War on the poor. My district is also very low income. Manufactured housing is a big deal. 50 of the homes in my district are manufactured housing. And yet, the policies really made it very difficult for banks to lend on that. I suspect that your staff has made known to you that these pressures exist. Have you all discussed that in any greater detail that wed need to look out for the people on the low end of the income spectrum . Well, qm was a policy adopted by the Consumer Financial protection bureau. I think they are trying to address a set of practices that resulted in unsafe and unsound okay. Well, thank you. Lending. But it is very important to monitor their impact on credit availability. One of the reasons that weve been able to get by with a qe is that were the worlds reserve currency. Has the fed thought at all about whats going to happen when more nations are expressing discontent that were printing money and were devaluing what theyre holding . So weve seen countries trade with other currencies past year . Any thoughts about what happens if the world says youre not the worlds reserve currency anymore . The dollar plays a Critical Role in the Global Economy and its the Federal Reserves job to make sure that inflation remains under control so that the dollar remains a safe and sound currency and can continue to play that role. Thank you. I have nothing further the other countries. Im going to yield back, mr. Chair. The chair now recognizes the gentleman from missouri, mr. Cleaver, for five minutes. Madam chair, thank you for being here. I want to talk Consumer Spending and jobs. 5 of our population is doing about 35 of the Consumer Spend i ing, and if you exclude food and energy, Consumer Spending would rise 1, 2, 3 , something in that area . With the distribution of spending, its very unequal. Yes. So im my concern is how do we increase Consumer Spending, raise gdp unless we are able to get a larger share of the population spending . And for them to spend they need to have some form of income. So what is the impact or what would be predictable impact if we if we had an Employment Benefits and a number of other programs that we are weve backed away from in congress . Well, with respect to unEmployment Benefits, they certainly were serving to support the spend iing of individuals who had long unemployment spells, and, you know, ending those well have some negative effect on spending and in the economy on growth. Because theyll spend everything they receive . More or less yes. Thats true. Thats right. Yes. So several people have talked about the structural unemployment here in the country. What do you think 6. 6, i guess, is unemployment, and thats not necessarily good but its better than what its been, but im interested in real unemployment. The u6 rate. What do you think it is . Do you have a good estimate . Well, the u6 rate includes discouraged workers. Yes. And those on part time, its substantially its substantially higher. More than double the dosh. Its close to 13 , and that is a much broader measure of shortfall in our economy from what we would like to see. So, you know, certainly there is discouraged workers, those who are marginally attached. We have 5 of the work force thats part time. For economic reasons theyre not able to find fulltime work and so thats a measure that is disproportionately elevated in comparison with the 6. 6 or u3 Unemployment Rate. So are there Jobs Available and people just wont take the jobs . Well, i think there is a short fall of jobs and the hiring remains well below normal levels and theres a shortage of demand in the economy that propels businesses to see that their sales are rising sufficiently that theyre wanting to take on enough additional workers in order to lower unemployment back to a normal level. Thats what were trying to address. I drove down to the boot hills in missouri, im from missouri, to speak at an event. On the way back i stopped at a chilis restaurant and there were no waiters or waitresses coming over to the table. They had a little box on the table and you speak in the box and to order your food and then somebody will bring it out. And they give you a certain number of minutes before its brought out. The point im making is, were taking jobs away and then were criticizing people for not taking the jobs that dont exist. Thank you. The chair wishes to alert all members, i intend to recognize two more members at which time the chair intends to call a 30minute recess. The chair now recognizes the gentleman from florida. Mr. Posy for 5 minutes. Thank you, mr. Chairman. I originally and i do want to ask about the volatile three pigs, but the questions by ms. Bachman i think deserve a little bit more response. As you well know, dr. Pauls legislation to audit the fed was the most cosponsored bill in the 112th congress. Very bipartisan. Passed by an overwhelmingly bipartisan vote, and it did not talk about interfering with the daytoday management and Decision Making of the fed, it was postDecision Making audits. And seeing were all government and official agencies under our dominion are subject to audit, it just seems very strange that the audit would object to having the logic behind their decisions and the many other of the litany of items youre exempted from being audited for deemed to be reasonable. So i think if members of congress can ask the gao to come into the Federal Reserve shortly after a meeting where weve made a difficult decision and to perhaps review transcripts and look at the debate that took place around a particular decisi decision, we release transcripts. We release minutes of our meetings, but to come in, review materials and say, no, we dont agree with a decision that was made at the last meeting will stifle debate in meetings and bring to bear shortterm political pressures in the Decision Making in the federal open Market Committee, and i do believe that independence of the Federal Reserve in making Monetary Policy means that we need some scope for deliberation and exercising our best judgment and then explaining to congress and the public what the logic of that was. And the purpose, as ive understood it as mia peering at a hearing like this, is to give members of congress exactly that opportunity. I understand that. Some of us believe in the old adage, trust but verify, and thats what an audit would do. And so would it be reasonable to assume you would not object to an audit if it was post 30 days or 60 days . Is there a time limit when you would be totally unafraid to be audited in retrospect . Well, an audit is different than secondguessing policy judgments than made. Im not guessing we do that as it is now. I mean, we dont agree with all decisions you make now. I think thats clear from at least one side of this aisle, but i would like to think that at some point the fed could be audited like all official federal agencies, much less one that is not a Government Agency but has the run of our entire economy. Well, this is an exemption that has been granted the Federal Reserve thats central to our independence for decades by congress and weve changed a lot of policies trying to make it more transparent and accountable. Id like to think that government gets less corrupt every day, not more corrupt. Well, i dont believe that the Federal Reserve is in any way corrupt, and i believe that the confidence of markets in the Federal Reserve and in our Monetary Policy making would not be enhanced by that type of audit. By knowing by historically being able to audit things that every other agency is subject to review for but you should not be let me get over to baso 3. Starting in 2003 the recovery ratio will require enough banks to have net cash outflows for 30 days. The problem is that baso 3s definition includes the solve voern debt of countries like portugal, ireland, italy and spain. Dont you think that thats like leading sheep to slaughter . Well, we have designed a rule in the United States that would have stricter definitions to minimum. So you think that thats not the same as rating agencies with high risk mortgages as aaas which triggers a 2008 crisis . One is for our banking organizations and weve proposed this in our rules to hold assets that can be quickly converted into cash. Time of the gentleman has expired. The chair now recognizes the gentleman from colorado, wears his broncos cap. Thank you, mr. Chair, and ill wear my broncos cap next week. Madam chair, thank you for your testimony today and i had the pleasure to hear mr. Bernanke for a number of times come testify at these very same hearings and, you know, i really appreciated three things about him. One, hes very smart, very steady, and not very exciting. And i want to say youre following in his footsteps. Thank you. Appreciate that. So what i would like to talk to you about a little bit is the epsock and what is happening just in terms of numbers of meetings, what generally are you concerned about bubbles . Have you seen anything that, you know, would cause you some conce concern . We hear that Student Loans are awfully high and that might be a difficult issue coming up so can you tell us a little bit about what you see the role of the epsoc and how often you meet . I have to say im new to epsock. Ive only been in office 11 days and ive not attended epsock meetings previously, but there will be one this week. Epsock does meet regularly. There are deputies and staff who meet very frequently. Clearly a major focus is to address potential threats to financial stability, to identify those threats, and to assess them. This is something the Federal Reserve is very focused on. We have built very substantially our capacity to assess risk to the system. We bring that to epsock. We also use it in thinking about Monetary Policy and in supervising the largest institutions. We recognize that in an environment of low Interest Rates like weve had in the United States now for quite some time there may be an incentive to reach for yield and that we do have the potential to develop asset bubbles or a buildup in leverage or rapid credit growth or other threats to financial stability, so especially given that our Monetary Policy is so accommodative, were highly focused on trying to identify those threats. We could potentially take them into account in Monetary Policy, but certainly in our supervision and regulation we would try to address those threats. Broadly speaking, we havent seen leverage credit growth, asset prices build to the point where generally i would state that they were at worrisome levels. The stock market broadly has increased in value very substantially over the last year and, you know, our ability to detect bubbles is not perfect, but looking at a range of traditional valuation measures doesnt suggest that asset prices broadly speaking are in bubble territory or outside of normal historical ranges. There are a few areas where we do have concerns but nothing pr broadly speaking. So Student Loans, you mentioned again that the growth there has been very, very large, that mainly governmentbacked Student Loans rather than private, and i would say the concern there is this is debt that will be with students for a very long time if they get into financial difficulties, that debt stays with them. Its important that they be getting a good return for the borrowing that theyre doing, and its important that they understand what the burdens will be on them when they take out those loans. Of course, its very important, education is critically important, we want to see that, but the burdens are very high and its important that the education that students are getting pay a return and that they understand what it is theyre getting for the debt that theyre taking on. Thank you. And then ill finish where i started. Mr. Bernanke, very smart, very steady, not very exciting. The markets must agree because the markets are up today so we appreciate your testimony. Thank you for taking on this job. Its still a difficult economy out there even though its getting better, and we thank you for, you know, being at the looking ahead to this you miss, if newsmakers this morning, another chance to watch it today. It talks about the boards role when it comes to the nsa and other privacy issues. Here they are, coming in, closing in on me. Im still thinking, even eight. When i went through survival school, they taught us the people who capture you are probably the least trained to capture p. O. W. s, maintain them. The best time to escape his right then. These are rookies and i pulled out my combat masterpiece. I had two rounds. Get away, get back. Then i fired a round right over there head. They did not flinch. And onesed their rifles of them reached in his pocket a little comic book that some of them carry in their pocket. It had drawings on one side and vietnamese fanatics on the other. The drawings showed them capturing an american pilot. In his uniform with his helmet on come a parachute, and his hands up. Surrender. Y said, hands up, hands up. So here i am facing about nine long guns, staring at me, and i decided that was the best advice i would get that day and i said, hands up. Lee ellis pow tonight at 8 00 on cspans q a. Back to the common the back to the House Financial Services committee. Offering their own insights about the economy and Monetary Policy. To begin with live coverage on cspan3. We will now come to order with our second panel. Professor of commissions at stanford university. It is commonly referred to as the taylor rule. Dr. Taylor holds a phd from stanford in economics. Dr. Mark clayber has spent six years on the Senate Banking committee. Regrettably again, not as prestigious as the House Financial Services committee. He holds a phd from george mason. Before joining aei she was the director of research for the Financial Services round table and did a tour of duty on the hill on the other side of the capitol. Last but not least, dr. Codonal kohn has previously served as the vice chair as the feds board of governors from 2006 to 2010. We are beginning to wonder if all former chairman and vicechairman of the fed end up at brookings. Without objection each of your written state manies will be made part of the record after your oral remarks. Each of you have testified before us and are familiar with the process. You know about the green and yellow lighting system. Dr. Taylor you are now recognized. Thank you mr. Chairman, thank you for inviting me to this hearing. I would like to use my opening remarks to refer back to my set of questions that have to do with the policy rules and formulating of Monetary Policy. It seems to me that the case could be made that Monetary Policy could be far better had its been made on a set of policy rules. If policy moved in that direction we more quickly move to a more sustainable higher growth rate. There continues to be interested in what you refer to as the taylor rule. Based on the research of many people over many years not just me. When the fed has followed youlls close youll s rules close to that performance has been very good. One where the performance of the u. S. Economy was extraordinarily good and that was a period when the fed pretty closely to these rules. I think performance could have been much better. If during 2003, 2004, and 2005 the fed had followed a rule like this, we would not have had the excess risk taking and not have had as much of a housing boom as we had. And the Great Recession would have been much less of a year. If during the period of a financial crisis, we would not have had to had a kwquantitativ situation. Therefore Economic Growth would have been better in those circumstances. I want to emphasize such a rule would not preclude the actions during the panic of 2008. Its classic last resort role which helps stable ice the markets. I recommend that legislation be put in place to require the fed to report on its policy rule. It would be a rule of its own choosing. That is the responsibility of the fed. If it deviate d, the fed or the chair would be required to report to this committee about the reasons why. We are not close to that right now. Some could argue that could be done in a procedural way. Number one, the fed recently adopted a 2 inflation target. That is exactly what the taylor rule recommended 20 years ago. More over, the bank of england and japan have adopted that target. Number two, the forecast of the current fomc for the Interest Rate is 4 . Combine that with the 2 independent rate target, that is what that rule recommended 20 years ago. There is a consensus now that the fed in particular should be greater than one when inflation picks up. There is debate about what the reaction should be. Some argue it should be larger and some smaller. But the 4th reason why i think we are in a position to move in this direction more so in the past is statements of ms. Yellin herself. She has indicated that statements like this are sensible and good herself. She would argue that these are not yet formal times. There is debate about when we would get back to normal. It seems to me that debate should be whether it is normal and it is about when. Chairman, distinguished members of the committee, i want to thank you for the attention to the meeting. Certainly the opinion that every Governmen