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




 
                       FEDERAL RESERVE OVERSIGHT:
                      EXAMINING THE CENTRAL BANK'S
                       ROLE IN CREDIT ALLOCATION

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

                                HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON MONETARY

                            POLICY AND TRADE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 12, 2014

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 113-70

                                 ______

                   U.S. GOVERNMENT PRINTING OFFICE 
88-532                     WASHINGTON : 2014
____________________________________________________________________________ 
For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202ï¿½09512ï¿½091800, or 866ï¿½09512ï¿½091800 (toll-free). E-mail, [email protected].  



                 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
               Subcommittee on Monetary Policy and Trade

                  JOHN CAMPBELL, California, Chairman

BILL HUIZENGA, Michigan, Vice        WM. LACY CLAY, Missouri, Ranking 
    Chairman                             Member
FRANK D. LUCAS, Oklahoma             GWEN MOORE, Wisconsin
STEVAN PEARCE, New Mexico            GARY C. PETERS, Michigan
BILL POSEY, Florida                  ED PERLMUTTER, Colorado
MICHAEL G. GRIMM, New York           BILL FOSTER, Illinois
STEPHEN LEE FINCHER, Tennessee       JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana          TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina        DANIEL T. KILDEE, Michigan
ROBERT PITTENGER, North Carolina     PATRICK MURPHY, Florida
TOM COTTON, Arkansas


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 12, 2014...............................................     1
Appendix:
    March 12, 2014...............................................    27

                               WITNESSES
                       Wednesday, March 12, 2014

Bivens, Josh, Research and Policy Director, Economic Policy 
  Institute......................................................     8
Goodfriend, Marvin, Friends of Allan Meltzer Professor of 
  Economics, Tepper School of Business, Carnegie Mellon 
  University.....................................................     2
Kupiec, Paul H., Resident Scholar, American Enterprise Institute 
  (AEI)..........................................................     4
White, Lawrence H., Professor of Economics, George Mason 
  University.....................................................     7

                                APPENDIX

Prepared statements:
    Bivens, Josh.................................................    28
    Goodfriend, Marvin...........................................    40
    Kupiec, Paul H...............................................    51
    White, Lawrence H............................................    71


                       FEDERAL RESERVE OVERSIGHT:
                      EXAMINING THE CENTRAL BANK'S
                       ROLE IN CREDIT ALLOCATION

                              ----------                              


                       Wednesday, March 12, 2014

             U.S. House of Representatives,
                           Subcommittee on Monetary
                                  Policy and Trade,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:03 a.m., in 
room 2128, Rayburn House Office Building, Hon. John Campbell 
[chairman of the subcommittee] presiding.
    Members present: Representatives Campbell, Huizenga, 
Pearce, Posey, Stutzman, Mulvaney, Pittenger, Cotton; Clay, 
Foster, and Kildee.
    Ex officio present: Representative Hensarling.
    Chairman Campbell. The Subcommittee on Monetary Policy and 
Trade will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time. And the Chair now 
recognizes himself for 5 minutes for an opening statement, 
which will not be anywhere near that long.
    This is another chapter in our continuing examination of 
the Federal Reserve (Fed) on the occasion of the 100th 
anniversary of the Fed this year--last year, technically. I am 
not going to make any pontifications about what I think things 
are or ought to be, because that is what our distinguished 
panel is for, but we want to examine the idea of quantitative 
easing, and of setting interest rates, and of what the Fed is 
doing right now and how that is impacting markets, and how that 
is impacting credit.
    Is it helping some and hurting others? And just what are 
the ramifications of those actions and those decisions, both 
currently and with a perspective on history and on things the 
Fed has done in the past?
    So, I will look forward to the testimony, and I now 
recognize the ranking member of the subcommittee, the gentleman 
from Missouri, Mr. Clay, for 5 minutes for his opening 
statement.
    Mr. Clay. Thank you, Mr. Chairman, especially for holding 
this hearing regarding the Federal Reserve's role in credit 
allocation. Due to the financial crisis of 2008, the Federal 
Reserve Bank purchased commercial paper, made loans, and 
provided dollar funding through liquidity swaps with foreign 
central banks. Because of this action, the Federal Reserve Bank 
balance sheet expanded.
    Currently, the Federal Reserve Bank has gradually tapered 
its asset purchases from $85 billion per month to $75 billion 
per month due to evidence that the economy is improving. The 
Federal Reserve Bank will purchase a total of $65 billion in 
Treasury and mortgage-backed securities each month. This is a 
$20 billion decrease, and this action was taken due to the 
improvement in the labor market.
    And there has been no other period since 1939 in which 
government employment has been so weak for so long. This is 
twice as long as the 26 months of the double-dip recessions in 
the Reagan Administration cutbacks of the 1980s.
    The U.S. economy was vastly affected by the financial 
crisis in 2008, and one of the most affected markets was the 
housing market, and one of the major factors that affects the 
housing market is employment and wage level. I will stop there, 
Mr. Chairman, because I am also anxious to hear the testimony. 
I yield back.
    Chairman Campbell. The gentleman yields back.
    The Chair now recognizes the vice chairman of the 
subcommittee, the gentleman from Michigan, Mr. Huizenga, for 5 
minutes.
    Mr. Huizenga. Thank you, Mr. Chairman. I don't intend to 
utilize all that, because I, too, want to get to these 
presentations. And I think, gentlemen, what I am looking for is 
an answer to my question: What has all this spending in QE2 and 
3 and Twist and all the others really accomplished?
    The effectiveness of the Fed's efforts to stimulate the 
economy, I think, has a lot of us questioning some of those 
decisions. And, I have a serious concern that their 
encroachment into fiscal policy through credit allocation seems 
to me to break down the historical safeguards in a way that is 
independent from the Federal Government.
    Even former Fed Chairman Bernanke noted in his book, ``The 
Federal Reserve and the Financial Crisis,'' that ``Central 
banks that operate independently will deliver better results 
than those that are dominated by the government.'' And I 
appreciate, Mr. Chairman, you setting this time aside so we can 
explore it, so thank you.
    Chairman Campbell. The gentleman yields back. Thank you 
very much.
    Any other opening statements from anyone? Hearing none, we 
will move straight to the witnesses. So, I would like to 
welcome you all.
    First, Dr. Marvin Goodfriend is a Professor of Economics at 
Carnegie Mellon University. He previously served as the Chief 
Monetary Policy Adviser to the Federal Reserve Bank of 
Richmond. He also worked as Senior Staff Economist for the 
White House Council of Economic Advisers. Dr. Goodfriend, you 
are recognized for 5 minutes.

   STATEMENT OF MARVIN GOODFRIEND, FRIENDS OF ALLAN MELTZER 
  PROFESSOR OF ECONOMICS, TEPPER SCHOOL OF BUSINESS, CARNEGIE 
                       MELLON UNIVERSITY

    Mr. Goodfriend. Thank you, Mr. Chairman.
    I am pleased to be invited to testify this morning. I am 
going to argue that the 1951 Treasury-Federal Reserve Accord on 
monetary policy should be supplemented with a Treasury-Federal 
Reserve Accord on credit policy.
    Monetary policy can be conducted independently by a central 
bank because the objectives of monetary policy--price stability 
and full employment--are reasonably clear and coherent. 
Moreover, monetary policy is about managing aggregate bank 
reserves and currency to influence the general level of 
interest rates for the whole economy. Assets are acquired only 
as a means of injecting bank reserves and currency into the 
economy. Hence, monetary policy can be implemented by confining 
asset purchases to Treasuries-only.
    Treasuries-only keeps the independent central bank free of 
politics, because it avoids credit risk and because the central 
bank simply returns the interest to the Treasury that the 
Treasury pays to the central bank for the Treasury securities 
that the central bank holds.
    Credit policy satisfies none of the conditions that make 
monetary policy suitable for management by an independent 
central bank. Credit policy involves selling Treasury 
securities from the central bank portfolio and lending the 
proceeds to private financial institutions or using the 
proceeds to acquire non-Treasury debt, such as mortgage-backed 
securities. Credit policy has no effect on the general level of 
interest rates, because it doesn't change aggregate bank 
reserves or interest paid on reserves.
    Credit policy really is debt-financed fiscal policy carried 
out by the central bank. Why? The central bank returns to the 
Treasury interest earned on the Treasuries that it holds. So 
when the central bank sells Treasuries to finance credit 
policy, it is as if the Treasury financed credit policy by 
issuing new Treasury debt.
    Credit policy works by exploiting the government's 
creditworthiness--the power to borrow credibly against future 
taxes--to facilitate flows to distressed or favored borrowers. 
Doing so involves a fiscal policy decision to put taxpayer 
funds at risk in the interest of particular borrowers. All 
central bank credit initiatives carry some credit risk and 
expose the central bank, and ultimately the taxpayers, to 
losses and controversial disputes involving credit allocation.
    The 1951 Accord between the Treasury and the Fed was one of 
the most dramatic events in financial history. The Accord ended 
an arrangement dating from World War II in which the Fed agreed 
to use its monetary policy powers to keep interest rates low to 
help finance the war effort. The Accord famously reasserted the 
principle of Fed independence so that monetary policy might 
serve exclusively to stabilize inflation and macroeconomic 
activity.
    Central bank credit policy, too, must be circumscribed with 
clear, coherent boundaries. Conventional last resort lending by 
a central bank is reasonably compatible with central bank 
independence. Last resort lending to supervised, solvent 
depositories, on a short-term basis, against good collateral 
provides multiple layers of protection against ex post losses 
and ex ante distortions. So, the fiscal policy consequences of 
conventional last resort lending are likely to be minimal and 
the scope for conflict with the fiscal authorities small.
    On the other hand, expansive credit initiatives--such as 
those undertaken in the wake of the 2007-2009 credit turmoil--
that extend credit reach in scale, in maturity, and in 
collateral to unsupervised nondepository institutions and the 
purchase of non-Treasury securities inevitably carry 
substantial credit risk and have significant allocative 
consequences. Expansive credit initiatives infringe 
significantly on the fiscal policy prerogatives of Treasury and 
Congress and properly draw the scrutiny of fiscal authorities.
    Hence, expansive credit initiatives jeopardize central bank 
independence and should be circumscribed by agreement between 
the fiscal authorities and the central bank.
    Furthermore, an ambiguous boundary of expansive central 
bank credit policy creates expectations of accommodation in 
financial crises which blunts the incentive of private entities 
to take preventive measures beforehand to shrink their 
counterparty risk and their reliance on short-term finance. 
Moreover, an ambiguous central bank credit reach also blunts 
the incentive of the fiscal authorities to prepare procedures 
by which fiscal policy could act systematically and 
productively in times of financial crisis.
    The chaotic, reluctant involvement of Congress in the 
credit turmoil contributed to the financial panic and worsened 
the Great Recession, precisely because of the ambiguity about 
the boundary between Fed policy and the Congress.
    Such reasoning suggests the following three principles as 
the basis for a Treasury-Fed Accord for credit policy: first, 
as a long-run matter, a significant, sustained departure from 
Treasuries-only asset acquisition is incompatible with the 
Fed's independence; second, the Fed should adhere to 
Treasuries-only except for occasional, temporary, well-
collateralized, ordinary last resort lending to solvent, 
supervised depositories; and third, Fed credit initiatives 
beyond ordinary last resort lending, in my view, should be 
undertaken only with prior agreement of the fiscal authorities 
and only as bridge loans accompanied by takeouts arranged and 
guaranteed in advance by the fiscal authorities.
    Thank you.
    [The prepared statement of Dr. Goodfriend can be found on 
page 40 of the appendix.]
    Chairman Campbell. Thank you, Dr. Goodfriend.
    Next, we have Dr. Paul Kupiec, a resident scholar at the 
American Enterprise Institute. In the past, he has served as 
the chairman of the research task force at the Basel Committee 
on Banking Supervision. He was also the deputy chief of the 
Department of Monetary and Financial Systems at the IMF and a 
Senior Economist in the Division of Research and Statistics at 
the Federal Reserve Board of Governors.
    Welcome, Dr. Kupiec. You are recognized for 5 minutes.

    STATEMENT OF PAUL H. KUPIEC, RESIDENT SCHOLAR, AMERICAN 
                   ENTERPRISE INSTITUTE (AEI)

    Mr. Kupiec. Thank you.
    Thank you. Chairman Campbell, Ranking Member Clay, and 
distinguished members of the subcommittee, thank you for 
convening today's hearing and for inviting me to testify. 
First, let me say these are my personal views and not the views 
of the AEI.
    Banking regulations can have important impacts on economic 
growth and financial stability. In the aftermath of the crisis, 
the government introduced sweeping changes in bank and 
financial market regulation, and today I will discuss the 
economic consequences of some of these changes. But before 
discussing them, let me first mention that the government 
housing policies that encouraged the housing bubble and 
triggered a financial crisis are still in place today.
    Let me move first to the qualified mortgage (QM) and 
ability-to-repay (ATR) regulations that were issued by the 
Consumer Financial Protection Bureau (CFPB). They were intended 
to limit the risk of new mortgage originations and protect 
consumers from predatory lending. But the QM and ATR rules that 
went into effect in January do not accomplish these intended 
goals. They are reducing consumer access to mortgage credit 
without providing financial stability or consumer protection 
benefits. These rules raise compliance costs for originating 
mortgages, especially for smaller banks.
    New evidence has come to the fore which shows that 
community banks have decided to stop offering their customers 
mortgages because the business is no longer profitable. The 
impact of community bank withdrawal from mortgage lending will 
be especially large in rural markets and small towns that are 
not served by a large bank.
    Another issue in credit is fair lending enforcement. The 
regulators are using a new statistical approach for enforcing 
fair lending laws. In a nutshell, the enforcement approach 
creates an entitlement for bank credit to high-risk borrowers 
with protected characteristics. A so-called disparate impact 
enforcement standard will discriminate against high-quality 
borrowers because banks will be forced to pass the costs of 
lending to high-risk borrowers with protected characteristics 
onto their unprotected low-risk customers.
    Some legal scholars think that enforcement actions based on 
disparate impact will eventually be overturned by the courts. 
Still, the CFPB is making aggressive use of this policy, most 
recently in a high-profile action against an auto lender.
    As you know, the Volcker Rule is intended to ban banks from 
proprietary trading. However, restrictions in the Volcker Rule 
are causing unintended consequences for banks that own 
collateralized loan obligations (CLOs). Because many CLO pools 
include debt securities, and their senior tranches exercise 
limited power over the CLO manager, they appear to be 
inadmissible investments under the final Volcker regulations.
    If banks have to sell their CLOs, it is likely to impose 
significant costs on the banks, and it won't provide any 
measurable gain in bank safety or soundness. The rule should be 
amended without delay to remove regulatory uncertainty and 
allow banks to retain their legacy CLOs.
    Moving to other powers that came under the Dodd-Frank Act, 
mandatory stress tests. There is no scientific evidence that 
supports the use of macroeconomic stress scenario simulations 
for the regulation of individual financial institutions, yet 
the Dodd-Frank Act imposes multiple new stress test 
requirements on large bank holding companies. Stress test 
models have very limited accuracy for explaining individual 
bank historical profits and losses. Perhaps this is one reason 
the Fed keeps its stress test models a secret, even from the 
other bank regulatory agencies that are involved in the CCAR 
stress tests.
    The stress test requirement gives the Fed unchallenged 
power to exercise regulatory discretion over bank operations 
and shareholder property rights. The Fed can and has failed 
banks without providing the banks with the Fed's projection 
methodology that predicts the bank's future capital shortfall. 
The methodology remains a Federal Reserve trade secret.
    Bank regulators have also used systemic powers to stop 
banks from making high-yield syndicated loans. They argue that 
the loans are creating a systemic risk by fueling a bubble in 
high-yield mutual funds. If there is a bubble, stopping the 
supply of these loans would be the wrong policy. It would only 
drive yields lower, further distorting the price of credit 
risk, which would only make the bubble worse.
    Mutual fund investors are demanding high-yield floating-
rate corporate loans as a rational response to the Federal 
Reserve's continuing zero interest rate monetary policy and its 
announced plans to taper its QE purchases. The Dodd-Frank Act 
grants financial regulators broad new powers and 
responsibilities to prevent systemic risk without providing a 
clear definition of systemic risk. This ambiguity gives 
regulators wide latitude to exercise their judgment to identify 
firms, products, specific financial deals, and market practices 
that create systemic risk and impose new regulatory 
constraints, and regulators, especially bank regulators, are 
aggressively exercising this authority, both to designate non-
bank firms as SIFIs over objections of other FSOC members and 
to direct bank lending decisions with the goal of altering 
investments made by mutual funds that they do not regulate.
    Indeed, non-bank SIFIs are being identified well before the 
Federal Reserve has revealed their enhanced prudential 
standards that will apply to these non-bank institutions. The 
FSOC can and has designated non-financial institutions as 
systemically important using only the most general of 
arguments. For example, in its designation decision, the FSOC 
is not required to explain the changes a newly designated 
institution might take to reverse the decision.
    Regulatory systemic risk powers and SIFI designation create 
enormous regulatory uncertainty for many private sector 
financial firms and Congress should act to limit this power. 
Thank you very much for the opportunity to testify, and I look 
forward to your questions.
    [The prepared statement of Dr. Kupiec can be found on page 
51 of the appendix.]
    Chairman Campbell. Thank you, Dr. Kupiec. And by the way, 
without objection, all of your written statements will be made 
a part of the record, in case any of you are unable to finish.
    Next, Dr. Larry H. White is a senior scholar at the 
Mercatus Center and a professor of economics at George Mason 
University. He also serves as a member of the Financial Markets 
Working Group; previously taught at the University of Missouri, 
St. Louis, and at the University of Belfast; and previously 
worked as a visiting scholar at the Federal Reserve Bank of 
Atlanta.
    Dr. White, you are recognized for 5 minutes.

STATEMENT OF LAWRENCE H. WHITE, PROFESSOR OF ECONOMICS, GEORGE 
                        MASON UNIVERSITY

    Mr. White. Thank you, Chairman Campbell, Ranking Member 
Clay, and members of the subcommittee.
    I think my written testimony in many ways complements that 
of Professor Goodfriend, in that I argue that the Federal 
Reserve's attempts to direct the allocation of credit, 
especially since 2007, are an overreach that not only conflicts 
with independent monetary policy and the independence of 
monetary policy from fiscal policy, but it is also wasteful, it 
is inefficient, and it is fraught with serious governance 
problems.
    The Fed has traditionally had five main roles. Two of them 
are routine--clearing checks; and issuing paper currency--and 
three are more important--supervision and regulation of 
commercial banks; serving as a lender of last resort; and 
conducting monetary policy. Since 2007, and at its own 
initiative, the Fed has greatly expanded the range of its 
activities by undertaking unprecedented credit allocation 
policies that don't fit into any of these traditional 
categories.
    A central bank that is already charged with these five 
tasks and is not excelling at all of them shouldn't be 
expanding the range of its activities beyond them, so I think 
the Fed should be removed or should remove itself from the 
formulation and implementation of credit policy.
    Now, what I mean by credit policy is not only QE1 and QE3 
that have been mentioned, but all the special lending programs 
that the Fed undertook during the financial crisis, ranging 
from dollar swap lines for foreign-domiciled commercial banks 
doing U.S. dollar business, to asset-backed commercial paper 
money market mutual fund liquidity facility, to bridge loans to 
JPMorgan Chase, to the Maiden Lane subsidiaries of the New York 
Fed. There is a long list in my written testimony, 22 programs 
in all.
    To the extent that these programs actually do affect the 
allocation of credit, they are more likely than not to have 
directed credit to less productive uses than would otherwise 
have occurred, even if Fed policymakers have the best of 
intentions. We have to consider the costs of these programs, 
which is to divert credit away from those who have been judged 
creditworthy in the market toward those who are favored by 
Federal Reserve policy, and when we throw good money after bad, 
when we lend money to insolvent institutions, we are not 
increasing the efficiency of financial markets, but the 
reverse.
    Now, the Dodd-Frank Act recognized a problem with the 
lending programs that were directed at specific institutions, 
and it imposes a restriction on the Fed to limit its lending in 
the future to broad-based programs. I think this is a step in 
the right direction. If this rule had been in place before 
2010, though, it would have only ruled out about half of the 
credit allocation programs on the list.
    The logic of broadening credit programs leads to wanting 
the Fed to behave in the broadest way possible, and that means 
not lending to segments of the financial market, money market 
funds here, credit broker-dealers here, and so on, but to the 
entire market, which is monetary policy, which is open-market 
purchases of Treasury securities to make more bank reserves 
available to where the market will allocate them.
    The QE1 and QE3 purchases of mortgage-backed securities 
have been defended as monetary policy, but they are not 
monetary policy. The purchase of securities is monetary policy, 
but the choice of mortgage-backed rather than Treasuries is not 
monetary policy, because it doesn't affect monetary aggregates 
or things that depend on monetary aggregates. It is a credit 
allocation choice.
    And the Fed has, in fact, used interest on reserves to 
negate the monetary policy impact of the huge purchases of 
mortgage-backed securities. In my written testimony, I have a 
figure showing that, as the monetary base has spiked, M2 has 
just chugged along on a very smooth path, so the Fed has 
deliberately offset the monetary policy effect of these 
purchases.
    The targeted lending programs are not lender of last resort 
programs, as they have sometimes been defended. They don't fit 
the classical criteria for lender of last resort, which is 
lending liquidity to solvent institutions. They have been 
lending or providing capital and boosting net worth for 
insolvent institutions. Traditional lender of last resort is 
for banks, and the special lending programs have extended it 
way beyond banks to other kinds of financial institutions.
    The bailout programs, of course, go way beyond that to the 
sort of thing that used to be considered the responsibility of 
the fiscal authorities. And the Fed, by paying interest on 
reserves, is, in effect, borrowing money and spending it the 
way the Fed sees fit, which is the description of a fiscal 
policy. Thank you very much.
    [The prepared statement of Dr. White can be found on page 
71 of the appendix.]
    Chairman Campbell. Thank you, Dr. White.
    Next, Dr. Josh Bivens is the research and policy director 
at the Economic Policy Institute. He is the author of, 
``Everybody Wins, Except for Most of Us: What Economics Teaches 
About Globalization.'' He is also a frequent communicator on 
many high-profile news outlets.
    Dr. Bivens, welcome. You are recognized for 5 minutes.

    STATEMENT OF JOSH BIVENS, RESEARCH AND POLICY DIRECTOR, 
                   ECONOMIC POLICY INSTITUTE

    Mr. Bivens. Thank you. My name is Josh Bivens, and I am the 
research and policy director at the Economic Policy Institute. 
My remarks are just my personal views. I thank the committee 
members for the invitation to testify today.
    My remarks and my testimony are largely framed as responses 
to the concerns raised about the Fed's quantitative easing 
program in the introductory memorandum for this hearing. Before 
moving on to some of those specific concerns, most of which 
center around threats to the Fed's independence, I am going to 
just say a couple of words about useful ways to define that 
central bank independence.
    I think for far too many in this debate, independence seems 
synonymous with putting very little or even zero weight on the 
maximum employment target that is part of the Fed's dual 
mandate. And sometimes this demand for independence gets 
translated into an implicit demand that the Fed sort of always 
and everywhere lean against the stance of fiscal policy, and 
the presumption seems to be that most policymakers have an 
inflationary bias that will reap short-term gains in economic 
activity and employment, but only at the long-run cost of 
overheating the economy and sending up interest rates and 
prices.
    If you took this presumption as a given, then it would make 
sense that for a Fed that cared only about price stability, it 
would, indeed, always have to lean against what other 
macroeconomic policymakers, especially fiscal policymakers, are 
doing.
    And while there have been historical episodes where central 
bank independence was surrendered and bankers became 
excessively deferential to other policymakers' desires for 
inflationary policy, that is just not what is happening in the 
U.S. economy today.
    Since the beginning of 2008, the U.S. economy has been 
plagued by a large shortfall in aggregate demand, a shortfall 
that has put downward pressure on prices and interest rates and 
has kept joblessness excessively high. In this kind of 
situation, pursuing stability of inflation and maximum output 
is not a delicate tradeoff. Both demand that all levers of 
macroeconomic policy try to push the economy back to potential 
by generating more spending from households, firms, and 
governments.
    Quantitative easing is one such lever. While long-term 
interest rates have generally been driven very low by the 
extraordinary economic weakness in recent years, interest rates 
low enough to drive a full employment recovery by themselves 
requires they be even lower, but they are hampered in this by 
the zero bound on short-term interest rates.
    Through its forward guidance and quantitative easing 
programs, the Fed has aimed to push long-term rates even lower 
than the economic weakness has pushed them, and this policy 
action has led to higher rates of economic activity in 
employment and higher rates of inflationary expectations, which 
today is a good thing.
    How much have they contributed? There is a lot of 
uncertainty about just the precise degree of economic impact of 
the quantitative easing programs. There is almost no 
uncertainty that the direction is positive, that is the 
quantitative easing programs have surely pushed the economy in 
the direction of more activity and more employment.
    With this backdrop, I will move very quickly onto the three 
specific concerns raised in the introductory memorandum for 
this hearing. The first one is, has quantitative easing enabled 
higher government spending? The short answer is, it has not, 
and that is actually a bad thing.
    Between 2008 and 2010, it is true that fiscal policy and 
monetary policy generally pulled in the same direction, leading 
to expansion in the economy. This wasn't a problem. This is 
what the economy needed. There is a huge shortfall in demand 
relative to productive potential.
    Since then, however, the empirical fact is that Federal 
spending has slowed so much that it is now the slowest growth 
of Federal spending during any recovery of comparable length in 
postwar history. And the very slow growth of public spending 
overall can essentially explain entirely why economic growth in 
this recovery has been the slowest on record.
    So in summary, the quantitative easing programs have been 
associated in recent years with very slow, not fast, growth of 
spending, and we would have a much healthier economy today if 
that hadn't been the case.
    The second concern raised in the memo was, have QE 
purchases of mortgage-backed securities disproportionately 
aided the housing finance sector? Yes, they have, but that is a 
perfectly appropriate response to the financial crisis 
accompanying the bursting of the housing bubble. This sector 
was extraordinarily impaired. A primary channel through which 
lower interest rates are supposed to help boost economic growth 
is through the mortgage refinance channel, and the impairment 
in the mortgage-backed security sector was impeding that 
channel, so I would say, yes, it is true that by targeting that 
sector, they were going after a sector that was extraordinarily 
impaired by the crisis, and that is exactly what they should 
have done.
    And then lastly, have regulations promulgated since the 
Great Recession provided an incentive for banks to favor 
certain asset classes over others? I would say, yes, they have, 
and, again, that is an entirely appropriate response to the 
crisis. The crisis was caused in large part because financial 
institutions took on too much leverage in far too little 
liquidity when they were unregulated in the run-up to it.
    Basically, the regulations mentioned in the memorandum 
require banks to hold a higher share of liquid assets on their 
books. A big problem with the crisis was that the assets which 
banks had were not liquid when markets went bad. Treasuries are 
very, very liquid, so regulations that encourage them to have a 
higher share of those on their books is a very good thing.
    I am happy to answer any questions from the committee, and 
thank you again for the invitation.
    [The prepared statement of Dr. Bivens can be found on page 
28 of the appendix.]
    Chairman Campbell. Thank you, Dr. Bivens. And I thank all 
four members of our panel of doctors today.
    I now recognize myself for 5 minutes for questioning. And 
in these hearings, I always like to pursue it when I hear 
something I hadn't necessarily heard before--we had a hearing a 
month or so ago on how QE was affecting international finance, 
where a group of people, which may have included one of you, 
talked about the fragile five and how we were creating 
instability in Turkey and Argentina and, boom, about 3 weeks 
later, said instability showed up.
    Something I heard today from Dr. Goodfriend and Dr. White 
that I haven't heard before or if I have heard it, it went in 
one ear and out the other, which is entirely possible, is that 
what we see the Fed doing, ranging into credit policy or credit 
allocation, as you have suggested, and various other things, 
actually threatens the Fed's independence, or is incompatible, 
as you said, Dr. Goodfriend.
    You would think that it would be logical to assume that 
when the Fed does other things that is showing their 
independence, rather than threatening or being incompatible 
with their independence. So would either of you like to expound 
on why this thing, which seems counterintuitive, is what you 
believe to be the case?
    Mr. Goodfriend. I will start. So you are right, Mr. 
Chairman. If the Fed pursues expansive actions, it demonstrates 
its power to do things independently. And if you didn't 
understand the difference between credit policy and monetary 
policy and the boundaries that Larry and I have been 
describing, you might think that is a good thing.
    But Congress grants the Fed's independence grudgingly, and 
only because monetary policy can be independently monitored and 
because monetary policy, as I describe it, does not involve 
fiscal policy at all. And so, let me revisit this issue and 
describe why.
    Monetary policy is about changing currency and bank 
reserves in the economy. The assets that the Federal Reserve 
acquires to change currency and bank reserves are immaterial 
for monetary policy to work. So the Fed can acquire Treasury 
securities in expanding the money supply, currency and 
reserves. And when the Fed buys Treasury securities, it simply 
returns all the interest that the fiscal authorities give it 
back to the Treasury to spend as they see fit.
    So, monetary policy is really beautifully suitable for 
delegation to an independent central bank because it separates 
monetary and fiscal policy very well.
    When the Fed expands policies in the credit direction, it 
really has nothing to do with monetary policy, per se. Why? 
Because credit policy is a policy where the Fed sells Treasury 
securities, it takes the money that it gets and immediately 
puts the money back into circulation without changing the 
quantity of money in order to channel credit to distressed or 
favored borrowers, financed by the sale of Treasury securities 
from its portfolio.
    Now, the trick about credit policy is that when the Fed is 
holding those Treasury securities, the interest that it earns 
from the Treasury is simply round-tripped back to the Treasury. 
So when the Fed sells Treasuries in order to take the funds and 
allocate those funds somewhere else, it is exactly as if the 
Treasury issued new securities, took the cash, and made loans.
    Chairman Campbell. Okay, I get that. Why does it make them 
less independent? Or why is that incompatible or threatening?
    Mr. Goodfriend. Because credit policy is a fiscal policy 
action that is not essential for the Fed to do monetary policy, 
which is its primary mission, and there is no way to do a 
credit policy action without favoring one particular group or 
another. You have to make a loan to somebody or some sector, 
and so credit policy is a matter for public policy, for the due 
process of law under the Congress, to decide who should get the 
loan and who shouldn't.
    Chairman Campbell. I want to make sure Dr. White has some 
time.
    Mr. White. Yes, some Fed officials have suggested that 
criticizing the Fed's lending decisions during the crisis are 
challenges to its independence, but the principle of 
independence applies to monetary policy, not to fiscal policy. 
So it doesn't challenge the Fed's traditional independence to 
conduct monetary policy when people want to know what the Fed 
has done, who it has lent to, even when they want to audit the 
Fed's lending programs, because then the Fed is straying into 
fiscal policy.
    So we don't want backseat-driving of monetary policy, 
right? But we do need oversight when the Fed is lending to some 
people and not to other people, especially when it is lending 
to insolvent institutions, especially when we have the 
governance problems that we see at the New York Fed.
    Chairman Campbell. Okay, thank you. My time has expired. 
Dr. Bivens, I will be interested in your viewpoint on this, but 
it will have to be in later questioning or whatever, because my 
time has expired.
    I now recognize for 5 minutes the ranking member, the 
gentleman from Missouri, Mr. Clay.
    Mr. Clay. Thank you, Mr. Chairman.
    Dr. Bivens, in his testimony today Dr. White wrote that it 
is desirable to retain member banks' influence for the sake of 
monetary policy, because Reserve Bank Presidents as a group 
have a better track record in Federal Open Market Committee 
(FOMC) voting than do members of the Board of Governors.
    In your view, how would further empowering the influence of 
the regional banks in FOMC decision-making affect policy 
outcomes and Federal Reserve independence?
    Mr. Bivens. I think as an empirical matter, we definitely 
disagree on who has the better voting record on Federal Open 
Market Committee decisions. From my perspective, the Board of 
Governors, the Members of the Board of Governors have 
consistently been more aggressive in pursuing the maximum 
employment part of the mandate in recent years, which is the 
appropriate way to go.
    And I think as a more structural matter, I would say the 
one case where I think there is some real worry about Federal 
Reserve independence is the influence of the financial sector 
on their decisions. If you look at the regional Federal Reserve 
Bank Presidents, they are largely chosen by the commercial 
banks in their districts, so anything that provides them with 
more authority and more sway over the decisions of the FOMC 
will be surrendering even more Federal Reserve independence to 
the desires of the financial sector.
    So as an empirical matter, I don't think the regional Fed 
Presidents have done a better job at responding to the crisis, 
and I think as a structural matter, that would actually be 
moved backwards if you were actually concerned about Federal 
Reserve independence.
    Mr. Clay. How might further empowering the regional banks' 
influence affect the Fed's focus on the employment part of its 
dual mandate?
    Mr. Bivens. There are two reasons. One, I think, again, 
empirically, it is just a fact that the regional presidents 
have seemed much more concerned about the price stability part 
of the mandate in recent years, which I think is the wrong part 
of the mandate to be overly concerned about. To me, the maximum 
employment mandate is the bigger one.
    And just as a central fact, the financial sector has an 
interest in very low rates of inflation that sometimes 
conflicts with other sectors' desire for pursuing maximum 
employment. And so anything that gives a louder voice to the 
concerns of the financial sector in setting Open Market 
Committee decisions I think would be a bad thing.
    Mr. Clay. And in your testimony, you note that it is too 
bad that the Fed's QE actions have not encouraged higher levels 
of Federal spending. You also wrote that very slow rates of 
Federal spending are the primary reason why at this stage in 
the recovery, demand remains so muffled. How might additional 
spending today impact the short- and medium-term macroeconomic 
outlook?
    Mr. Bivens. We still have a very large shortfall of 
aggregate demand relative to productive capacity in the 
economy. Demand is too low, and to reduce that gap, we need 
more spending. I think, for example, a large package of 
infrastructure investments would go a long way to boosting 
employment in the short run, and boosting productivity in the 
long run. And then something that has fallen off the radar, 
which is too bad, extending the unemployment insurance extended 
benefits would provide a good economic boost in the next year, 
as they increase spending, it would provide real relief to 
people who need it.
    Mr. Clay. If the Congress and the Fed push stimulative 
policies at the same time, is there any inherent reason this 
would call the Fed's independence into question?
    Mr. Bivens. Not as long as the economy remains so weak that 
the inflation rate that we now see is well below the Fed's, I 
would argue, probably too conservative target and joblessness 
remains high. Theoretically, there could be a point where 
recovery was reached, unemployment was very low, inflation 
started rising off the charts. In that case, independence on 
the part of the Fed would require they start to reduce their 
stimulus, but starting from today, no, a coordinated response 
to push joblessness lower and try to meet the inflation target 
from below would be a good thing.
    Mr. Clay. Thank you for your responses.
    Dr. Goodfriend, would you consider full employment monetary 
policy or fiscal policy?
    Mr. Goodfriend. Full employment is an aggregate condition, 
and in general, you need an aggregate policy to pursue it. And 
monetary policy is an aggregate policy that affects the general 
level of interest rates. Credit policy favors necessarily 
lending to one group or one sector of the country. So credit 
policy is not going to be a suitable policy to achieve full 
employment for the country as a whole.
    Mr. Clay. Thank you. And, Mr. Chairman, I yield back.
    Chairman Campbell. The gentleman yields back.
    We will move now to the vice chairman of the subcommittee, 
the gentleman from Michigan, Mr. Huizenga, for 5 minutes.
    Mr. Huizenga. Thank you, Mr. Chairman.
    The ranking member started down a path that I am curious 
about, and, Dr. Bivens, I would like you to clarify for me, 
because I heard the word in your testimony ``entirely,'' 
government growth is entirely the reason--or lack of government 
growth is entirely the reason why we have a slow economic 
recovery right now. Is that, in fact, what you believe or what 
you said?
    Mr. Bivens. I probably said it. I might say almost 
entirely, but more than 90 percent. If you sort of look at the 
gap in growth at this point in the recovery compared to all 
other postwar recoveries, and then you look at the impact of 
government spending on that growth, the slow government 
spending at all levels--I said that pretty specifically in the 
testimony--can explain almost entirely the gap.
    Mr. Huizenga. So if we had simply doubled our level of 
stimulus spending, we wouldn't be where we are at?
    Mr. Bivens. Doubled, that is about right.
    Mr. Huizenga. Okay, so we needed to go $1.8 trillion in 
debt instead of $900 billion more in debt, and then we would 
have been okay?
    Mr. Bivens. We would have been much closer to a full 
recovery. And it should have been spread over years. The 
problem with it right now--
    Mr. Huizenga. And have you looked at long term what an 
additional trillion dollars on our long-term debt would have 
been in the interest rate situation that we are at?
    Mr. Bivens. Yes, interest rates will begin to rise when we 
reach full recovery and not before. So basically, if we had 
done the degree of spending needed to push us back to recovery, 
we would have higher interest rates today, and that would be a 
sign of recovery for--
    Mr. Huizenga. Are we doing anything, though, to then 
mitigate that--what would be $18.5 trillion in debt instead of 
$17 trillion in debt for our long term? Because, hey, I pay 
attention to the Fed, too, and the Fed has said that interest 
rates are going to be going up. At some point or another, we 
have to service that debt, not through artificially low 
interest rates through QE, but through actual market rates.
    And I think as Dr. Goodfriend was pointing out, on page 3 
of your testimony, you skipped over the part about the 1951 
agreement where--the sentence that you did not use is the Fed 
officials argued that keeping interest rates low would require 
inflationary money growth that would destabilize the economy 
and ultimately fail.
    That is where my concern is, because the shovel-ready jobs 
from the first tranche of $900 billion weren't so shovel-ready. 
The key, as I understand it, is we have to return to private 
sector productivity, not government sector productivity, to 
build and sustain true wealth. And what I hear from business 
owners and from those that are those private sector 
productivity makers is uncertainty with their health care 
costs, uncertainty what is going to be happening with their 
unemployment obligations, their tax uncertainty, their 
regulatory uncertainty.
    These policies--in addition to what the Fed has done to 
drive more activity into the stock market, which then gives 
them more incentive to play on Wall Street than it is to buy 
equipment or hire people, is what has stalled out a lot of that 
recovery.
    So I would appreciate your take on this, Dr. Goodfriend, 
especially, as you had sort of kind of gone through that.
    Mr. Goodfriend. I would distinguish the Fed's policy 
actions in the wake of the credit turmoil in the following 
ways. In the turmoil itself, the Fed's expansive policy was 
called for because the economy was collapsing. Later, you get 
QE1, QE2, QE3. QE1, okay. QE2, not so--I wasn't so favorably 
disposed to QE2. And QE3, I thought was premature and 
unnecessary, and I think the fact that the Fed pulled the plug 
rhetorically within 6 months indicated that they found that it 
was premature and unnecessary, as well.
    Mr. Huizenga. Does anybody else believe that if we had 
simply doubled our stimulus spending, we wouldn't be where we 
are at economically?
    Mr. Goodfriend. I would not want to take that bet.
    Mr. Huizenga. Dr. White?
    Mr. White. No, I don't think so.
    Mr. Huizenga. Dr. Kupiec?
    Mr. Kupiec. I would offer that we got into the problems we 
got into because we had very much a bubble in the housing 
markets. And to use credit policy to try to stimulate housing 
markets, we are back to the same policies that caused the 
bubble, so it is very much in line with the fact that the use 
of credit policy can distort the allocation of resources.
    Mr. Huizenga. My fear is that we are whitewashing the long-
term effects here. My fear is that these are serious financial 
instruments that affect the global economy, whether it is the 
fragile five, as the chairman has talked a bit about. We are in 
uncharted waters here, and we are not selling cupcakes, you 
know? This is serious stuff that affects the global economy.
    And how we are going to unwind this, I think, is my biggest 
fear and question that I have, so--and I have run out of time. 
And we need to double these to--just like Dr. Bivens, maybe we 
need to double our question time, Mr. Chairman, so we can 
really get at the heart of this. So with that, I yield back.
    Chairman Campbell. I will take that up with the House 
majority leader and the chairman of the committee.
    The gentleman from Illinois, Mr. Foster, is recognized for 
5 minutes.
    Mr. Foster. Thank you all for your testimony here. Just a 
quick yes-or-no question for all four witnesses. If you were in 
charge of management of the financial crisis in October of 
2008, would you have let the money markets collapse? Just give 
a quick yes-or-no answer.
    Mr. Goodfriend. No.
    Mr. Kupiec. No.
    Mr. White. I am not sure what not letting the money markets 
collapse would have meant, but--
    Mr. Foster. Extraordinary support necessary--
    Mr. White. --no, of course, we don't want the money markets 
to collapse.
    Mr. Bivens. No.
    Mr. Foster. No, okay. And so is this--it seems to me that 
is allocation of credit to a specific sector in trouble, and so 
that is not an absolute principle with any of you here. In 
fact, you acknowledge there are times when adults in the room 
have to allocate credit to segments of the industry that are in 
trouble, despite the moral hazard? Okay. Thank you. That is not 
a universally held point of view around here, and it got our 
economy into a tremendous range of difficulty.
    Now, during the financial collapse and the extraordinary 
accommodation in response to it, many of my colleagues on the 
right routinely predicted runaway inflation. You saw talk about 
debasing our currency and so on. And in terms of the runaway 
inflation, which I think we have not seen in the 5 or so years 
since then, how could they have been that wrong? And if we just 
go down the line and understand why the predictions of runaway 
inflation that we heard so much were so wrong.
    Mr. Goodfriend. We had--the typical model of money supply 
in the textbooks that uses a money multiplier which says, for 
every $1 of reserves the banks have, they create $10 of money. 
That is the way the world worked, as long as--this is a little 
technical--the interbank interest rate was above zero and 
interest on reserves was zero, so there was an opportunity cost 
of holding reserves so that banks had a fraction of reserves 
that they would hold against their money.
    Now, what happened when the Fed dumped reserves into the 
system was the interbank interest rate went to zero, which was 
the interest on reserves. In the jargon of academics, there was 
a zero opportunity cost of holding reserves. We hardly ever see 
that. And so people who aren't taking money and banking, my 
class, they are not going to notice that, but that is what 
happened.
    The Fed, by dumping so many reserves in the system, created 
a zero opportunity cost environment, and the banks just held 
their reserves. The last time we saw anything like that was in 
the 1930s. So I forgive people who kind of didn't catch what 
the Fed was doing and what would happen.
    Mr. Foster. Yes. Dr. Kupiec?
    Mr. Kupiec. I would just like to add to that, it was worse 
than that, because they pay them 25 basis points on holding the 
reserves.
    Mr. Goodfriend. Yes, that is true.
    Mr. White. Yes, so I think that is right. If you just look 
at the monetary base and see it double and triple the Fed's 
balance sheet, that is, then you think high inflation is 
coming, but you have to recognize that the Fed has sterilized 
those injections it is paying on those reserves.
    Mr. Foster. Yes, so you would generally attribute--
    Mr. White. I just said attribute them to--
    Mr. Foster. Right, so you would attribute the failure of 
those on the right to correctly anticipate the fact that there 
wasn't runaway inflation to a lack of economic sophistication, 
roughly speaking?
    Mr. White. On the right and on the left, yes.
    Mr. Foster. Okay. Those on the left, I think, did not share 
this mania about runaway inflation. Dr. Bivens, do you have a 
diagnosis of this failure to understand the problem?
    Mr. Bivens. Yes, I think inflation remains so low despite 
those predictions because people totally overestimated how 
quickly the economy would recover. We still have a deeply 
depressed aggregate demand in the economy. That is what is 
keeping prices low.
    I just don't buy that a quarter percent interest rate on 
reserves is what is keeping all those reserves from flying out 
into the economy. What is keeping prices low is the enormous 
gap between potential supply and demand in the economy even 
today.
    Mr. Foster. Okay. Now, in terms of the housing market, the 
enormous intervention--if you look at the history of housing 
bubbles, when they burst, they often undershoot, so that if you 
look at the long-term trend line of house prices, a bubble 
develops, and then the prices crash, and they actually go below 
the long-term trend line, which is tremendously destructive to 
families and the economy as a whole.
    And so the timing of the massive intervention in the big 
volume mortgage-backed securities and so on had the effect, 
whether intended or not, of actually flattening out housing 
prices along their long-term trend line, which is where they 
have to return.
    And I was wondering if you had comments on whether this 
actually ended up--the fact that housing prices have steadied 
down on their long-term trend line, whether this is actually a 
correct and good result of the massive intervention, in terms 
of the housing market?
    Mr. Goodfriend. I would start by saying the question in my 
mind is, what is the policy vis-a-vis housing in the future? 
Because subsidizing or directing credit toward housing is 
taking it away from other sectors. I want to turn it over to 
Dr. Kupiec in a minute, but I am worried that the housing 
policy, should it continue, is draining credit from other 
sectors where we would get more productive capital.
    Mr. Kupiec. I would agree with that. I think that when you 
try to figure out what the long-term trend in housing would 
have been, you have to take out all the growth that happened 
with the bubble before. Housing was way overpriced. There was 
way too much investment in housing for a number of reasons--
financial policies, tax policies, and housing. The building of 
housing creates new GDP, but after that, it is not a productive 
tradable good.
    Mr. Foster. Okay, now would--
    Chairman Campbell. The gentleman's time--
    Mr. Foster. I will yield back.
    Chairman Campbell. --has expired. Thank you.
    Now, we will move over here to the gentleman from New 
Mexico, Mr. Pearce, who is recognized for 5 minutes.
    Mr. Pearce. Thank you, Mr. Chairman. And I appreciate each 
one of your testimonies.
    I guess I would start with Dr. Goodfriend. My question is 
actually sort of a follow up to Mr. Foster's questions about 
the speculations of what was going to happen to inflation based 
on the creating of money kind of out of thin air. What would 
happen if the United States is removed as the world's reserve 
currency? What would happen to inflation with all these printed 
dollars out there that have yet to be pulled back in?
    Mr. Goodfriend. If--
    Mr. Pearce. Dr. Kupiec, I will follow up with you, too.
    Mr. Goodfriend. --the United States loses its status as a 
reserve currency country, essentially that means in practice 
that holdings of dollar-denominated Treasury securities abroad, 
which are the vehicle by which the dollars are held, would be 
returned to the United States. There would be a big 
depreciation of the external value of the dollar. In other 
words, the currency would depreciate on foreign exchange 
markets, and that would create inflation at home.
    Mr. Pearce. I will just let each one of you comment on 
that.
    Mr. Kupiec. I agree with that. We get enormous benefits 
vis-a-vis the rest of the world, because we have reserve 
currency status.
    Mr. White. I would agree with those two statements that the 
danger is a collapse in the exchange value of the dollar.
    Mr. Pearce. Dr. Bivens?
    Mr. Bivens. I think the reserve status also hurts us by 
keeping the dollar too strong. We have very large trade 
deficits and have for a long time, and that is because the 
dollar is too strong to balance our trade, and so there would 
actually be a countervailing benefit of we would get some 
export growth if we actually had less demand for foreign 
reserves of our currency.
    Mr. Pearce. What would happen to the value--what would 
happen to inflation, in your opinion, if we are removed?
    Mr. Bivens. There would definitely be upward pressure on 
inflation. It would not be mammoth. We only import 15 percent 
to 20 percent of our GDP, so there would be an increase in 
import prices, but actually I think we need higher inflationary 
expectations, so it is hard for me to see that as a 
catastrophe.
    Mr. Pearce. We need higher inflationary expectations? That 
is somewhat curious. I represent one of the poorest districts 
in America, and inflation hurts the poor worse than anybody 
else. And so basically, these policies which are being 
implemented are devastating to the retirees and to the poor. 
The zero interest rate is helping Wall Street on the backs of 
the retirees who tell me in my town halls, ``We have lived our 
lives correctly, we paid for our house, and we saved money, and 
we have money in the bank.'' Retirees typically have less 
sophisticated investment instruments. And so, that is a curious 
statement.
    In a previous hearing, that effect on seniors and the poor 
was called collateral damage that has to just be acceptable, 
and I sort of disagree with that, because, again, these are 
people's lives.
    But I think that this whole idea that we can export 
inflation to 200 other countries, we can export this fabricated 
money to 200 other countries is one that, I think, holds alarm. 
And then you get the additional effect that other countries now 
are beginning to respond in kind, so they are beginning to 
create their own currencies, too. If it is good for us, and it 
seems like that the people who really strongly favor this 
quantitative easing policy, they don't have an answer when you 
ask, if it is okay for us, it ought to be okay for Japan and 
the other countries.
    I was interested in Dr. Bivens' comment on page nine, and 
so I was wondering if maybe, Dr. Kupiec, if you have some 
comment about it, but he makes the point that--because the 
sector was so impaired by the burst housing bubble and 
resulting financial crisis, and because QE works best when 
focused on impaired markets, I think this was economically 
appropriate thing to do, and that is the buying of MBS 
certificates. Is that the same perception that you would have? 
Is Would you agree with that particular take on the matter?
    Mr. Kupiec. I view the need to support housing after the 
housing bust as sort of a political constraint on the system. 
From a purely economic standpoint, we had too much investment 
in housing, and housing prices were too high before the crisis. 
And the need to try to create a recovery in housing was a 
purely political need at the time. But long term, more emphasis 
on investing in housing is probably not the right way to create 
new GDP growth.
    Mr. Pearce. Okay. Thank you, Mr. Chairman. My time has 
expired.
    Chairman Campbell. The gentleman's time has expired.
    The gentleman from Michigan, Mr. Kildee, is now recognized 
for 5 minutes.
    Mr. Kildee. Thank you, Mr. Chairman.
    And thank you to the witnesses for being here today. This 
is obviously an important hearing, and one that I thank the 
Chair for calling.
    So today's hearing--while it concerns the independence of 
the Fed in its role in credit allocation, I do want to just 
focus in on--I have been here a year-and-a-half, that Chairman 
Bernanke in his role did come to Congress several times, 
referencing the independence of the Fed, imploring this 
Congress to fulfill its role in strengthening the economy and 
supporting the economy and dealing with our set of 
responsibilities regarding the important mandates that also 
relate to the role of the Federal Reserve.
    And although while there were lots of folks here in 
Congress who were ready to act, and, in fact, structurally 
Congress, even before my arrival, had sort of set in motion an 
effort that was purported to create a condition that would 
force Congress to act, creating the sequester, the fact is that 
somewhere along the way, there were some who simply embraced 
that policy. And obviously, from the perspective of many, that 
has weakened economic growth.
    The point being that the Fed took some of the few steps 
that it could to improve the economy, holding down interest 
rates, and then pursuing the purchase of Treasury and mortgage-
backed securities. And now that the economy is improving, as it 
said it would, the Fed is reducing those security purchases.
    In many respects, it appears to me that the Fed stepped in 
to address a number of the challenges that were not confronted 
as they should have been by Congress. So while some question 
the independence of these actions because the Fed stepped in 
when Congress would not or did not, and because the Fed 
basically directed these actions, and they did have, in fact, 
by most accounts, positive outcomes, it does feel a tad 
disingenuous to me that because Congress was unwilling to do 
its job, one could presume that nobody else should do theirs or 
use the tools that are available to them to deal with the 
weakness in our economy.
    In particular, I am concerned about this, because I think 
too often we tend to look at data, particularly economic data, 
on a national scale and completely aggregate it. I represent an 
older industrial corridor that includes cities like Flint, 
Saginaw, and Bay City, Michigan, which even during periods of 
economic growth and expansion have not experienced that growth 
and expansion, so I am particularly concerned, and I would ask 
Mr. Bivens and perhaps others to comment on actions that you 
think, from the standpoint of the Federal Reserve, the Fed 
might take in order to promote economic growth and development 
in places that have not experienced growth even during those 
periods of economic expansion, the 1990s being a good example? 
Could you specifically address policies that you think the Fed 
might pursue in that regard?
    Mr. Bivens. In that regard, I think that the best thing the 
Fed can do is actually to focus on the aggregate national labor 
market and to not withdraw support from boosting employment and 
economic activity until there is something like genuine full 
employment.
    I think even the Fed's decision to begin tapering its 
purchases is a worrisome signal to me that mostly because of 
political constraints, they are going to sort of take the foot 
off the accelerator a little prematurely and that is going to 
keep the recovery from reaching really deep into distressed 
communities.
    I think other policymakers are much better positioned to do 
targeted interventions. To me, the Fed can set the overall 
conditions to make sure the overall economy and labor market is 
as strong as possible, and then if there are still pockets of 
distress, I think that is actually a case for other 
policymakers to step in.
    Mr. Kildee. So even in the event where other policymakers 
are either unwilling or unable in the--does the Fed have tools? 
Because to me, it seems that in order to meet the mandates of 
the Fed, looking at the aggregate data is obviously important, 
but it is sort like the old line about an economist: If your 
head is in the freezer and your feet are in the oven, but on 
average you feel fine, you should leave things alone. I 
represent one of those communities in the freezer. And I am 
just curious as to whether you think the Fed has specific tools 
that could be targeted for those sorts of places.
    Mr. Bivens. I actually don't think the Fed has very good 
tools for targeting sort of pockets of distress when the 
overall economy is generally doing okay. It is too bad, but I 
actually don't think that they really have the right tools for 
that.
    Mr. Kildee. Thank you.
    Chairman Campbell. The gentleman's time has expired.
    We will now move to the gentleman from South Carolina, Mr. 
Mulvaney, who is recognized for 5 minutes.
    Mr. Mulvaney. Thank you, Mr. Chairman. I have a couple of 
different questions on a couple of different topics.
    I was having a conversation with a friend of mine at 
Heritage the other day about whether or not the Fed was fixing 
the price of money, fixing the price of debt through fixing an 
interest rate. So let see if I can bring any clarity to this 
discussion, if you have any thoughts on this: If QE was to go 
to zero tomorrow, if they were to simply stop quantitative 
easing tomorrow, do you gentlemen have any opinions as to what 
the yield would be on the 1-year Treasury? The last couple of 
weeks, it has stayed pretty stable at about 12 basis points. 
Have you given any thought to that topic as to what would 
happen--what we would have to pay to borrow money in this 
country if the Fed wasn't providing us essentially with all of 
our debt through QE?
    Dr. Goodfriend?
    Mr. Goodfriend. I think as a technical matter the Fed could 
stop QE tomorrow. And because it can promise within the 1-year 
timeframe and because its promise is credible to keep the 
Federal funds rate near zero, that 1-year rate would not move.
    Mr. Mulvaney. What about the 3-year?
    Mr. Goodfriend. Now, you are getting interesting. The 3-
year might move and, of course--and I believe that the Fed 
would have relatively little control over rates 4, 5, 6 years 
and beyond. I do think that the Fed is overselling its ability 
to manage longer-term interest rates today with its so-called 
forward guidance and QE. I agree with you.
    Mr. Mulvaney. Interesting. If they were to not give any 
forward guidance, or if the forward guidance was that QE has 
ended and we are not going to do it anymore, would that impact 
the 1-year?
    Mr. Goodfriend. I don't think so, just because it is short 
enough that, again, the Fed's promise on the overnight so-
called Federal funds rate is credible at 1-year horizon.
    Mr. Mulvaney. Anybody else on that topic? Dr. Bivens?
    Mr. Bivens. I think it would have really modest effects 
on--especially even long-term rates, but especially short-term, 
for two reasons. One, I actually don't--and most of the 
empirical estimates of what QE has done to long-term rates, 
they are pretty modest. The reason why long-term rates are 
extraordinary low in historic perspective, it is just because 
the economy is so weak.
    And then I would also say, there are two countervailing 
impacts of QE on interest rates. Part of a long-term interest 
rate, it is the sum of inflationary expectations, expectations 
about what the short-term rate is going to do, and then the 
term premium. But if people think inflationary expectations are 
a little higher because of QE, if people because of the QE and 
forward guidance combined think short-term rates are going to 
stay low for a long time, I think--and if you reverse that, I 
think both those could put upward pressure, it would be very 
modest effects on interest rates if we just stopped QE 
tomorrow.
    Mr. Mulvaney. Okay. I guess in a roundabout sort of way, 
that ties in to my next question. I want to come to what Dr. 
White mentioned in his testimony, and also went into more 
detail in his written testimony about the differences or the 
comparison, I guess, the juxtaposition between the monetary 
base and M2. And I have not read anybody else saying this, that 
really what the Fed is doing is using its monetary tools to 
effectuate fiscal policy, that they have manipulated the 
monetary base through QE, but they are sucking the money back 
out of the system through the interest rates they pay on excess 
reserves.
    Dr. White, is it appropriate for the Federal Reserve to 
be--let me ask it this way. Dr. Bivens, do you agree with Dr. 
White that the Fed is exercising fiscal policy in this 
particular circumstance?
    Mr. Bivens. I don't.
    Mr. Mulvaney. If they were, would that be appropriate? 
Could we agree that they shouldn't be doing fiscal policy? This 
goes back to Mr. Kildee's question, and I think what you were 
getting at is that you can't get at specific sub-pockets, 
specific communities, specific parts of the economy through 
monetary policy. That is the role of fiscal policy. That is 
correct?
    Mr. Bivens. I think that is fair to say, yes.
    Mr. Mulvaney. And I think we can generally agree across 
both sides of the aisle that the Federal Reserve should not be 
doing fiscal policy. That is our job. Is that an accurate 
statement?
    Mr. Bivens. I would--yes, I would say that. I would also 
say it is impossible to think of a completely allocatively 
neutral monetary policy. So just the fact that there are 
allocative implications of the Fed doing something does not 
automatically mean it is not monetary policy.
    Mr. Mulvaney. And that is what I want to go back to Dr. 
White on, because I have seen the graphs you have provided. I 
have read your testimony. And here is my question. Is it--you 
think they are doing--you would think they are doing it on 
purpose. What you have suggested is that they are using their 
monetary tools to effectuate fiscal policy. Defend that against 
somebody who simply says, it looks like that on paper, but 
really this is just an accident, we are exercising monetary 
policy that might look on a graph like it is fiscal policy, but 
we are actually not exercising fiscal policy. So defend your 
position a little bit more if you would, please.
    Mr. White. If the Fed were borrowing money by issuing bonds 
that were IOUs of the Federal Reserve System and paid interest, 
and then used the proceeds to, say, subsidize development in 
Michigan, I think everybody would agree that is a fiscal 
policy.
    Mr. Mulvaney. Yes, sir.
    Mr. White. The way the Fed is borrowing money is not by 
issuing bonds, but by paying interest on bank reserves, which 
amounts to the same thing. It is a different way of borrowing 
money. And then they have used the proceeds not to promote 
development in Michigan, but to promote housing development, to 
buy mortgage-backed securities, pump their prices up, and that 
is directing it to one sector of the economy and not the 
economy as a whole.
    Mr. Mulvaney. And I wish we did have a chance to talk more 
about credit allocation, because one of the things that you and 
I have talked about, Mr. Chairman, is really what we think they 
are doing is allocation--they are practicing credit allocation, 
and one of their favored areas is government, and they are 
making it easier for us to borrow money, just like they are 
propping up the prices of mortgage-backed securities, but we 
won't get that chance today.
    Thank you, Mr. Chairman.
    Chairman Campbell. Thank you.
    Moving up the road a little bit to North Carolina, Mr. 
Pittenger is recognized for 5 minutes.
    Mr. Pittenger. Thank you, Mr. Chairman. And I thank each of 
you for being here.
    Chairman Campbell. Wait. He lives south of you?
    Mr. Mulvaney. The State runs--
    Chairman Campbell. Okay, don't confuse me with these 
things. Yes, we are starting the 5 minutes over again for Mr. 
Pittenger, who lives in North Carolina, which is south of South 
Carolina, apparently.
    Mr. Pittenger. I have to think about that one. Thank you, 
Mr. Chairman.
    Dr. White, do you think the government has taken advantage 
of the low interest rate environment to run larger deficits 
than it otherwise would have?
    Mr. White. I don't see any evidence that Congress looks at 
the interest rate on Treasury bills before it decides the size 
of the deficit to run, but maybe I am wrong about that.
    Mr. Pittenger. All right. Dr. Kupiec, this committee has 
focused extensively on the QM rule and how it affects consumers 
and lending institutions. Dr. Kupiec, you stated the following: 
``The QM rule on its own does not seem to force a particular 
lending outcome. A bank can impose underwriting rules stricter 
than those specified in the QM rule and underwrite only high-
quality mortgages. The problem with this strategy is that such 
an underwriting rule risks fair lending legal challenges.''
    What are your concerns regarding the QM rule? Are there 
things that this committee should consider doing to reaffirm a 
non-distorted allocation of credit? And what steps would those 
be?
    Mr. Kupiec. As I discuss at length earlier in my testimony 
on the QM rule, it imposes a scorecard- or model-based approach 
to underwriting mortgages that is typically not the approach 
used in community banks. In many small community banks, loans 
are made on a relationship basis, where the bankers are 
familiar with the people in the community and what they do, and 
they don't have a very model-driven computer, data-driven 
approach to lending.
    And what the QM rule does is, the QM rules makes them adopt 
these type of approaches, which are expensive, and the extra 
expense of making mortgages originations is they just can't 
cover it in small markets, so it is really forcing small 
community banks in more rural areas and towns out of the 
mortgage market. They are not making mortgages for their 
customers, and there is some recent evidence in a survey just 
out in February that a significant share of banks are just 
getting out of the business.
    Mr. Pittenger. Correct. Can you give some other examples 
outside of QM where the U.S. regulatory policy has begun to 
influence how credit is allocated in our economy?
    Mr. Kupiec. There has been this new phenomenon where the 
big Federal banking regulators have stopped some of the banks 
from making syndicated loans. And this is kind of unusual, 
because they are stopping specific syndicated loan deals on the 
premise that these loans are part of a credit bubble that is 
fueling a bubble essentially in high-yield mutual funds.
    And so they are trying to stop banks from originating loans 
that aren't even staying in the banks. They are going to the 
mutual fund sector and arguing that they are trying to quash a 
bubble.
    The real source of the demand for this, though, is the zero 
interest rate policy in the QE easing. Investors, as you may 
all have experienced, savers over the last 6 or 8 years, you 
make more money on your credit card rebates than you do by any 
money you have in a bank account or a savings account, and it 
is rational to look for yield. And these particular types of 
loans are floating-rate loans. They are high-yield floating-
rate loans. There is risk in them, for sure, but at least they 
pay a decent rate of return, and they are not subject to long-
term interest rate risk, because the rate floats.
    And so it is a very natural sort of demand that savers 
would have in this type of environment, and essentially the 
bank regulators are trying to shut that down, and that is sort 
of a new use of regulatory powers to direct credit that I don't 
think we have seen in the past.
    Mr. Pittenger. Thank you. Let's go back to the question, 
Dr. Kupiec, that I asked Dr. White. Do you think the government 
has taken advantage of this low interest rate environment to 
drive larger deficits than it otherwise would have?
    Mr. Kupiec. I really don't have an opinion on that. That is 
not my area, exactly.
    Mr. Pittenger. Dr. Goodfriend?
    Mr. Goodfriend. No opinion.
    Mr. Pittenger. No opinion. I have some, but I won't labor 
through that at this time.
    I yield back my time. Thank you.
    Mr. Mulvaney [presiding]. The gentleman yields back.
    We now recognize the gentleman from Illinois, Mr. Foster, 
for 5 minutes.
    Mr. Foster. Yes, I would like to return to something that 
was mentioned, which is the implicit credit allocation effects 
of stress tests, which are real, and I think probably 
unavoidable. In just a simple example, imagine that you had--
one of the macroeconomic stress factors was simply that housing 
prices revert to where they were several years ago. Had that 
been applied to a bank with a large exposure in Las Vegas, 
where prices had doubled in 2 years, that would have resulted 
in very strong capital requirements and a restriction in 
lending in Las Vegas as the bubble developed, whereas the same 
identical requirements applied to a bank with a heavy exposure 
in Cleveland, for example, which never experienced a bubble 
would have no credit allocation, no credit restrictions applied 
to it.
    And so I was wondering what your attitude is toward general 
policies, for example, requiring that you stay well-capitalized 
if housing prices revert to where they were previously, even if 
they have very specific effects, for example, constricting 
credit in one area of the United States and not in another. Is 
that necessarily a bad thing? And how do you--and a related 
question is, what is the appropriate level of public 
disclosure? The big banks might not be too enthusiastic about 
having public disclosure of exactly why they failed or came 
close to failing a stress test. So I was wondering if we could 
just have another round of comments on that, starting, 
actually, on the right this time with Dr. Bivens.
    Mr. Bivens. On the appropriateness of sort of national-
level stressors affecting sort of regional banks differently, I 
haven't thought extensively about it. It does strike me as a 
little reasonable, though, to at least ask how regional banks 
would react to, say, a fall in national home prices. It is just 
not the case anymore that financial institutions only have a 
portfolio of regional assets that affect regional prices. They 
probably hold some assets that are correlated with national 
home prices. And so as long as the proper weight of national 
home price movements on the effect--on regional bank assets is 
given, that strikes me as appropriate.
    And in regards to public disclosure, my general view is the 
more, the better. I would like to see more transparency in the 
stress test models being used, so, yes.
    Mr. Foster. Dr. White?
    Mr. White. I think the important thing at the most general 
level is to get the incentives right for banks to take 
accurately into account the risks they are undertaking in their 
portfolio decisions. And it seems to me the wrong way to 
approach that to ask if we tweak this rule and look in 
retrospect at how it would have affected the regional 
allocation of credit, would that have been a good thing? We 
don't want banks to put unrealistic values on the assets in 
their portfolio and thereby overstate their capital. But that 
is sort of a supervision and regulation question, rather than 
what we have mostly been addressing today.
    Mr. Kupiec. I would be happy to take that on. I ran the 
stress testing group in the FDIC for a number of years, and so 
I am very intimately familiar with these issues. The problem is 
when you do a stress test, the Fed will specify some national 
path for housing. And as you are quite right, regional housing 
prices don't follow the same path.
    Now, what happens is, the banks have to translate the 
national path and the GDP path into something that happens in 
their own area, and there are different ways to do that. The 
problem is, it is not easy to do it, and econometrically, these 
models fit very badly, so it is a guess. It is a guess how 
housing prices are going to change.
    But when the bank does its stress test and presents its 
models, the Federal Reserve does its own, and it doesn't tell 
you how it models it. And if the Federal Reserve wants to 
assume a different transfer of the national house price path 
to, say, Cleveland versus Las Vegas, it can do it, and it can 
claim, this is what we think, and what we think is what 
matters.
    So the stress test ends up allocating capital in these 
different markets because the Federal Reserve is the one 
deciding what the right way to translate this overall very 
fuzzy macro scenario into specific things that happens in 
specific markets. And if the bank disagrees, well, it is too 
bad. There is no scientific give-and-take. There is no 
objectivity here. It is all an art. It is all a simulation. And 
the models fit very badly anyway. So having any discussion on 
it based on, really, sound economic grounds is a very difficult 
thing to do.
    Mr. Foster. Are you a fan of larger disclosure of the 
debate that happens or not? When you said that the Fed did not 
tell you why you passed or failed, are you then a supporter of 
more disclosure, more public discussion of the factors that led 
to banks--
    Mr. Kupiec. The first point I would make is, it is a very 
arbitrary regulatory rule, since so much of it depends on the 
interpretation of the central bank or the regulator versus the 
interpretation of the bank, so it is very arbitrary. In an 
arbitrary setting like that, there is no--the property rights, 
the ability for a business to make decisions, it is all sort of 
overturned.
    So transparency would be a first step, but in general, the 
science isn't there--isn't really developed enough, nor do I 
think it ever will be that you could actually make this a hard 
and fast rule that was totally objective. There is a lot of 
subjectivity in it, and in general, it is imposing government 
regulators' views on business decisions that should be the 
banks in the area.
    Mr. Foster. I yield back.
    Mr. Mulvaney. Thank you, Mr. Foster. And that appears to be 
the end of the questions.
    The Chair notes that some Members may have additional 
questions for this panel, 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 these witnesses and to place their 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.
    And without any further objections, we will be adjourned.
    Thank you, gentlemen.
    [Whereupon, at 11:18 a.m., the hearing was adjourned.]


                            A P P E N D I X



                             March 12, 2014


[GRAPHIC] [TIFF OMITTED] T8532.001

[GRAPHIC] [TIFF OMITTED] T8532.002

[GRAPHIC] [TIFF OMITTED] T8532.003

[GRAPHIC] [TIFF OMITTED] T8532.004

[GRAPHIC] [TIFF OMITTED] T8532.005

[GRAPHIC] [TIFF OMITTED] T8532.006

[GRAPHIC] [TIFF OMITTED] T8532.007

[GRAPHIC] [TIFF OMITTED] T8532.008

[GRAPHIC] [TIFF OMITTED] T8532.009

[GRAPHIC] [TIFF OMITTED] T8532.010

[GRAPHIC] [TIFF OMITTED] T8532.011

[GRAPHIC] [TIFF OMITTED] T8532.012

[GRAPHIC] [TIFF OMITTED] T8532.013

[GRAPHIC] [TIFF OMITTED] T8532.014

[GRAPHIC] [TIFF OMITTED] T8532.015

[GRAPHIC] [TIFF OMITTED] T8532.016

[GRAPHIC] [TIFF OMITTED] T8532.017

[GRAPHIC] [TIFF OMITTED] T8532.018

[GRAPHIC] [TIFF OMITTED] T8532.019

[GRAPHIC] [TIFF OMITTED] T8532.020

[GRAPHIC] [TIFF OMITTED] T8532.021

[GRAPHIC] [TIFF OMITTED] T8532.022

[GRAPHIC] [TIFF OMITTED] T8532.023

[GRAPHIC] [TIFF OMITTED] T8532.024

[GRAPHIC] [TIFF OMITTED] T8532.025

[GRAPHIC] [TIFF OMITTED] T8532.026

[GRAPHIC] [TIFF OMITTED] T8532.027

[GRAPHIC] [TIFF OMITTED] T8532.028

[GRAPHIC] [TIFF OMITTED] T8532.029

[GRAPHIC] [TIFF OMITTED] T8532.030

[GRAPHIC] [TIFF OMITTED] T8532.031

[GRAPHIC] [TIFF OMITTED] T8532.032

[GRAPHIC] [TIFF OMITTED] T8532.033

[GRAPHIC] [TIFF OMITTED] T8532.034

[GRAPHIC] [TIFF OMITTED] T8532.035

[GRAPHIC] [TIFF OMITTED] T8532.036

[GRAPHIC] [TIFF OMITTED] T8532.037

[GRAPHIC] [TIFF OMITTED] T8532.038

[GRAPHIC] [TIFF OMITTED] T8532.039

[GRAPHIC] [TIFF OMITTED] T8532.040

[GRAPHIC] [TIFF OMITTED] T8532.041

[GRAPHIC] [TIFF OMITTED] T8532.042

[GRAPHIC] [TIFF OMITTED] T8532.043

[GRAPHIC] [TIFF OMITTED] T8532.044

[GRAPHIC] [TIFF OMITTED] T8532.045

[GRAPHIC] [TIFF OMITTED] T8532.046

[GRAPHIC] [TIFF OMITTED] T8532.047

[GRAPHIC] [TIFF OMITTED] T8532.048

[GRAPHIC] [TIFF OMITTED] T8532.049

[GRAPHIC] [TIFF OMITTED] T8532.050

