, as opposed to 
making things more difficult.
    In listening to your remarks, you talk about systemic--
adopting policies that go to systemic importance. Obviously 
Basel III, it seems to me you discussed Basel III in terms of 
what is systemically important. You also tip your hat to Main 
Street, talking about how the Fed has adopted policies to 
support Main Street, jobs, consumers, things that we all care 
about.
    In the aftermath of the rules that were adopted earlier 
this month relating to Basel III, Frank Keating with the 
American Bankers Association said that--asked the question, are 
we making things easier, or are we making things more 
difficult, and essentially said, if we are making them harder, 
that is not what we need for our economy. That is not what a 
recovering economy needs.
    So as I think about what we need in my rural southside 
Virginia district, I think about community banks, and I think 
about what an important lifeblood they are to our Main Street 
economy. And I wonder if you could talk a little bit about the 
reasoning behind not just exempting community banks from the 
application rule that you all have adopted, and why you did 
that.
    Mr. Bernanke. And I agree with you about the importance of 
community banks, particularly in rural areas which might not be 
served by larger institutions. It is also important, of course, 
for community banks to be well-capitalized so that they can 
continue to lend during difficult periods, they don't fail, so 
we want to be sure that they are well-capitalized.
    But in terms of the final Basel III rule that we just put 
out, we were very responsive to the concerns raised by 
community banks. They raised a number of specific issues 
relating, for example, to the risk weighting of mortgages, 
relating to the treatment of other comprehensive income, trust 
preferreds, a variety of things that they were concerned about, 
which we responded to. And that is part of our broader attempt 
through outreach, through meeting with advisory councils and so 
on to understand the needs of community banks and to make sure 
that we do everything we can to protect them. The--
    Mr. Hurt. Have--go ahead.
    Mr. Bernanke. I was going to say that Basel III is 
primarily aimed at the largest internationally active firms, 
and most of the rule was just not relevant to small firms.
    Mr. Hurt. Clearly, you all tried to make some 
accommodations for community banks, and I recognize that. I 
guess my question is, is there a reason that you all--if you 
could talk a little bit about why you all concluded that you 
could not exempt them entirely.
    And I guess the second question that I have is, do you 
think--based on your studies or anybody else's studies--that 
these rules will have a disproportionate effect on community 
banks? Obviously, that is the heart of the concern, that the 
smaller banks have a much more difficult time complying with 
regulations than obviously the largest banks.
    Mr. Bernanke. Again, I don't think that Basel III is 
primarily aimed at community banks. And the amount of 
bureaucracy and rules is not significantly different from what 
they are doing now. In terms of capital, the community banks 
already typically held more capital as a ratio than larger 
banks do, and our calculations are that community banks are 
already pretty much compliant with the Basel III rules. We 
don't expect them to have to raise substantial amounts of new 
capital.
    Mr. Hurt. So you don't believe there will be a 
disproportionate effect on the smaller banks in complying with 
these additional regulations?
    Mr. Bernanke. Smaller banks are disproportionately affected 
by the entire collection of rules that they face, ranging from 
bank secrecy to a variety of consumer rules, et cetera, et 
cetera. I think that your constituents may not be 
distinguishing Basel III specifically from all the other 
different rules that they face. And, of course, the small bank 
just has fewer resources, fewer people to deal with the range 
of regulatory and statutory requirements that the banks have to 
deal with.
    Mr. Hurt. And just finally, in one of your earlier 
appearances here, we talked a little bit about the regulatory 
structure, what is perceived among some as a micromanagement by 
bank examiners and regulators in the function of the Federal 
Reserve as an examiner. Are you able to give us any indication 
of what has been done in the last 2 years or so to try to 
improve that? I know that you had mentioned that there were 
some things that the Federal Reserve had in mind and was trying 
to work with our smaller banks.
    Mr. Bernanke. Yes. I am not going to have time to go 
through the whole list, but we have a Community Depository 
Institution Advisory Council that meets with the Board, and 
gives us their perspective. We have a special subcommittee.
    Mr. Hurt. My time has expired, but do you believe that 
these efforts have been successful?
    Mr. Bernanke. I think we have made definite progress, yes.
    Mr. Hurt. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Cleaver.
    Mr. Cleaver. Thank you, Mr. Bernanke, for being here. You 
have had a lot of compliments today. In my business, it is 
called a eulogy, but that is--I am not trying to frighten you. 
Even the Twinkie came back. But I also want to thank you for 
your service.
    The stimulus, the Fed stimulus, has been roundly criticized 
by many. Can you in a short time express what you believe would 
be the consequences of easing quantitative easing prematurely?
    Mr. Bernanke. Again, it is important to talk about our 
overall monetary policy stance. Our intention is to keep 
monetary policy highly accommodative for the foreseeable 
future, and the reason that is necessary is because inflation 
is below our target, and unemployment is still quite high.
    In terms of asset purchases, though, I have been very clear 
that we are going to be responding to the data, and if the data 
are stronger than we expect, we will move more quickly, at the 
same time maintaining the accommodation-to-rate policy. If the 
data are less strong, if they don't meet the kinds of 
expectations we have about where the economy is going, then we 
would delay that process or even potentially increase purchases 
for a time.
    So we intend to be very responsive to incoming data both in 
terms of our asset purchase program, but it is also very 
important to understand that our overall policy, including our 
rate policy, is going to remain highly accommodative.
    Mr. Cleaver. Thank you.
    One of your former colleagues, Tom Hunting, from my 
hometown, has repeatedly warned in papers that he has written 
that too-big-to-fail is still a major threat to the U.S. 
economy. He suggests that in many instances, many of the huge 
financial institutions have gotten even larger. Do you think 
that if we went through again what we went through a few years 
ago, that we would be in a situation where we would almost be 
required to save the U.S. economy and perhaps even the world 
economy from a depression because those--or we would have to 
step in again to bail out these major corporations, AIG and--
    Mr. Bernanke. I think there is more work to be done before 
we feel completely comfortable about systemic firms. The Dodd-
Frank Act and Basel III and other international agreements 
provide a framework for working towards the day, which is not 
here yet, where we can declare too-big-to-fail a thing of the 
past, but we do have some tools now that we didn't have in 
2008, 2009.
    Very importantly, we have the Orderly Liquidation Authority 
of the FDIC--the Federal Reserve supports the FDIC in that--
which would allow us to do a much more orderly resolution of a 
failing firm that would take into account the impact on 
financial market stability, unlike 2008, 2009, when we had no 
such tools and were looking for ad hoc ways to try to prevent 
these firms from failing. In addition, these firms are now much 
better capitalized than they were. And we are making other 
reforms that will make it much less likely that this situation 
will arise.
    But I wouldn't be saying the truth if I said the problem is 
gone. It is not gone. We need to keep following through on the 
various programs here, and I think we need to keep doing what 
is necessary to make sure that this problem is solved for good.
    Mr. Cleaver. But the question is--and I was here as we went 
through all of this. We didn't have the time, we were told, and 
actually I believe, to rationally and thoughtfully consider all 
the options. And my fear is that if something happened even--I 
agree with you. In Dodd-Frank, we tried to reduce the 
likelihood that this was going to happen, but what assurance do 
we have that we would have time for action by the Fed, by 
Congress? Thank you.
    Mr. Bernanke. We have the framework now. We have the 
Orderly Liquidation Authority.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair recognizes the gentleman from Ohio, Mr. Stivers.
    Mr. Stivers. Thank you, Mr. Chairman. And Chairman 
Bernanke, thank you for being here today. I really appreciate 
your willingness to come and answer all our questions. I am 
going to try to get through Basel III as well as some QE 
questions, and we will see how my time goes.
    The first thing I want to talk about is following up on the 
questions Mr. Hurt asked. And you--I will try to quote. You 
said that Basel III was not primarily aimed at community banks, 
and it is clear that it is aimed at the larger financial 
institutions which helped create the financial crisis. And I 
agree with you that it won't result in most community banks 
having to raise capital, because their capital is normally 
higher, but for a few community banks that don't have capital 
right now, where they have not as much access to the capital 
markets, it actually could harm them. And none of these banks 
are going to be too-big-to-fail; nobody is going to come in and 
bail them out. They also aren't so interconnected. And I am 
just curious why, given that Basel III is voluntarily compliant 
internationally, we didn't just exempt out the community banks?
    Mr. Bernanke. I think it is important that they be well-
capitalized, both to protect the deposit insurance fund, to 
protect their local communities and the borrowers that depend 
on them. And we have seen--in the past we have seen financial 
crises that were small firms, like in the Depression and in the 
savings and loan crisis, so I think they do need to have 
capital.
    But on this issue that you mentioned, we are giving really 
long transitions. We aren't saying, you have to have this level 
of capital tomorrow. And so banks can raise capital through 
retained earnings and through other mechanisms as well.
    Mr. Stivers. Right. And I appreciate that. I don't think it 
is a burden on most community banks, but I do worry about a few 
of them, and I think it could result in consolidation in the 
industry and less community banks that serve some of our rural 
areas, and that troubles me a little bit.
    Mr. Bernanke. No. I agree with that concern.
    Mr. Stivers. The second thing I want to recognize in your 
Basel III is that you, I think appropriately, recognize that 
activity, for example, international activity, increases 
systemic risk, but I was a little troubled that you continue to 
use artificial asset numbers.
    I am from Ohio. We have a lot of regional banks that serve 
the middle market that are either based in Ohio or have a major 
presence in Ohio. And, you use the $10 billion number at very 
bottom for the smallest banks; the $50 billion up to $250 
billion. And if you look at sort of the size of all the 50 
largest banks in America, there is really--there are kind of 
some tiers. There are the top banks above $2 trillion, and 
there are 3 of those, I think--I'm sorry--2 of those--there are 
2 more above $1 trillion, between $1 trillion and $2 trillion, 
and then there are 3 more above half a trillion dollars, but 
then it falls way off to 350. And you set that top limit for 
regional banks at 250. And there are banks that are regional 
banks that are essentially super community banks that are above 
that 250 to 350. A couple of them have a major presence in Ohio 
and serve our middle market.
    And I guess I would ask where you picked that artificial 
number of 250, because most people would recognize both PNC and 
U.S. Bank as regional banks.
    Mr. Bernanke. We have met with middle-market banks and 
tried to understand their concerns. The basic philosophy here 
is that both the capital requirements and the supervisory 
requirements are gradated with size. So, for example, the 
largest banks will have capital surcharges. Where we have 
failed to gradate appropriately, of course, we can go back and 
try to figure out how to get it right.
    Mr. Stivers. I appreciate that. And I would really urge you 
to take a look at the major cliffs in our asset sizes, because 
they really do--that spell themselves out. And I think the big 
jump between, say--there are no banks between $350 million and 
$500 million. There are 2 at just above $350 million, and then 
there is nobody until you get to almost $550 million. So, that 
is a big jump, and I think--I would urge you to take a look at 
that.
    And the last question I would like to quickly ask is 
about--you talked about stress testing a lot for the banks. And 
in your QE and the way you judge QE portfolio, would you be 
willing to submit the Federal Reserve's QE to the same kind of 
stress testing under the same kind of provisions you provide 
for these banks of potential interest rate spikes and 
inflation?
    Mr. Bernanke. The stress test has a different purpose for 
the Fed, which is to effect how much remittances we send to the 
Treasury. And we have done various stress tests in that 
respect, and many of them are publicly available. We have a 
number of research papers. And there are also outside 
researchers, the IMF and others, who have done these tests. And 
the bottom line is that for any reasonable interest rate path, 
this is going to end up being a profitable policy for the 
taxpayer.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair recognizes the gentleman from Michigan, Mr. 
Peters.
    Mr. Peters. Thank you, Mr. Chairman.
    And, Chairman Bernanke, thank you for being here today and 
for your service.
    Last week, the Bank of Japan announced that they were going 
to maintain their current monetary policy, which, as you know, 
includes significant devaluation of the yen for the purposes of 
improving the competitiveness of Japanese exports. The yen has 
fallen in value almost 30 percent compared to the dollar since 
last year. And Japan, as you also know, is joining the U.S.-led 
Trans-Pacific Partnership trade talks.
    I have raised a number of concerns about Japan's entry into 
the trade talks until they open their markets, particularly to 
U.S. autos. And while they continue to manipulate their 
currency, this increases my concerns, and it could make our 
trade deficit even worse.
    I know in 2011 you expressed concern with China's 
devaluation of their currency. I am quoting you saying, ``Right 
now our concern is that the Chinese currency policy is blocking 
what might be a more normal recovery process in the global 
economy, and it is to an extent hurting our recovery.''
    Could you please discuss your views on Japan's currency 
policy, its impact on the economy, and do you believe that 
their currency policy is hurting the economic recovery in the 
globe right now?
    Mr. Bernanke. Yes. There are some fundamental differences 
between China's policy and Japan's policy. China has managed 
its exchange rate and kept it for many years below its 
equilibrium level in order to increase its exports. That is 
what economists call a zero sum game: What they gain we lose, 
basically.
    The Japanese approach is different. They are not 
manipulating their exchange rate. They are not directly trying 
to set their exchange right at a given level. What they are 
doing is engaging in strong domestic monetary policy measures, 
trying to break the deflation that they have had for about 15 
years, and a side effect of that is that the yen has weakened.
    The G20 and the G7 have discussed these matters, and the 
international consensus is that as long as a country is using 
domestic policy tools for domestic purposes, that would be an 
acceptable approach.
    Now, I recognize that movements in exchange rates do affect 
competition. You said you are from Michigan, right? Yes. So I 
can see where your concern would come from. I think that it is 
in our interest, though, to see Japan strengthened, to see 
their economy grow faster. It will increase our market there as 
well as the competitive supply. And over time, if they do, in 
fact, achieve positive inflation, that increase in prices there 
will partially offset the exchange rate movement.
    So, I recognize the concern. I don't know how big an effect 
it has had so far. I have actually talked to a couple of people 
in the auto industry at some of the companies to try and get 
their sense. But, again, there is a difference, which is that 
Japan is trying to expand its overall economy, and therefore, 
there is a benefit as well as a cost, and that benefit is a 
stronger Japanese economy and a stronger Asian market.
    Mr. Peters. To pick up from that point, so if you could 
kind of give me some sense, as you wind down your quantitative 
easing activities while Japan maintains this current policy 
which is driving down the yen, do you believe it is going to 
have an impact on American manufacturing and exports as you 
wind down as they continue that policy?
    Mr. Bernanke. It could. It could to some extent, but, of 
course, as you know, for example, many Japanese producers 
produce in the United States, and there is a sense that for a 
number of reasons, including productivity and others, that U.S. 
manufacturing is actually generally becoming more competitive 
globally than it has been in some time. So I don't think that 
this change in the value of the yen would offset that 
underlying trend.
    Mr. Peters. If I could just switch briefly, this is another 
big topic, but if you could touch on it. There have been some 
recent reports, in fact, a recent IMF report came out to talk 
about monetary policy and its impact on inequality in the 
United States. As you know, inequality has expanded 
dramatically, particularly in the last 20, 30 years. And in the 
report they talk about monetary policies having a much more 
significant role in driving historical inequality patterns in 
the United States than has been expected in--or that has been 
anticipated and certainly written about in the economic 
literature. Would you comment briefly? Do you believe that 
monetary policy has a significant impact on inequality as we 
are seeing it and--
    Mr. Bernanke. No, I don't think so. The purpose of monetary 
policy is, first of all, to keep inflation low, and everybody 
is affected by inflation, and to maintain employment at the 
highest level that the economy can sustain. And, of course, 
jobs are critical to the welfare of the broad middle class of 
Americans. So I really don't understand that.
    It is true that in the short run, some of the tools that we 
have involve changing asset prices, so higher stock prices and 
things of that sort, but we can't affect those things in the 
long run. It is only a short-run transmission mechanism that is 
involved there.
    Mr. Peters. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair recognizes the gentleman from Tennessee, Mr. 
Fincher.
    Mr. Fincher. Thank you, Mr. Chairman.
    And, Chairman Bernanke, thank you for your service and for 
being here today.
    I am going to read a paragraph, for my benefit probably 
more than yours, to get started, and then I have a couple of 
questions.
    ``The Federal Reserve was intended to be a fully 
independent central bank and monetary authority. The authors of 
the original Federal Reserve Act did not want to subject the 
institution to the whims of politicians, but, rather, set clear 
objectives for the institution in the interests of fostering 
the macroeconomic stability. That independence has eroded 
significantly since the 2008 financial crisis, when the Federal 
Reserve and the Treasury Department initially took coordinated 
steps to stabilize the economy. One persistent concern--that 
is, if the central bank's independence is infringed upon by the 
government, fiscal authorities can compel the Fed to monetize 
sovereign debt.''
    A couple of questions. With what has happened with 
quantitative easing, I was looking at the Dow a few minutes 
ago, 15,400; Nasdaq, 3,604; and 1,680 for the S&P. To Chairman 
Hensarling's comments earlier, I think the private sector is 
addicted to the government money. And anytime you talk about 
cutting the money off, there is a panic.
    Because we have our own currency and we can manipulate that 
currency, unemployment where it is, inflation where it is, with 
the entitlements in this country where they are--I am saying a 
lot here, but will we ever get to back to that place of 
unemployment at 5 percent?
    I live in a part of the country, in a rural part of the 
country with a lot of farmers, a lot of agricultural real 
estate. We have seen land prices go through the roof, and one 
reason I think we have is interest rates are so low that people 
can borrow money. It is just--it is there. But that causes 
problems, also, because if this thing ever does turn around, 
how do you stop it? And interest rates are how you stop it. But 
the country also is in debt up to their eyeballs, which creates 
another problem. High interest rates breaks the back of the 
country.
    So I said a lot, but are you concerned that pumping the 
money into the economy, when we stop that, can the country take 
it? Can the private sector react? And how do we do that?
    Mr. Bernanke. The reason for the low interest rates is 
because the economy is weak and inflation is low. And even if 
the Fed wasn't engaging in asset purchases, interest rates 
would still be quite low, as they are in other countries, for 
example.
    One reason that asset markets react to what the Fed says is 
that they are trying to determine whether the Fed will provide 
sufficient support for the economy to get back to full 
employment. That is our job, that is our mandate, when the 
economy is away from full employment, to try to provide the 
financial support that will move the economy in that direction.
    Mr. Fincher. Do you not think the politics over the past 4, 
5, 6 years are playing more of a role than they did 6, 7 years 
ago?
    Mr. Bernanke. No, I don't. Your earlier point about 
collaborating with the Treasury in the financial crisis, that 
had nothing to do with monetary policy. That had to do with the 
two main financial institutions in the government working 
together to prevent a big financial collapse. And I think the 
collaboration was needed there.
    But at no time during the crisis or at any point did the 
Administration, the Congress, or the Treasury Department ever 
tell the Fed, we need monetary policy of ``X.'' We have always 
maintained that independence, and we think it is critically 
important that we maintain it.
    Mr. Fincher. I just have about a minute left. I fear that 
the government's intervention into trying to make sure the 
private sector is running at full capacity creates all sorts of 
problems.
    Now that I am up here and I see how big this is--I had a 
constituent the other day who brought this point up, and he 
said, with the regulatory policies that we have, with the 
choking effect that some say, the big government is really good 
for big business, the unintended consequences, because the big 
businesses can react to big government. The smaller businesses 
have a harder time doing that with the resources they have. And 
I thought about it a minute, and it is a great point.
    Again, I am fearful that we are out of control, pumping the 
money in. The private sector is addicted to the pumping of the 
money. And when we ever shut that off, there is going to be a 
reaction. The reaction now that the stock market is 15,000, if 
we drop back to 12,000, again you are going to see a panic. 
What do we do then?
    So many people, Chairman Bernanke, think now that the 
government's role is to step in and save the day. And this is 
taxpayer money. This is very, very dangerous.
    Mr. Bernanke. There is sort of an idea going around that 
the Fed can step away and not do anything. We have to do 
something. We have to have interest rates somewhere. The Fed 
does control our money supply. So we have to do something, and 
I think that we are better off trying to get the economy moving 
than not.
    Mr. Fincher. Thank you.
    Chairman Hensarling. The time of the gentlemen has expired.
    The Chair recognizes the gentleman from Illinois, Mr. 
Foster.
    Mr. Foster. Thank you.
    Chairman Bernanke, I think when it is time for the T-shirts 
to be passed out at your retirement party, a very good 
candidate for that would be the $34 trillion swing in household 
net worth.
    When we have seen in the last several years the $16 
trillion drop in household net worth caused by a complete 
failure of the Republican fiscal, regulatory, and monetary 
policy replaced by an $18 trillion recovery, it is one of the 
most impressive achievements. And there is no doubt that, of 
the three legs of financial policy--monetary, fiscal, and 
regulatory--monetary policy deserves a lot of credit. So I 
just--you deserve the compliments you have been getting.
    The question I would like to pursue is, it is my 
understanding that the Fed and the CBO maintain roughly 
comparable macroeconomic models. And in the last few weeks, the 
CBO has analyzed two different macroeconomic scenarios: one in 
which Congress has passed the Senate proposal for comprehensive 
immigration reform and a path to citizenship, which they found 
resulted in about a $1.5 trillion increase in economic activity 
over the next 10 years and about a $200 billion reduction in 
the Federal debt; and the second scenario, in which the 
Republicans succeed in blocking comprehensive immigration 
reform, resulting in a $200 billion larger level of Federal 
debt and a $1.5 trillion decrease in economic activity compared 
to the other scenario.
    And so my question is, do you anticipate, given this policy 
uncertainty, that you are going to have to separately consider 
both of those scenarios, both the high-debt, low-growth 
scenario caused by Republican obstruction and the high-growth, 
low-debt scenario that would follow congressional passage of 
the Senate comprehensive immigration reform bill?
    Mr. Bernanke. To begin with, we haven't done any comparable 
analysis of the economic implications of immigration. I think, 
in general, a growing population, more talented people, all 
those things do help the economy grow. A younger population 
will also help us deal with our aging situation. To use a 
cliche, we are a Nation of immigrants.
    All that being said, there are a lot of details in setting 
up a program in terms of how it should be monitored and managed 
and so on that I really think are the province of Congress. And 
I don't really want to try to set immigration policy. I really 
think that the details there have to be worked out in Congress.
    Mr. Foster. I guess my question is, how do you deal with, 
when there are policy choices being made by Congress with 
fairly large macroeconomic effects, this in your forward 
planning?
    Mr. Bernanke. Generally, we take those decisions as given, 
and we try to figure out what the best thing we can do is given 
the economic environment we find ourselves in. So, with respect 
to fiscal policy and the restraint this year from fiscal 
policy, we sort of take that as given, again, and try to figure 
out how much monetary accommodation is therefore needed.
    And, with respect to immigration, I think these are much 
longer-term propositions; these are gains and losses over many 
years. And the Fed, because it focuses mostly on short-term 
cyclical movements in the economy, our focus is typically not 
10 or 20 years but, rather, the next few years.
    Mr. Foster. Okay.
    I would like to follow up on Representative Royce's 
questions about the countercyclical element in Federal housing 
policies, which are present, as he pointed out, not only in the 
Republican PATH Act proposal but also in the Democratic 
principles for housing market reform.
    There was also a recent front-page article in The Wall 
Street Journal that was entitled, ``Central Bankers Hone Tools 
to Pop Bubbles.'' Had you seen that?
    Mr. Bernanke. ``Central Bankers--
    Mr. Foster. ``Hone Tools to Pop Bubbles.'' It discussed the 
efforts in various countries to implement countercyclical 
housing policies.
    Mr. Bernanke. Yes.
    Mr. Foster. So you have seen that. The American Enterprise 
Institute is also hosting a 2-day workshop on this subject at 
the end of this month.
    So my question is, do you believe that regulators have 
today the tools necessary, as well as the collective will, to 
address the development of potential asset bubbles, such as the 
housing bubble from which we are still recovering?
    Mr. Bernanke. We have some tools. For example, Basel III 
included a countercyclical capital requirement. In other words, 
if we see the economy growing too fast with too much credit 
being extended, we could raise capital requirements.
    I think it makes a big difference that the CFPB and other 
agencies have done a lot to eliminate the worst kinds of 
mortgage abuses that were very important in the housing boom. 
The Federal Reserve has recently issued some guidance to banks 
on leveraged lending and other kinds of practices that could 
contribute to asset bubbles.
    All that being said, we want to make the financial system 
as fair and transparent as possible, but I don't think we can 
guarantee that we can prevent any bubble.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair recognizes the gentleman from Indiana, Mr. 
Stutzman.
    Mr. Stutzman. Thank you, Mr. Chairman.
    Thank you, Chairman Bernanke, for being here today.
    And I really want to thank you for your comments earlier 
about what Congress should be focused on, and that is the long-
term liabilities to our country. I do believe that if we would 
address those issues, the trajectory of our economy would 
change, instead of being focused on such a near-term rhetoric 
and the effects to the economy by short-term policies. So I 
appreciate what you mentioned earlier.
    I want to talk a little bit about employment. For the 
entire U.S. workforce, employers have added far more part-time 
employees in 2013, averaging 93,000 a month, seasonally 
adjusted, than full-time workers, which have averaged 22,000. 
Last year, the reverse was true, with employers adding 31,000 
part-time workers monthly compared with 171,000 full-time ones.
    Earlier in June, I, along with other colleagues from 
Indiana, wrote HHS Secretary Kathleen Sebelius and Treasury 
Secretary Jack Lew to find out whether or not they had 
forecasted the impact of the Affordable Care Act on part-time 
workers who are currently just above the 30-hour threshold.
    Does this shift of a lot of workers, many workers, from the 
full-time category to part-time status at all affect your 
statutory mandate to reach full employment?
    Mr. Bernanke. I think it does. As I mentioned in my 
testimony, there are a number of problems with the labor 
market. Unemployment is one problem, but long-term unemployment 
and underemployment--and by ``underemployment,'' I mean people 
who are either working fewer hours than they would like or 
possibly are working at jobs well below their skill level--are 
also indicative of a weak labor market. And a stronger economy 
will help, I think, in all those dimensions.
    So, yes, that is part of our concern. And as we look at the 
unemployment rate and try to determine what it means for the 
labor market, we look at these other indicators as well.
    Mr. Stutzman. You mentioned earlier that the taxes at the 
beginning of the year were affecting the economy. You mentioned 
something else, that I can't recall.
    Mr. Bernanke. There were spending cuts from before, and 
then there were tax increases and then sequestration.
    Mr. Stutzman. That is right, sequestration and the tax 
increases. Do you believe that the Affordable Care Act is 
dragging the economy or slowing the economy down at all with 
the transition that we are currently going through and the 
effort of implementation?
    Mr. Bernanke. It is very hard to make any judgment. One 
thing that we hear in the commentary we get at the FOMC is that 
some employers are hiring part-time in order to avoid the 
mandate there. So, we have heard that.
    But, on the other hand, a couple of observations: one, the 
very high level of part-time employment has been around since 
the beginning of the recovery, and we don't fully understand 
it; two, those data come from the household survey, and they 
are a little bit inconsistent with some of the data from the 
firm survey, which suggests that work weeks haven't really 
declined very much.
    So I would say at this point that we are withholding 
judgment on that question.
    Mr. Stutzman. Do you think that a delay in the mandates 
would be appropriate?
    Mr. Bernanke. That is beyond my pay grade. It would depend 
on questions of how much time is needed to fully implement the 
bill.
    Mr. Stutzman. Okay. Thank you.
    With about a minute left, I would like to touch on some of 
the global economic concerns and other countries beginning a 
trend of currency devaluation in fear of currency wars that 
might follow. Could you comment on that at all?
    Mr. Bernanke. As I mentioned in an earlier answer, the 
international community makes a distinction between attempts to 
manipulate an individual exchange rate in order to gain an 
unfair advantage in export markets versus using monetary or 
fiscal policy to achieve domestic objectives that may have the 
side effect of weakening the currency.
    So this was the example with Japan. Japan has taken policy 
actions that have weakened the yen, but that wasn't the focus 
of those actions. Their actions were intended to break the 
deflation which they faced for the last 15 years or so to get 
their economy growing more quickly and to get back to a 2 
percent or so inflation objective.
    If they are successful, there may be some exchange rate 
effects, as the earlier question raised, but there also will be 
the benefit that a stronger Japanese economy and a stronger 
Asian economy will increase world growth and be a benefit to 
the United States, as well.
    So those are the distinctions between those different types 
of management of the currency.
    Mr. Stutzman. Okay. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair recognizes the gentleman from Florida, Mr. 
Murphy.
    Mr. Murphy. Thank you, Mr. Chairman.
    And thank you, Chairman Bernanke, as well. I want to echo 
what has been said already in thanking you for your service to 
our country.
    Mr. Bernanke. Thank you.
    Mr. Murphy. There has been a lot of talk already in the 
committee about the talk of tapering in the last several weeks. 
And the Board of Governors has come out and tried to clarify 
some of those comments. It has been turmoil somewhat on Wall 
Street, these ups and downs. And this isn't a knock on Wall 
Street, but my concern is really Main Street.
    What we have seen in the last--I guess since May--is a 40 
percent increase in interest rates on mortgage rates. What do 
you think we should be doing? What can you do? And what do you 
think is the effect of this pretty sudden and sharp rise in 
interest rates?
    Mr. Bernanke. First of all, we are going to continue to 
communicate our policy intentions and to make clear that, 
notwithstanding how the mix of policy tools change, we intend 
to maintain a highly accommodative monetary policy for the 
foreseeable future. I think that message is beginning to get 
through, and I think that will be helpful.
    More generally, we will be watching to see if the movement 
in mortgage rates has any material effect on housing. The main 
thing is to see housing continue to grow, more jobs in 
construction and the like. And as we have said, if we think 
that mortgage rate increases are threatening that progress, 
then we would have to take additional action in the monetary 
sphere to try to address that.
    Of course, there is always hope for Congress to look at 
problems that remain in the housing market in terms of people 
underwater, in terms of refinancing of underwater mortgages, 
and other kinds of issues that Congress could examine. But we 
are going to be looking at it from the perspective of whether 
or not the housing recovery is continuing to a degree 
sufficient to provide the necessary support for the overall 
economic recovery.
    Mr. Murphy. Thank you.
    My background is as a CPA. I worked at Deloitte for a 
while, dealing with Sarbanes-Oxley, and as an auditor. So I am 
not one to say we need more or less regulation, necessarily, 
but that we need smarter regulation.
    And, certainly, being here now, trying to understand all 
the different regulators, and dealing with a lot of the 
institutions in my district, especially the small and medium-
sized banks, what are you doing to work with all the different 
regulators to try to streamline and make it easier for these 
small institutions?
    Mr. Bernanke. One of the vehicles that we have is an 
organization called the FFIEC, which is basically the place 
where the banking regulators gather and talk to each other 
about policy and regulatory decisions. And the FFIEC has a 
regular committee which is focused on small community banks and 
trying to find ways to reduce the burden of regulation and to 
find ways to make it easier for them to deal with the 
regulations that do bear on smaller banks.
    As far as the Fed itself is concerned, I mentioned earlier 
that we have an advisory council of community institutions, we 
have a special subcommittee that looks at the effects of our 
regulations on smaller institutions. We have had meetings 
around the country, outreach, special training sessions for 
examiners and the like.
    So we do take that very seriously, recognizing that there 
is a heavy regulatory burden on community banks, and we want to 
do everything we can to mitigate that.
    And I would just perhaps add that Congress probably has a 
role here, too, since some of the things that community banks 
have to deal with come from the statute and not the regulation.
    Mr. Murphy. Thank you. I agree with that.
    So this kind of leads to my next question about the 
systemic importance of banks and determining if the balance 
sheet is the best place we should be drawing this line. And if 
not, do you have any other thoughts on that? And what would the 
difference be in a bank with $55 billion versus say $45 
billion, as far as systemic risk to our economy?
    Mr. Bernanke. As I have mentioned, Dodd-Frank tells us to 
do this in a graduated way, to have capital requirements and 
supervisory requirements become tougher as the size and 
complexity and systemic importance of the bank increases. And 
so there are obviously going to be certain dividing lines to 
try to separate banks into these different categories.
    But even within the categories, we are trying to 
distinguish between the smaller banks in that category and the 
larger banks in that category. And as I said earlier to a 
questioner on the other side of the aisle, to the extent that 
the rules don't provide sufficient smoothness in how they vary 
by type of bank, we have plenty of capacity to go back and look 
at them.
    But the basic idea is that the very largest internationally 
active banks should bear the hardest burden of regulation.
    Mr. Murphy. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair recognizes the gentleman from South Carolina, Mr. 
Mulvaney.
    Mr. Mulvaney. Thank you.
    Chairman Bernanke, I want to begin by going back to some of 
the questions that Chairman Hensarling began with at the very 
outset of the hearing regarding whether or not the markets were 
addicted to easy money.
    And I have a graph that I think you have in front of you, 
that we would like to put up on the screen. It simply shows the 
correlation between the size of your balance sheet and the 
performance of the S&P over the course of the last 4 or 5 
years. And as you can see, there is a strong argument that the 
two things tend to move together.
    So my question to you is fairly simple: What can you say to 
convince us and to convince the markets that you will be able 
to return the balance sheet to its normal size, as I think your 
internal study says you want to do by 2018, 2019, Mrs. Yellen 
says by 2025? Will you be able to do that without dragging the 
markets down at the same time, especially in light of what 
happened last month after your comments in the JEC?
    Mr. Bernanke. The main thing that supports the stock market 
or other markets is the underlying economy. I don't know what 
it means to say that markets are addicted. I don't think that 
is really a technical term in finance. But the reason, I think, 
that markets have improved so much since 2009 is because Fed 
policy and other policies have succeeded in providing a 
stronger economy with low inflation.
    Mr. Mulvaney. If the economy is growing at such a strong 
rate as to support some fairly dramatic increases in the stock 
markets that we have seen, then why are you continuing your 
easy-money policies?
    Mr. Bernanke. Profits are actually ahead of jobs. That is 
one of the problems. So we continue to provide easy money in 
order to get the job situation back to where we need it and 
also because inflation is below our target.
    I think the kind of scenario you are worried about would be 
most likely to happen if the Fed withdrew easy monetary 
policies prematurely and the economy relapsed into weakness. 
Then, I think you would see asset prices come down.
    Mr. Mulvaney. Are you satisfied that if you were called 
upon at some point in the future--and I am not trying to rattle 
any markets--to begin bringing the balance sheet back to normal 
size, and the markets reacted with fairly substantial 
reductions, you will have the staying power to keep that exit 
strategy despite the fact the markets are going down?
    Mr. Bernanke. I think the key is making sure that the 
markets, first of all, understand our plan, but, secondly, that 
we have done enough that the economy is growing on its own. If 
the economy is growing on its own, it won't need the Fed's help 
and support. And then the markets, I think, will be just fine.
    Mr. Mulvaney. Thank you, sir.
    I want to talk about something else that is a little off 
the beaten track. You and I have talked about it before; you 
mentioned it when you were here earlier this year. I am talking 
about remittances to the Fed.
    Mrs. Yellen mentioned it in a speech she gave at about the 
same time. And I think your written testimony at the time said 
they could be quite low for a time in some scenarios, 
particularly if interest rates were to rise quickly. Mrs. 
Yellen was a little stronger when she spoke to the NABE and 
said remittances could cease entirely for some period.
    You have an internal study conducted by Mr. Carpenter and 
others in January of this year which indicates that having the 
Fed generate combined earnings insufficient to cover its 
operating costs, dividends, and paid-in capital isn't that much 
of a problem, as the Fed can simply carry it on your balance 
sheet as a deferred asset. But it goes on to say that whenever 
you have done that in the past, when the Fed has done that in 
the past, it has been for a very short period of time and that 
we have never seen a period where the Fed is not able to make 
these remittances over a fairly long period of time.
    Given the fact that you have an extraordinarily large 
balance sheet, we have gone through this, what I think you 
called unprecedented expansion of the balance sheet, and given 
the fact that you stand to lose a tremendous amount of money in 
a higher-interest-rate environment--I think we had a witness 
here testify that a 100-basis-point interest-rate rise in a 
short period of time could generate losses to the Fed of in 
excess of hundreds of billions of dollars.
    If we end up in an environment where remittances from the 
Fed go on for an extended period of time, how would that impact 
the Fed's operation and especially its independence?
    Mr. Bernanke. It won't affect our ability to do monetary 
policy. Independence is up to Congress.
    In terms of the fiscal impact, we have done many 
simulations. There may be a period of regular remittances, but 
we have already had a period of very high remittances, almost 
$300 billion in the last 4 years.
    Mr. Mulvaney. Which you have already remitted, though. 
Where does the money come from? If your combined earnings don't 
generate enough to cover your operating expenses, your paid-in 
capital, and whatever else you need to pay for, where does the 
money come from to operate the Federal Reserve?
    Mr. Bernanke. From the balance sheet. We have all the 
resources we need to do that.
    Mr. Mulvaney. But if you have tremendous losses on your 
balance sheet because of higher interest rates, you are paying 
a lot higher interest to the banks that keep their excess 
reserves and you are negative cash, where does the money come 
from?
    Mr. Bernanke. It comes from the income from our assets. It 
is just that, from an accounting perspective, we don't have to 
recognize those losses unless we sell them.
    Mr. Mulvaney. Is there ever a circumstance where you go to 
your shareholders for a capital call?
    Mr. Bernanke. No.
    Mr. Mulvaney. And I guess that is the end of my time. Thank 
you, Mr. Chairman.
    Chairman Hensarling. It is the end of the gentleman's time, 
although I wish we could carry it out a little further.
    The gentlemen from Maryland, Mr. Delaney, is now 
recognized.
    Mr. Delaney. Thank you, Mr. Chairman.
    And thank you, Chairman Bernanke, for your incomparable 
service to our country over the last several years of your 
tenure.
    My first question--I have several questions; I will try to 
ask them quickly, and I think they have relatively short 
answers--is, there has obviously been recent volatility in the 
bond markets, an uptick in rates over the last several months 
based on a variety of factors, and it seems to me that the 
economy has actually handled that pretty well. Would you agree 
with that assessment?
    Mr. Bernanke. I think it is a little early to say so far. 
But as I said in my remarks, I think we need to monitor 
particularly the housing market to see if there is any impact 
from higher mortgage rates.
    Mr. Delaney. You get a lot of very current micro data. Have 
you seen any data to suggest that this uptick in rates has had 
a negative effect on what appears to be a reasonably good 
housing recovery? I know, again, I understand, it is very 
early.
    Mr. Bernanke. No, I haven't seen anything that points 
strongly to any particular problem, but again, it is very 
early.
    Mr. Delaney. Is there any kind of second-half economic data 
coming out that would lead you to conclude that your original 
views about the economy for the second half of the year, 
particularly as it relates to your ability to begin to taper, 
has changed your views?
    Mr. Bernanke. I am sorry, is there any information--
    Mr. Delaney. Is there any new kind of second-half economic 
data which causes you to think differently about the economy 
from what you did a month ago?
    Mr. Bernanke. No. Our general, broad outline is that we 
expect the economy to pick up probably later this year. The 
exact timing depends on the impact of the fiscal restraint. We 
should see continued improvement in the labor market, 
unemployment continuing to fall, and inflation moving back up 
toward 2 percent.
    That general scenario still seems to be correct. But it has 
not yet, obviously, been confirmed by the data. That is what we 
need to see.
    Mr. Delaney. And this notion of a highly accommodative 
monetary policy, I assume you can taper in the context of that 
position, that doesn't imply that you can't begin to taper your 
purchases.
    Mr. Bernanke. As I described in my testimony, we think of 
the two tools we have as having different roles. So the purpose 
of the asset purchases was to achieve more near-term momentum, 
to achieve a substantial improvement in the outlook for the 
labor market. We are making progress on that objective.
    But the traditional, most reliable, most powerful tool that 
the Fed has is short-term interest rates. And using low short-
term interest rates and guidance about those rates is going to 
provide us, ultimately, with sufficient monetary policy 
accommodation to achieve what we are trying to get to.
    Mr. Delaney. That sounds like you are maintaining the 
posture you think is important for the economy using short-term 
interest rates. In that context, you should have the 
flexibility to potentially taper consistent with what you had 
wanted to do.
    Mr. Bernanke. If the economy does more or less what I 
described. But as I also emphasized, that is contingent. And if 
the economy is stronger, we can moderate faster. If it is 
weaker, we can moderate more slowly.
    Mr. Delaney. And you don't have any data that the economy 
has softened or housing has softened based on this interest-
rate volatility that we have seen?
    Mr. Bernanke. It is just really too early. We have had some 
strong data in some areas. This morning, we had a housing 
report that was a little bit weaker. But again, I think given 
the amount of noise in every piece of data, I don't think it is 
appropriate to take too strong a signal from that.
    Mr. Delaney. Switching gears a little bit to banks and 
their portfolios, which is obviously part of the responsibility 
of the Federal Reserve, how concerned are you about interest-
rate risk that may be accumulating on the balance sheets of the 
regulated financial institutions based on the interest-rate 
environment we have been in and some of the asset shortages, if 
you will, or--it has been hard for banks to originate assets. 
How concerned are you that they are building up reasonably 
significant interest-rate risks in their business?
    Mr. Bernanke. We have been looking at that as regulators, 
and we are reasonably comfortable that banks are managing their 
interest-rate risk appropriately.
    Note that from the banks' perspective, even as higher 
interest rates reduce the value of some of their securities 
that they hold, higher interest rates also potentially improve 
their net interest margins and their profitability. So as 
interest rates have gone up, we have actually seen some bank 
stocks go up, rather than down.
    Mr. Delaney. Great.
    Thank you again for your service.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Illinois, Mr. 
Hultgren.
    Mr. Hultgren. Thank you, Chairman Hensarling.
    And thank you, Chairman Bernanke. I very much appreciate 
your time today.
    If I may, I would like to highlight a Crain's article from 
earlier this year that discussed the rash of bank closings and 
consolidations in and around Chicago. Certainly, there are many 
causes, but the article uses Hyde Park Bank, which is from 
President Obama's home neighborhood, to discuss one 
contributing cause. They talk about how the near-zero interest 
rates, which were set by the Fed, make it nearly impossible for 
banks to invest safely and earn a decent yield.
    I wonder, for communities banks that rely on net interest 
margin, how do you justify the Fed policy? And is the Fed using 
the tool to help one section of the economy while hurting 
another?
    Mr. Bernanke. First, I think that is not accurate. Net 
interest margins have come down a little but not all that much. 
And profitability in banks in the last few years has been 
generally quite good.
    Moreover, low interest rates, what is the purpose of low 
interest rates? The purpose is to give us a stronger economy. 
And a stronger economy means better asset quality, it means 
more lending opportunities. So what low interest rates take 
away they give on the other hand by giving a better economic 
environment for banks to operate in.
    Mr. Hultgren. Theoretically, maybe that is true. I just 
don't hear that from my community banks. They are struggling, 
partially under the regulation I think, the regulatory burden 
that they are feeling, but also feeling because of an interest-
rate crunch, is really how they are expressing it to me.
    Let me switch gears. Quickly, you have been outspoken on 
the negative effects of Section 716 of Dodd-Frank, the swap 
push-out/spin-off provision. As some of my colleagues on the 
committee have reversed their position from last year, I wonder 
if you could quickly restate why Section 716 could have a 
negative effect on end users and systemic soundness.
    Mr. Bernanke. It creates additional costs, essentially, 
because it moves out certain kinds of instruments from the 
banks, makes it more difficult for banks to offer a range of 
services to their customers, and puts U.S. banks at a potential 
cost disadvantage to international competitors.
    Mr. Hultgren. So you would still be supportive of changing 
this provision in Section 716?
    Mr. Bernanke. We have some concerns with that provision. Of 
course, everything depends on what the alternative is and how 
the Congress makes those changes.
    Mr. Hultgren. Let me switch again to something else. Mr. 
Chairman, as you know, Dodd-Frank requires the Fed to adopt 
procedures to implement the new limitations on the Section 13.3 
authority, its 13.3 authority. It is now 3 years later, and the 
Fed still has not done so.
    How do you justify the Fed's 3-year delay in implementing 
these basic restrictions on the Fed's authority to bail out 
nonbank firms?
    Mr. Bernanke. First of all, I think that the law is very 
clear about what we can and cannot do. And I don't think that 
the absence of a formal rule would allow us to do something 
which the law prohibits. And I mentioned earlier that the law 
prohibits us from bailing out individual firms using 13.3, and 
there would be no way we could do that.
    We have made a lot of progress on that rule, and I 
anticipate we will have that out relatively soon.
    Mr. Hultgren. You think by the end of the year?
    Mr. Bernanke. I will check with staff, but I would hope so.
    Mr. Hultgren. Okay. That would be great.
    Kind of following up on that, as well, I know there were 
some questions asked last time you were here--again, we always 
appreciate your willingness to come here and spend time with 
us. But I do know, hearing from some colleagues and from myself 
that some questions were submitted and we hadn't heard back 
from that. I know it has been about 4 months since you were 
here last time. So I am just asking again if maybe you could 
check on that, as well as letting us know from your staff when 
this final rulemaking would be done.
    Mr. Bernanke. We will do that.
    Mr. Hultgren. One last thing that I will touch on--you know 
what? Actually, with 1 minute left, I am going to yield back, 
if Chairman Hensarling has any further questions.
    You are okay?
    Okay. Then, I am going to ask one more question, if I 
could. And getting back to banking rules as applied to 
insurance companies, it seems that the adoption of GAAP 
accounting for mutual insurance companies remains one of the 
Federal Reserve's top priorities. However, statutory accounting 
is considered superior to GAAP for purposes of ensuring the 
sound and prudential regulation of insurance companies.
    Wouldn't applying SAP be a more prudent approach as the Fed 
develops capital rules for savings and loan holding companies 
that are predominantly in the business of insurance?
    Mr. Bernanke. We have a lot of issues still. We deferred 
the Basel rule for insurance, for savings and loan holding 
companies that have more than 25 percent insurance activity. So 
we are looking at a range of issues about how we can adapt the 
consolidated supervisory rules and the capital rules for 
insurance. And we recognize that there are some differences 
that we need to look at.
    Chairman Hensarling. The time of the gentleman has expired.
    Mr. Hultgren. Thank you, Mr. Chairman. I yield back.
    Chairman Hensarling. The Chair now recognizes the 
gentlelady from Ohio, Ms. Beatty.
    Mrs. Beatty. Thank you, Mr. Chairman, and Madam Ranking 
Member.
    Chairman Bernanke, I certainly join my colleagues in 
thanking you for all the work that you have done. We started 
the questions today with a series of quotes or statements from 
you, so I would like to end it with one and thank you for it. 
And that is, ``Our mission as set forth by the Congress is a 
critical one: to preserve price stability; to foster maximum 
sustainable growth in output and employment; and to promote a 
stable and efficient financial system that serves all Americans 
well and fairly.''
    My question will be centered around that last part of it, 
the efficient financial system that will serve ``all 
Americans.''
    I know you have had a lot of questions related to the 
housing market. I want to thank you for opening your testimony 
and starting with housing, because I am a long-term housing 
advocate. And in reviewing your document this morning, the 
multiple pages on housing put in mind this question for you.
    Will you speak to what impact maintaining an adequate 
supply of affordable housing options for first-time homeowners, 
as well as moderate-income buyers, has? And then, conversely, 
what will happen to the economy if we only promote a housing 
finance system where only the well-off who have the high credit 
scores, who have the double-digit dollars to put down, 10, 20 
percent, what happens to our market there?
    Because when you look at what I believe is more than $10 
trillion in economic value, the United States housing market 
certainly is inextricably linked to the performance of our 
Nation's economy.
    Mr. Bernanke. In this recovery, one of the credit areas 
which is not normalized is mortgage credit. And we have noted 
that people with lower credit scores and first-time home buyers 
are not able to get mortgage credit in many cases. And, of 
course, that is a problem for them, it is a problem for their 
communities, and it is a problem for the overall economy since 
we are looking for a stronger housing market as one of the 
engines to help the economy recover.
    So there are many reasons why mortgage credit is still 
tight for those borrowers, but it is definitely a concern and 
something we are paying close attention to.
    Mrs. Beatty. And let me take this a step further, because 
so often--and, certainly, that is the answer we get. And I 
think America expects this Congress to advocate for those 
folks. Because as soon as you say ``low-income'' and 
``moderate-income,'' then someone has to stand up for them. But 
let's look at the flip side of this.
    In your opinion, let's look at what it does to the market 
for credit unions and banks. Because housing is not only being 
able to purchase the house, but it deals with construction and 
jobs and employment. So what responsibility do you think those 
credit unions and banks have to play in this environment that 
we are in now?
    Mr. Bernanke. We encourage banks to lend to credit-worthy 
borrowers. We certainly enforce fair-lending laws. It is 
important that first-time home buyers be able to get credit in 
order to buy a home. It is important for our economy.
    There are some issues still out there, as I mentioned, and 
I think regulators have to take responsibility for the fact 
that not all the rules for making mortgage loans are finished 
and out there. We need more clarity on those things.
    There is still a lot of concern among banks about so-called 
``put-back risk,'' the notion that the GSEs will put back any 
mortgage that goes bad if there is anything, any technical flaw 
wrong with it. That makes the banks less likely to lend.
    So there are a lot of things to work on to get the mortgage 
market in better shape. And we are approaching this both from 
the monetary policy point of view, which is trying to keep 
mortgage rates low so that housing is of affordable, but also 
as regulators and working with other regulators to try to solve 
some of the problems that still exist in extending mortgage 
credit.
    Mrs. Beatty. Thank you.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentleman from Florida, Mr. 
Ross.
    Mr. Ross. Thank you, Chairman Hensarling.
    Chairman Bernanke, I wish to begin by addressing one of 
your earlier comments in your opening statement, when you said 
that the debate concerning other fiscal policy issues, such as 
the status of the debt ceiling, will evolve in a way that could 
hamper the recovery.
    My concern with that is, I believe that at $17 trillion and 
counting in debt, as we see on our national debt clock up 
there, when 6 percent of our Federal budget is used to pay 
interest payments alone on national debt, I firmly believe that 
our sovereign debt should not go unpaid, but there is a 
tremendous difference between borrowing money to pay for an IRS 
``Star Trek'' video and paying our sovereign debt.
    You see, I believe that it is disingenuous to say that the 
debate on the debt ceiling or the debt limit for this country 
will adversely impact us, when, in fact, 2 years ago, the 
credit-rating agencies came to us and said that if we don't 
have in place a systemic, long-term path to reduce and address 
our debt, that we are going to be downgraded in our ratings. It 
wasn't so much the debate on the debt that we had; it was the 
fact that we failed to take action to reduce in a systemic 
fashion, in a long-term fashion, our debt.
    Out of the debt-ceiling debates that we have had in the 
past, we have come out with things such as Pay-As-You-Go, the 
Gramm-Rudman Act. There have been good things to help us with 
that. So I think it is important that we acknowledge that 
having a healthy debate on the debt ceiling is prudent and 
responsible.
    With that, I also want to address the second part of your 
opening statement, when you addressed the important nonbank 
financial institutions, specifically the implementation of the 
Collins amendment.
    My concern with that--and going back to last week when Fed 
Governor Tarullo testified before the Senate Banking Committee, 
he told Senator Johnson that, in regard to postponing and 
delaying the rules, as you have testified before, on Basel III, 
on nonbank financial institutions--however, he said, ``That is 
to say that the Collins amendment does require that generally 
applicable capital requirements be applied to all of the 
holding companies we supervise.''
    I look at the Collins amendment, and what concerns me is 
that I am afraid your hands may be tied, in that we have two 
different types of financial institutions here. We have the 
short-term funding and the banks, and we have the long-term--
and insurance companies, and yet we are going to give risk-
based capital requirements, expanded requirements, based on 
generally accepted accounting principles, which don't apply to 
insurance companies, we are going to increase the cost of 
insurance. And I come from Florida, a State where insurance is 
very important. And, more importantly, this is probably going 
to result in a conflict between the McCarran-Ferguson Act and 
the implementation of a Basel III capital requirement for 
insurance companies.
    How do you feel that we can resolve that? Can we resolve 
that?
    Mr. Bernanke. So, quickly, on the debt limit, I wasn't 
trying to make a policy recommendation other than to say that, 
the last time around, we did get a pretty big shock to consumer 
sentiment, and it was harmful to the economy. So I just hope 
that whatever is done, it is done in a way that is confidence-
inspiring.
    On insurance companies, we are going to do our best to 
tailor our consolidated supervision to insurance companies. But 
I agree with you that the Collins amendment does put some tough 
restrictions that--
    Mr. Ross. Would you agree that we would have to legislate 
in order to give you--in other words--
    Mr. Bernanke. Yes.
    Mr. Ross. Thank you. Because I think that where we are at 
and one of the reasons for the delay is that you can't put the 
capital requirements for banks as the minimum-level capital 
requirements for insurance companies.
    As was pointed out yesterday in a Wall Street Journal 
opinion article, you are going to see that the insurance 
companies are now going to be held to a higher capital 
standard, do more short-term debt. And now, all of a sudden, 
they may enter the banking business, which is going to be 
counterproductive to where we want to go with the correction 
that we are trying do.
    So my question to you, I guess, as a result is, if we 
impose the bank-centric capital requirements on insurance 
companies, would that have done anything to have saved AIG from 
its financial collapse of 5 years ago?
    Mr. Bernanke. There were a lot of things that AIG was doing 
that it couldn't do now. Let me just put it that way.
    Mr. Ross. Right.
    Mr. Bernanke. On the Collins amendment, it does make it 
more difficult for us, because it imposes, as you say, bank-
style capital requirements on insurance companies. There are 
some things we can do, but it is providing some--
    Mr. Ross. Would it be safe to say, in my last 20 seconds, 
that the future is not too bright for the nonbank financial 
institutions in terms of having any reduction in their capital 
requirements?
    Mr. Bernanke. There are some assets that insurance 
companies hold that we can differentially weight, for example. 
There are some things we can do. But, again, I think this does 
pose some difficulty for our oversight.
    Mr. Ross. Thank you. And thank you again for your service.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair recognizes the gentleman from Washington, Mr. 
Heck.
    Mr. Heck. Thank you, sir.
    Mr. Chairman, given all the eulogies that have been 
delivered here today, at least on the Democratic side, I feel a 
little bit like Bette Midler, the very last guest on the very 
last episode of ``The Tonight Show'' that Johnny Carson hosted. 
She famously quipped to Mr. Carson, ``You are the wind beneath 
my wings.'' There is some application to you, sir, as it 
relates to the economy. And I thank you for your service, as 
well.
    Mr. Bernanke. Thank you.
    Mr. Heck. I also thank Mr. Ross for brilliantly 
anticipating where it is I wanted to go. I have to admit that, 
every day that goes by, I am increasingly less optimistic that 
I am a Member of an institution that can successfully deal with 
the debt limit. Sadly, I must admit that.
    I am wondering if failure by Congress to deal with it was 
one of the ``unanticipated shocks'' that you suggested our 
economy might be vulnerable to and, whether it is or not, what 
you would suggest about what the economic consequence would be 
if Congress does, in fact, fail to lift the debt limit later 
this early fall.
    Mr. Bernanke. I think it would be quite disruptive.
    It is important to understand that passing the extension of 
the debt limit is not approving new spending. What it is doing 
is approving payment for spending already incurred. So it would 
be very concerning for financial markets and, I think, for the 
general public if the United States didn't pay its bills. So I 
hope very much that particular issue can be resolved smoothly.
    I am not claiming in any way that it is not important to 
discuss these critical fiscal issues. It is. But to raise the 
prospect that the government won't pay its bills, including not 
just its interest on debt but even what it owes to seniors or 
to veterans or to contractors, is very concerning. And I think 
it could provide some shock to the economy if it got severely 
out of hand.
    Mr. Heck. Is there a material possibility that the shock 
would be so great as to be recession-inducing?
    Mr. Bernanke. Depending on how it plays out, I think, in 
particular, that a default by the U.S. Government would be 
extremely disruptive, yes.
    Mr. Heck. Secondly, and lastly, over the last couple of 
years the Fed has begun targeting interest rates on mortgages, 
in addition to your historic focus on baseline interest rate. 
Has the Fed considered, is the Fed considering, would the Fed 
consider implementing monetary policy through other credit 
channels either to minimize the possibility of an asset bubble 
or to target job creation, should we not see continued progress 
toward that lower unemployment rate that is desired by so many?
    Mr. Bernanke. The Federal Reserve actually is quite limited 
in what we can buy. We can basically buy Treasurys and 
government-guaranteed agency securities--that is, MBS. We are 
not allowed to buy corporate debt or other kinds of debt. So we 
don't really have the tools to address other types of credit.
    Mr. Heck. Setting aside for the moment that, if we fast-
rewound ``X'' number of years, some people would probably have 
said the same thing about the activity you are exactly engaged 
in today, it was you, sir, who 11 years ago in a speech 
indicated that there might be other monetary policy options 
available to the Fed.
    It just does not seem to me to be much of anything other 
than a fairly easily adapted technical fix to allow you, for 
example, to engage in credit channels that, for example, back 
infrastructure. Infrastructure is something which, of course, 
is the gift that keeps on giving. But I don't see a legal 
impediment to you being able to venture into that area, as some 
would conclude you might have hinted back in 2002 before you 
were Chair and some might have suggested is a direct parallel 
to what you are doing today.
    Mr. Bernanke. I will put you in touch with our General 
Counsel. I don't think that is within our legal authorities.
    Mr. Heck. You would rule that out altogether?
    Mr. Bernanke. I don't see what the legal authority is to do 
that.
    Mr. Heck. Then I would like to have a conversation with 
your General Counsel.
    Mr. Bernanke. Okay. We will give you his number.
    Mr. Heck. And in the meantime, in 5 seconds, thank you, 
sir, very much.
    Mr. Bernanke. Thank you.
    Chairman Hensarling. The time of the gentleman has now 
expired.
    The Chair recognizes the gentleman from North Carolina, Mr. 
Pittenger.
    Mr. Pittenger. Thank you, Mr. Chairman.
    And thank you, Chairman Bernanke.
    In response to an earlier question by Mr. Stivers regarding 
whether the Fed would be willing to conduct the same type of 
stress tests of its quantitative easing exit strategy that it 
has subjected financial institutions to, you stated that under 
a reasonable interest-rate scenario you would not expect any 
significant disruptions from the Fed's withdrawal of monetary 
stimulus.
    But the whole point of the stress test is to position an 
extremely adverse scenario, akin, say, to the inflation levels 
last seen in the late 1970s and early 1980s, not a reasonable 
interest-rate environment.
    Mr. Bernanke, has the Fed stress-tested its strategy 
according to that more extreme scenario?
    Mr. Bernanke. Again, this is not about our strategy; this 
is about our remittances to the Treasury. And when we do very 
tough interest-rate tests--and again, there are a number of 
them that have been published and are publicly available--what 
we see is, first, that even though there may be a period where 
remittances to the Treasury are low or zero, that over the 15-
year period from 2009 to 2023, the total remittances generally 
are higher than they would have been in the case where there 
were no asset purchases. But I think you need to look beyond 
that, which is that to the extent that our asset purchases are 
strengthening the overall economy, that is very beneficial to 
the Treasury because of higher tax collections. And so I think 
most scholars who have looked at this conclude that the asset 
purchases are a winner for the taxpayer under almost all 
scenarios.
    Mr. Pittenger. Are you concerned by the perception, though, 
that the Fed will stress test the banks and other financial 
institutions but not review its own policies and strategies by 
the same rules?
    Mr. Bernanke. It is not comparable. The banks have credit 
risk. We have no credit risk. We buy only Treasurys and 
government-guaranteed MBS. So in a recession, we make money, 
because interest rates go down.
    Mr. Pittenger. Chairman Hensarling has shown up on the 
board the running debt clocks. Of concern to you, you have 
already expressed earlier, my friend for 20 years, Erskine 
Bowles, has run around the country, he and Alan Simpson were 
here last week, they rang the bell on the concerns relating to 
the debt. I want to get your thoughts on the policies that the 
Fed could lead to this compounding problem when it comes to the 
interest payments on the debt. Do you believe that when 
interest rates rise over the coming years, and the spending 
trajectory we are on towards the close of the decade, that the 
interest rates, along with annual deficits, could push 
America's debt to unsustainable levels, perhaps close to what 
we are seeing across Europe? That is really the thought that 
Erskine left with many of us. He said, ``I used to say this is 
for my grandchildren. Then I would say it is for my kids. Now I 
would say it is for me.'' And the urgency seems to be gone. 
President Obama has never mentioned it in the State of the 
Union, in his inauguration. It is the big elephant in the room 
that for some reason hasn't been there in terms of the focal 
point, and yet the interest rate, the interest requirements are 
going to be compounded this entire issue. How would you like to 
address that as we look ahead and foresee the outcomes that 
might achieve the same results that they have had in Europe?
    Mr. Bernanke. The CBO and the OMB, when they do the deficit 
projections, they assume that interest rates are going to rise. 
And if the economy recovers, interest rates should rise. That 
is part of a healthy recovery. So that is taken into account in 
their analysis.
    What their analysis finds is that, for the next 5 years or 
so, the debt-to-GDP ratio is fairly stable. But getting past 
into the next decade, then we start to see big imbalances 
arising mostly from long-term entitlement programs and a 
variety of other things, including interest payments.
    And so, as I have said on numerous occasions, I am all in 
favor of fiscal responsibility, but I think that in focusing 
only on the very near term and not the long term, you are sort 
of looking for the quarter where the lamppost is rather than 
looking for it where the quarter actually is. So that is my 
general view, that you should be looking at the longer-term 
fiscal situation.
    Mr. Pittenger. Straightening pictures while the house is 
burning down. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman is yielded 
back.
    The Chair now recognizes the gentleman from Michigan, Mr. 
Kildee.
    Mr. Kildee. Thank you, Mr. Chairman.
    And thank you, Chairman Bernanke. I will just echo what 
many have said before. We certainly appreciate the great 
service that you have provided to this country.
    When you were here back in February, I was a mere freshman 
with 6 weeks' experience in Congress, and now I am a seasoned 
Member of Congress with almost 7 months. So I want to follow up 
on a line of questioning that I will take a minute or 2 to 
pursue. And I may not take my full 5 minutes; I may leave some 
time for others.
    But in your prepared remarks, you make some pretty 
important references. I think one of many that got my attention 
was the reference to improved financial positions of State and 
local governments. And while I think we all would acknowledge 
that is generally the case, I want to return to what will 
likely be my theme here for a long time, which is that there is 
great unevenness or inequity in the condition of municipal 
governments--State governments for sure, but municipal 
governments certainly.
    So I ask if you would mind perhaps commenting further. And, 
actually, in anticipation of not having time, I prepared a 
letter for you that I would like to submit and ask for your 
response.
    But if you think about it in the context of your dual 
mandate, the potential impact on regional economies and 
employment as an extension of what seems nearly certain to be 
severe financial stress for cities like Detroit--which, in many 
ways, is sort of a placeholder for what is a much bigger 
problem, and that is the disconnect between the presence of 
wealth and economic activity in America's legacy cities, older 
industrial cities, and the obligations that those cities have 
to sustainable regions.
    And so, sort of following on Mr. Heck's--although maybe not 
quite as far as Mr. Heck's comment regarding the reach of the 
Federal Reserve, I would ask if you would think about how you 
would advise Congress or how the Fed itself might pursue policy 
that would have the effect of potentially avoiding but 
certainly mitigating the economic effect of municipal financial 
failure.
    The one that always comes to mind first is the potential 
for municipal bond default, which could affect not only the 
creditworthiness of the municipality but obviously could have 
implications for State governments, since virtually all 
municipalities are creatures of State government, but, as 
importantly, the effect on the economic health of particular 
regions.
    I say this because, as I said back in February, I think 
this potentially is an institutional failure that is 
regionalized or localized but, for those places, is every bit 
as much and, I would argue, even more a threat than what we 
have seen with the financial distress that we faced back in the 
last half-decade and in the case of maybe the auto industry, 
what it faced. This is a serious pending crisis.
    I would just ask for your comments. And I will submit my 
letter for further response.
    Thank you.
    Mr. Bernanke. No. I agree that it is a very serious 
problem. If I am not mistaken, we have a Detroit City Manager 
on one of our local boards, and she has kept us informed about 
some of the projects that are being undertaken razing parts of 
the City and working on economic development and the like. So 
it is a very serious problem.
    I think as far as the Fed is concerned, there are two kinds 
of things we can do. First, obviously to solve the problem, you 
have to solve the underlying economic problem, and that means 
jobs, and that means economic growth, and our monetary policies 
are aimed at trying to achieve that. I think that is 
fundamental.
    Beyond that, we do have community development experts at 
the Fed. They work with community development groups, CDFIs and 
others, to try to reestablish an economic base in places that 
have been hollowed out for various reasons. And I recently--a 
few years ago, I guess it was, I went to Detroit and talked to 
suppliers, auto suppliers who provide input to the big 
companies to try to understand their economy.
    So I think that working through community groups, community 
organizations, CDFIs and the like to try to restore the 
economic base, that is the only long-run solution. You can 
provide help through the government in the short run, but 
unless the economy comes back, you don't really have a 
sustainable situation.
    Mr. Kildee. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair recognizes the gentleman from Kentucky, Mr. Barr.
    Mr. Barr. Thank you, Mr. Chairman.
    Chairman Bernanke, thank you for your service and for your 
testimony here today.
    I have listened to your testimony and I have an 
observation, then a couple of questions. The observation is 
this: The Fed has held interest rates near zero for 4 years 
now. The Fed's balance sheet has more than tripled to $3.5 
trillion and continues to grow. Today, you have testified that 
a highly accommodative policy will remain appropriate for the 
foreseeable future, and yet unemployment remains at 7.6 
percent; 54 consecutive weeks of unemployment higher than 7\1/
2\ percent; only 58 percent of the working-age population is 
employed; 5 straight years of declining wages; three-quarters 
of the American people are living paycheck to paycheck; and GDP 
growth remains well below the long-run average of 3 percent. 
All of this has happened coincident to a time when the role of 
government has grown dramatically as a percentage of our 
economy, higher taxes, stimulus spending, government bailouts, 
Obamacare, Dodd-Frank, skyrocketing compliance costs on 
financial institutions and crushing overregulation of the 
energy sector by the EPA.
    Given these realities and the Fed's extraordinary 
expansionary monetary policy, struggling American families are 
asking the following very important question: What is the cause 
of weakness and persistent weakness in our labor market? Is it 
the relative ineffectiveness of the Fed's monetary policy, or 
is it the fiscal policies like higher taxes, Obamacare, Dodd-
Frank and overregulation by the EPA?
    My question is related to the exit strategy. During 
testimony in front of Congress last month, you refused to rule 
out tapering by the fall time period. The Federal Open Market 
Committee then released a statement that the Federal Reserve, 
``will continue its purchases of Treasury mortgage-backed 
securities and employ its other policies as appropriate until 
the outlook for the labor market has improved substantially in 
the context of price stability.''
    You have reiterated that today. These are hardly definitive 
statements about reducing the Fed's unprecedented and 
aggressive bond purchase program, yet the average 30-year, 
fixed-rate mortgage, as we have discussed earlier today, jumped 
by 42 basis points, the Dow suffered back-to-back declines of 
more than 200 points, and billions of dollars were traded out 
of credit funds after you said last month that the Fed could 
start winding down bond buying later this year.
    Given the sharp reaction of the credit markets to even the 
possibility of tapering, how will you prevent a catastrophic 
spike in interest rates when you actually do slow bond 
purchases?
    Mr. Bernanke. By communicating, by not surprising people, 
by letting them know what our plan is and how it relates to the 
economy. You talked about the weakness of the economy. I think 
that is evidence that we need to provide a continued 
accommodation, even if we begin to change over time the mix of 
tools that we use to provide that accommodation.
    You said a lot of correct things about the weakness of our 
economy. I agree with a lot of what you said. On the other 
hand, it is the case that we have made some progress since 
2009, and many people think of the United States as one of the 
bright spots in the world. We are doing better than a lot of 
other industrial countries. And while we are certainly not 
where we want to be, at least we are going in the right 
direction, and we hope to support that.
    Mr. Barr. Given the persistent high unemployment, it seems 
to me that American families who are struggling, many of whom 
are in my district in eastern Kentucky, who continue to remain 
unemployed, persistently unemployed, and as you testified, the 
underemployment problem persists in this country, I think they 
justifiably have to ask themselves, given the expansionary 
policy that you have pursued quite aggressively, and to your 
credit, there has to be a fiscal policy problem here that has 
created this uncertainty.
    Let me conclude by bringing to your attention a quote that 
a commentator recently had to say about Fed policy, and I would 
like your reaction to it: ``If the economy begins to improve, 
and the Fed does not withdraw the tremendous reserves that it 
has created from the banking system, rampant inflation will 
follow. If it doesn't withdraw reserves quickly, interest rates 
will rise rapidly. This situation makes economic calculations 
extremely difficult and makes businesses less willing to 
invest, especially for the long term. If business owners could 
fully trust the Fed, this would not be an issue, but we have 
all been burned too many times to trust the Fed.''
    Can you respond to that?
    Mr. Bernanke. There have been people saying we are going to 
have hyperinflation any day now for quite a while, and 
inflation is 1 percent. We know how to exit; we know how to do 
it without inflation. Of course, there is always a chance of 
going too early or too late and not hitting the sweet spot. 
That happens all the time whenever monetary policy tightens. 
But we have all the tools we need to exit without any concern 
about inflation.
    Mr. Barr. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chairman has graciously agreed to stay an extra 10 
minutes, whether he knows it or not, notwithstanding the fact 
the problem was with our sound system. Without objection, I 
would like to recognize the remaining Members who are in the 
hearing room at this time for 2 minutes apiece.
    The gentleman from Pennsylvania, Mr. Rothfus, is now 
recognized.
    Mr. Rothfus. Thank you.
    Chairman Bernanke, thank you for being here today. A simple 
question that I have is, when I have somebody in my district 
who is going to go out and buy a Treasury bill, that individual 
is looking to make an investment, they go to their bank, they 
go to their broker, they have $1,000, $5,000, and they get a 
bill. Where does the Fed get its money to buy its Treasury 
bills?
    Mr. Bernanke. When we buy securities from a private 
citizen, we create a deposit in the bank, their bank, and that 
shows up as reserves. So if you look at our balance sheet, our 
balance sheet balances, we have Treasury securities on the 
assets side. And liabilities side, we have either cash or 
reserves at banks, and that is what has been--on the margin, 
that is what has been building up is the excess reserves and--
    Mr. Rothfus. You create the reserves?
    Mr. Bernanke. Yes.
    Mr. Rothfus. And so, is that printing money?
    Mr. Bernanke. Not literally.
    Mr. Rothfus. Not literally.
    Mr. Bernanke. No.
    Mr. Rothfus. It is troubling me, when I look at the balance 
sheet that the Fed has, and I look at 4 years ago, it was $800 
billion, and now we are up to $3.5 trillion. And I just--I know 
you say you are confident that you have the tools available to 
do a draw-down when necessary without risking hyperinflation, 
yet by your own admission, what you are doing is unprecedented. 
What assurance can you give to the American people that we are 
not going to have a round of rampant inflation 5 years down the 
road?
    Mr. Bernanke. It is not unprecedented, because many other 
central banks use similar tools to the ones that we plan to 
use.
    Mr. Rothfus. Currently? Or can you look back in history and 
see--
    Mr. Bernanke. No.
    Mr. Rothfus. --somebody that has brought up its balance 
sheet by 311 percent in 4 years without any kind of negative 
consequence?
    Mr. Bernanke. Absolutely. Japan, Europe, and the U.K. have 
all done similar kinds of things with very large balance 
sheets.
    Mr. Rothfus. I appreciate your feedback on that, and we may 
reach out to you and get that information. Thank you.
    Mr. Bernanke. Sure.
    Chairman Hensarling. The Chair recognizes the gentleman 
from New Jersey, Mr. Garrett.
    Mr. Garrett. I thank the chairman.
    I thank Chairman Bernanke for our back-and-forth, what we 
have had over the years. So in 2 minutes, let me just run 
through a couple of questions, if I may.
    Right now with the balance sheet, as everyone has pointed 
out, at $3 trillion, I guess you stand as the world's largest 
bond fund manager. We have seen recently, since early May, a 1 
percentage point spike in long-term Treasurys, right? If the 
Fed were to mark to market, can you tell us what the change in 
value of that fund is?
    Mr. Bernanke. It takes us from an $150 billion unrealized 
capital gain close to even.
    Mr. Garrett. One hundred fifty to eight hundred. Can you 
also then give us a rule of thumb going forward, because we 
have already heard progressions as to increases potentially 
today, tomorrow, or someday in the future as far as inflation. 
But if you do see further increases in that, maybe as a rule of 
thumb, illustrate the relationship between yields and the 10-
year Treasury rates and the values of the bond fund. For 
example, what would the magnitude of losses be for every 
percentage point increase in long-term yields?
    Mr. Bernanke. I don't have a rule of thumb. I would refer 
you to the analyses that we published on this. It depends on 
the mix of maturities that we have and also the mix of 
Treasurys and MBS.
    Mr. Garrett. And do you compute that regularly to do--
    Mr. Bernanke. Yes.
    Mr. Garrett. --to do that?
    Mr. Bernanke. Yes. And we publish it.
    Mr. Garrett. And so if we see a 2 or 3 percent, then what 
would that result in?
    Mr. Bernanke. I don't have a number for you.
    Mr. Garrett. All right. And in 20 seconds, right now during 
the week of September 13th, Fannie Mae and Freddie Mac and 
Ginnie Mae have been originating around $12.5 billion in debt. 
You have been purchasing around--or no, they have been 
generating about 11.4-. You have been purchasing around 12.5- 
in agency debt, which means a result of about 109 percent ratio 
there. Is there a problem there, and do you look at their 
originations going forward in your bond purchases?
    Mr. Bernanke. We are not seeing any problems in the MBS 
market, because we are not just buying new stuff, but old stuff 
as well.
    Mr. Garrett. Right. And I guess that is the point. Do you 
consider that when you do go forward or--
    Chairman Hensarling. Time--
    Mr. Garrett. Okay.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair recognizes the gentlelady from Minnesota, Mrs. 
Bachmann.
    Mrs. Bachmann. Thank you, Mr. Chairman.
    And thank you, Chairman Bernanke, for being here today.
    I note that in the daily Treasury statement for July 12th, 
the Fed debt subject to the legal limit was 
$16,699,000,000,000. It stood at exactly $16,699,396,000,000 
for 56 straight days, defying all forces of nature, when we 
were accumulating about $4 billion a day in additional debt. 
And I note that just during part of the questioning, we have 
added over $400 million in debt, just in the time that you have 
talked to us today.
    So how could this freak of nature occur that the U.S. 
Treasury would report for 56 straight days that the debt stayed 
at $16,699,000,000,000? Has the Federal Government been cooking 
the books for these 56 days in a row, or what happened?
    Mr. Bernanke. That is not the Federal Reserve. You would 
have to ask the Secretary of the Treasury.
    Mrs. Bachmann. Could you comment on that?
    Mr. Bernanke. I don't know what the issue is. I would have 
to look at the numbers and what they refer to.
    Mrs. Bachmann. This was reported at CNS.com, but it is on 
the Treasury statement for July 12th. Were you aware of this--
    Mr. Bernanke. No.
    Mrs. Bachmann. --that the debt stayed, by some freak 
coincidence, at this level?
    Mr. Bernanke. Maybe it has to do with the use of unusual 
special measures to deal with the debt limit. There are various 
things they can do, to give some extra space. Maybe that is 
what is happening, so it is not being counted in the debt.
    Ms. Bachmann. That is what was reported in the news, that 
this is an extraordinary action, but to the common American 
citizen this clearly looks like the Federal Government is 
cooking the books.
    Mr. Bernanke. They are using--as you know, whenever the 
debt limit comes close, Treasury Departments under both parties 
have used a variety of different accounting devices to give 
some extra headroom, some extra space.
    Mrs. Bachmann. Have we exceeded our debt limit?
    Mr. Bernanke. I don't think so.
    Mrs. Bachmann. Thank you. I yield back.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The last questioner will be the gentleman from New Mexico, 
Mr. Pearce. You are recognized.
    Mr. Pearce. Thank you, Mr. Chairman. You almost beat the 
clock. I appreciate you staying around.
    As you remember, last time you were here I gave you an 
invitation to come to New Mexico and explain to seniors about 
your policy. And we have also talked a couple of times. The 
group is still gathering out there, we are trucking them in for 
lunches, so if you ever decide to come to New Mexico to have 
that meeting--
    Mr. Perlmutter actually headed down this direction. You 
continue to take advantage of seniors because they don't have 
access to sophisticated instruments, so a lot of them have 
their money in cash or near cash equivalents.
    Now, Mr. Perlmutter noted that the home financing has 
increased by from 3.3 to 4.5. We have a whole sheaf of Wall 
Street profit reports. Those are growing extraordinarily high. 
Did the seniors even get kind of a mention, an honorable 
mention, in the question about who is going to pay the bill for 
this? When are you going to start going up on the interest rate 
just a little bit? Because right now you are taking from 
seniors, and you are giving to Wall Street, basically. In my 
district we are, like, 43rd per capita income, $14,000 to 
$18,000 per year. Seniors live their life right. They paid off 
their bills, and they are being punished for this economy.
    Mr. Bernanke. Again, I don't think the Fed can get interest 
rates up very much, because the economy is weak, inflation 
rates are low. If we were to tighten policy, the economy would 
tank, and interest rates would be low.
    Mr. Pearce. These guys are making record rates. They just 
went up a percent and a half. Their costs are not going up.
    One last question, as we run out of time. I was interested 
in the Republican obstructionism comments earlier. I am 
wondering why the Democrats didn't do anything from 2009 to 
2010 on immigration. Considering the multipliers that came in 
1986, they thought it was 1 million, they legalized 3.3 
million--3.5 million, they brought 5- with them. That is 16 
million. If we get that multiple, 150 million people could be 
here. Is there a number at which the economy is adversely 
affected?
    Mr. Bernanke. I don't know.
    Mr. Pearce. Thank you, sir. I will yield back.
    Chairman Hensarling. All time has expired.
    I want to thank Chairman Bernanke again for his testimony 
today.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to this witness and to place his responses in the record. Also, 
without objection, Members will have 5 legislative days to 
submit extraneous materials to the Chair for inclusion in the 
record.
    This hearing is now adjourned.
    [Whereupon, at 1:15 p.m., the hearing was adjourned.]












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