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Tuesday, July 15, 2003
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
    The committee met, pursuant to call, at 10:02 a.m., in Room 2128, Rayburn House Office Building, Hon. Sue W. Kelly presiding.
    Present: Representatives Leach, Bachus, Castle, King, Royce, Lucas of Oklahoma, Kelly, Paul, Gillmor, Ryun, Manzullo, Ose, Biggert, Green, Shays, Shadegg, Miller of California, Hart, Capito, Tiberi, Kennedy, Feeney, Hensarling, Murphy, Brown-Waite, Barrett, Harris, Frank, Kanjorski, Waters, Sanders, Maloney, Velazquez, Watt, Hooley, Carson, Sherman, Meeks, Lee, Inslee, Moore, Gonzalez, Capuano, Ford, Lucas of Kentucky, Crowley, Clay, Ross, McCarthy, Baca, Matheson, Miller of North Carolina, Emanuel, Scott, and Davis.
    Mrs. KELLY. This hearing of the committee will come to order.
    And good morning, Mr. Chairman. We welcome you back to the Financial Services Committee. You have been good enough to share your views on the state of the economy and your expertise on the conduct of monetary policy three times this year. And I am certain I speak for the other members of this committee when I say that we really appreciate it.
    Mr. Chairman, it appears that all signs point toward a solid and controlled recovery spreading through the economy, which has become increasingly more evident as the latter half of this year rolls out. We already have seen the signs of improvement. The economy has just finished one of its best quarters in years. The weaker dollar especially against the euro should be good for the economy in the long run. This should turn consumption upward through retarding imports and increasing exports and other world economies also begin recovering, and we will be interested in your comments about that.
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    Even though the unemployment numbers released at the beginning of the month contain some news, good news, the overall unemployment—the overall employment was up, and more people are moving from the ranks of resigned-to-not-working, looking for a job, not working and not looking for a job; they are moving into the ranks now, I believe, of looking for those jobs. I think that confidence that there will be a job out there if one looks hard enough is the best indicator that there is a recovery in this economy.
    Mr. Chairman, there are, however, some atypical aspects of this nascent recovery, and I hope you will shed some light on those today. Why, for example, have manufacturing inventories again headed down? Why has the balance of payments inched up, even with a weaker dollar?
    And when the rest of the world economy begins to show the signs of recovery, what do we see in our own economy? Without a recovery overseas, will we see a recovery in our own economy? I don't know that our economy can fully rebound without that recovery around the rest of the world.
    I am also hoping that you can discuss some other indecipherable aspects of the way the economy is reacting. We are managing to go quite a long time with higher unemployment numbers. Has the economy changed in a fundamental way that the real natural rate of unemployment is sustainable at a lower point than it was a couple of years ago?
    We all hope there will be no need to cut the target Federal funds rate any more. Lots of people have watched the rate inch down towards zero—it is 1 percent now—and wonder what sorts of tools you would or—would have used or we will still have to use as the targets drop further? I hope you will be able to spend a little time discussing that also today.
    Mr. Chairman, with the busting of the tech bubble you warned us about, the terrorist attacks in late 2001, the corporate scandals and the uncertainty in the run-up to the war in Iraq, I think we can agree that this economy has displayed tremendous resiliency. And with the swift passage of legislation like the PATRIOT Act and Sarbanes-Oxley and a successful war behind us, I think we are all ready for some sustained good news.
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    So today I am hoping you can tell us that you see no deflation on the horizon; instead, you see strong growth ahead without inflation. This way, businesses may begin to plan for a predictable future, including increased hiring and investing in equipment and technology, so that investors can begin to see a little bit of a recovery in their portfolios or their 401(k)s, and retirees and parents with children entering college can lose a certain sense of anxiety.
    Given indicators we see now, I am hopeful that the next time you visit us, we can also talk about all of the elements that led to a strong recovery and not just when a recovery is coming. I think you will agree with me, Mr. Chairman, that would be a welcome hearing.
    I thank you again, Mr. Chairman, for appearing before this committee. I look forward to hearing your testimony.
    And with that, I yield back the balance of my time and recognize the gentleman from Massachusetts, Mr. Frank.
    Mr. FRANK. Thank you, Madam Chair. I want to begin by apologizing to the Chairman of the Federal Reserve. Apparently, I broke the embargo by quoting from the report this morning. I apologize. It is entirely my fault. It is not my staff's fault, it is not George Tenet's fault, the British didn't make me do it. It is my fault, and I am sorry. I will be more careful in the future.
    Mr. Chairman, what I talked about were two things in both your statement and in the report that seem to me to put us in a very troubling box. And let me say at this point, I was asked, Well, what are you going to sort of blame the Chairman for this morning? The answer is nothing.
    These are not meant to be accusatory to you and the FOMC or the Federal Reserve in any way, but they are dilemmas that we have to address. On page 8 of your statement you note—it is a fairly stark paragraph which says, ''One consequence of the improvements in efficiency is, in effect, much higher unemployment than one would expect at this stage.'' We have to talk about—obviously, we all want productivity, but do we have a new kind of structural problem we have to address and what do we do about it?
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    I will say this: I also read, as I was reading this Saturday's Boston Globe, the State of Massachusetts has just reached a point where people who are in a prolonged state of unemployment lost their second 13-week eligibility. We had a big debate in this Congress recently about whether or not to extend unemployment benefits additionally for people who are unemployed. People on the other side who won and did not want the extension that we wanted said, Well, we don't want to give people a disincentive to find work.
    To the extent that we have got a problem in the economy, which you mentioned, to the extent that increased productivity and cost-cutting needs from the previous period lead to unemployment that is not the fault of the unemployed, I think we have a serious problem. How do we address that?
    One way to address that, of course, is through stimulus. We have this problem, but it now looks as if to some extent stimulating the economy as a whole gives us less of a bang for unemployment than we were hoping. But then we run into this very troubling problem.
    On page 12 of the Monetary Report it says, ''With little change, on balance, in non-Federal domestic saving over this period''—the period is 2000 to 2003—''the downswing in Federal saving showed through into net national saving, which was equal to less than 1 percent of GDP in the first quarter, compared with the recent high of 6-1/2 percent of GDP in 1998. If not reversed over the longer haul, such low levels of national saving could eventually impinge on the formation of private capital that contributed to the improved productivity performance of the past half-decade.'' .
    That is a very stark statement. That is a statement that says, in the first place, the swing has been from 6-1/2 percent to less than 1 percent in national savings caused, according to this statement, entirely by the reversal in the Federal budget, not in non-Federal savings, but the budget deficit.
    Take now that we are told by OMB that we are going to get a trillion dollars in debt over the next two years, this year and next year. The new OMB figures if you round them give us a trillion dollars in debt, well over 900 billion; those are probably optimistic. You say here that if this trend is, quote, ''not reversed over the longer haul, such low levels could impinge on the formation of private capital.''
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    So we are not now talking about the earlier debate only—maybe that was a proxy for this, do bigger deficits cause higher interest rates, et cetera—we are talking about a severe depletion of national saving.
    So here is our dilemma. We have higher unemployment which would—and persisting not just in number, but as we have all noted, the length of unemployment for some people, unemployment of a particularly socially corrosive nature that hits teenagers, hits African Americans, the most vulnerable people in the economy. And we have this problem, we are getting this high unemployment despite, as you note in here, an enormous amount of fiscal stimulus and the lowest interest rates in a long time. So this economy is troubled.
    We are troubled by the persistence of high unemployment, and we are constrained by deficits, a trillion dollars about to be added in deficits in the next year, and we are constrained by this trend which, if not reversed, will impinge on the formation of private capital.
    So I appreciate the chance to hear your responses today. I will, in my questions, suggest some things that we ought to be doing. But dealing with prolonged and persistent unemployment, constrained as we are by a deficit trend that your Monetary Report says has reached a point where it could impinge on the private capital formation, this is not a happy time for the economy and we need to address that.
    I thank you, Madam Chair.
    Mrs. KELLY. Thank you very much. Mr. King.
    Mr. KING. Thank you, Madam Chairlady. I want to join with the others in welcoming Chairman Greenspan back before our committee and thank him for the tremendous job he does for our country. And I think both Mrs. Kelly and Mr. Frank have touched on a number of the points that I intend to make, so I will keep my opening remarks brief.
    But I would, Mr. Chairman, ask you if during the course of your testimony today you could expand upon the point that, as Mr. Frank said, is on page 78 of your testimony this morning; and that is the fact that increased productivity may at least for the short term result in not a growth in jobs even if the economic indicators are otherwise up.
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    For instance, I think over the last quarter the economy has done very well. I think most of the indicators are positive. But there also appears to be the strong possibility that this may well, in fact, be a recovery without any significant increase in jobs. And it is difficult to go up to someone on the street and tell them, The economy is doing great, but you are still out of work. So I am just wondering whether or not this is a result of a built-in productivity which is—I guess there is a cloud in every silver lining—and whether or not that productivity is going to keep job growth from expanding. That is number one.
    Number two: Whether or not you do believe that the spectre of deflation has been removed from our economy. Or do you think it is still something that we have to be concerned about? And also if could you just expand on the idea of how much you do think the economy is going to grow, whether or not the indicators are in place, whether or not we have turned the corner; and have we, in effect, removed the possibility of a double-dip recession?
    So with all of that, I know that the millions of people watching are more interested in what you have to say than what I have to say. So with that, I yield back the balance of time. Thank you.
    Mrs. KELLY. Ms. Maloney.
    Mrs. MALONEY. Thank you.
    And good morning, Chairman Greenspan. Your testimony today comes at a historic time. At the last meeting of the Federal Open Market Committee the Fed lowered the Federal funds rate by 25 basis points to 1 percent; even with some observers expecting a 50-basis-point cut, the 1 percent Federal fund rate is still the lowest since 1954. And the reduction marked the thirteenth time the Fed has lowered rates since January of 2001.
    While the Fed has managed monetary policy to a point where interest rates are at record lows, the Federal Government has suffered the largest Federal fiscal reversal in the history of the United States. In just two years, a projected 10-year budget surplus of 5.6 trillion has turned into a projected deficit of 4 trillion.
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    Also, two years ago, the Administration projected a 246 billion surplus for fiscal year 2003. We now know, by the Administration's own admission, the deficit this year will exceed 450 billion, the largest in history and a massive liability on America's families.
    The cause for this fiscal reversal lies squarely with the Administration's policy. A July report by the Center for Budget and Policy Priorities pointed out that the cost of the Administration's enacted tax cuts, and I quote, ''is almost three times as great as the cost of the war in Iraq, Afghanistan and homeland security,'' end quote.
    These deficit numbers are stunningly large and incredibly troubling because of the missed opportunities that they represent. In the short term, over two years of the Administration's economic policies have provided minimal stimulus at a huge, huge cost. Despite the price tag of the tax cuts, many Americans are experiencing prolonged unemployment. The 6.4 percent June unemployment number is the highest since 1994. African American unemployment is even higher at 11.8 percent. In the long term, the tax cuts represent a missed opportunity to prepare for the looming retirement of the baby boom generation, funding for education, environment and homeland security.
    Chairman Greenspan, despite my concern over the cost and inefficiency of the Administration's attempts to stimulate the economy, I do hope you have good news for us today. The government has irresponsibly run up our Nation's credit cards, and I hope the American people will get some benefit.
    Thank you for appearing before us. It is always a pleasure to hear you.
    Mrs. KELLY. Thank you very much, Ms. Maloney.
    Mr. Greenspan, Mr. Chairman, we are delighted to have you here. Will you please begin your testimony?
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    Mr. GREENSPAN. Thank you very much, Madam Chairman and members.
    Mrs. KELLY. Mr. Greenspan, would you please push the button on that microphone so we can all hear what you have to say.
    Mr. GREENSPAN. Madam Chairman, members of the committee, when, in late April, I last reviewed the economic outlook before this committee——
    Mrs. KELLY. If you will pull the mike closer to you—pull it forward; there is enough cord there.
    Mr. GREENSPAN. I am used to speaking out of both sides of my mouth.
    Mrs. KELLY. That is going to change the markets terribly by tomorrow.
    Mr. GREENSPAN. Just to repeat, when, in late April, I last reviewed the economic outlook before this committee, full-scale military operations in Iraq had concluded, and there were signs that some of the impediments to brisker growth in economic activity in the months leading up to the conflict were beginning to lift. Many, though by no means all, of the economic uncertainties stemming from the situation in Iraq had been resolved, and that reduction in uncertainty had left an imprint on a broad range of indicators.
    Stock prices had risen, risk spreads on corporate bonds had narrowed, oil prices had dropped sharply, and measures of consumer sentiment appeared to be on the mend. But, as I noted in April, hard data indicating that these favorable developments were quickening the pace of spending and production were not yet in evidence, and it was likely that the extent of the underlying vigor of the economy would become apparent only gradually.
    In the months since, some of the residual war-related uncertainties have abated further, and financial conditions have turned decidedly more accommodative, supported in part by the Federal Reserve's commitment to foster sustainable growth and to guard against a substantial further disinflation. Yields across maturities and risk classes have posted marked declines which, together with improved profits, boosted stock prices and household wealth. If the past is any guide, these domestic financial developments, apart from the heavy dose of fiscal stimulus now in train, should bolster economic activity over coming quarters.
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    To be sure, industrial production does appear to have stabilized in recent weeks after months of declines. Consumer spending has held up reasonably well, and activity in housing markets continues strong. But incoming data on employment and aggregate output remain mixed. A pervasive sense of caution reflecting, in part, the aftermath of corporate governance scandals appears to have left businesses focused on strengthening their balance sheets and, to date, reluctant to ramp up significantly their hiring and spending. Continued global uncertainties and economic weakness abroad, particularly among some of our major trading partners, also have extended the ongoing softness in the demand for U.S. goods and services.
    When the Federal Open Market Committee met last month with the economy not yet showing convincing signs of a sustained pickup in growth, and against the backdrop of our concerns about the implications of a possible substantial decline in inflation, we elected to ease policy another quarter-point. The FOMC stands prepared to maintain a highly accommodative stance on policy for as long as needed to promote satisfactory economic performance. In the judgment of the Committee, policy accommodation aimed at raising the growth of output, boosting the utilization of resources, and warding off unwelcome disinflation can be maintained for a considerable period without ultimately stoking inflationary pressures.
    The prospects for a resumption of strong economic growth have been enhanced by steps taken in the private sector over the past couple of years to restructure and strengthen balance sheets. These changes, assisted by improved prices in asset markets, have left households and businesses better positioned than they were earlier to boost outlays as their wariness about the economic environment abates.
    Nowhere has this process of balance sheet adjustment been more evident than in the household sector. On the asset side of the balance sheet, the decline in longer-term interest rates and diminished perceptions of credit risk in recent months have provided a substantial lift to the market value of nearly all major categories of household assets. Most notably, historically low mortgage interest rates have helped to propel a solid advance in the value of the owner-occupied housing stock. And the lowered rate at which investors discount future business earnings has contributed to the substantial appreciation in broad equity price indexes this year, reversing a portion of their previous declines.
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    On the liability side of the balance sheet, despite the significant increase in debt encouraged by higher asset values, lower interest rates have facilitated a restructuring of existing debt. Households have taken advantage of new lows in mortgage interest rates to refinance debt on more favorable terms, to lengthen debt maturity, and in many cases, to extract equity from their homes to pay down other higher-cost debt. Debt service burdens, accordingly, have declined.
    Significant balance sheet restructuring in an environment of low interest rates has gone far beyond that experienced in the past. In large measure, this reflects changes in technology and mortgage markets that have dramatically transformed accumulated home equity from a very illiquid asset into one that is now an integral part of households' ongoing balance-sheet management and spending decisions. This enhanced capacity doubtless added significant support to consumer markets during the past three years as numerous shocks—a stock price fall, 9/11, and the Iraq war—pummeled consumer sentiment.
    We expect both equity extraction and lower debt service to continue to provide support for household spending in the period ahead, though the strength of this support is likely to diminish over time.
    In addition to balance sheet improvements, the recently passed tax legislation will provide a considerable lift to disposable incomes of households in the second half of the year, even after accounting for some state and local offsets. At this point, most firms have likely implemented the lower withholding schedules that have been released by the Treasury, and advance rebates of child tax credits are being mailed beginning later this month. Most mainstream economic models predict that such tax-induced increases in disposable income should produce a prompt and appreciable pickup in consumer spending. Moreover, most models would also project positive follow-on effects on capital spending. The evolution of spending over the next few months may provide an important test of the extent to which this traditional view of expansionary fiscal policy holds in the current environment.
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    Much like households, businesses have taken advantage of low interest rates to shore up their balance sheets. Most notably, firms have issued long-term debt and employed the proceeds to pay down commercial paper and bank loans and to roll over maturing high-cost debt. The net effect of these trends, to date, has been a decline in the ratio of business interest payments to net cash flow, a significant increase in the average maturity of liabilities, and a rise in the ratio of current assets to current liabilities.
    With business balance sheets having been strengthened and with investors notably more receptive to risk, the overall climate in credit markets has become more hospitable in recent months. Specifically, improvements in forward-looking measures of default risk, a decline in actual defaults, and a moderation in the pace of debt-rating downgrades have prompted a marked narrowing of credit spreads and credit default swap premiums. That change in sentiment has extended even to the speculative-grade bond market, where issuance has revived considerably, even by lower-tier issuers that would have been hard pressed to tap the capital markets over much of the last few years. Banks, for their part, remain well capitalized and willing lenders.
    In the past, such reductions in private yields and in the cost of capital faced by firms have been associated with rising capital spending. But as yet there is little evidence that the more accommodative financial environment has materially improved the willingness of top executives to increase capital investment. Corporate executives and boards of directors are seemingly unclear, in the wake of the recent intense focus on corporate behavior, about how an increase in risk-taking on their part would be viewed by shareholders and regulators.
    As a result, business leaders have been quite circumspect about embarking on major new investment projects. Moreover, still-ample capacity in some sectors and lingering uncertainty about the strength of prospective final sales have added reluctance to expand capital outlays. But should firms begin to perceive that the pickup in demand is durable, they doubtless would be more inclined to increase hiring and production, replenish depleted inventories, and bring new capital on line. These actions, in turn, would tend to further boost both incomes and output.
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    Tentative signs suggest that this favorable dynamic may be beginning to take hold. Industrial production, as I indicated earlier, seems to have stabilized, and various regional and national business surveys point to a recent firming in new orders. Indeed, the backlog of unfilled orders for nondefense capital goods, excluding aircraft, increased, on net, over the first five months of this year. Investment in structures, however, continues to weaken.
    The outlook for business profits is, of course, a key factor that will help determine whether the stirrings we currently observe in new orders presage a sustained pickup in production and new capital spending. Investors' outlook for near-term earnings has seemed a little brighter of late.
    The favorable productivity trends of recent years, if continued, would certainly bode well for future profitability. Output per hour in the nonfarm business sector increased 2-1/2 percent over the year ending in the first quarter. It has been unusual that firms have been able to achieve consistently strong gains in productivity when the overall performance of the economy has been so lackluster. To some extent, companies under pressure to cut costs in an environment of still tepid sales growth and an uncertain economic outlook might be expected to search aggressively for ways to employ resources more efficiently.
    However, one consequence of these improvements in efficiency has been an ability of many businesses to pare existing workforces and still meet increases in demand. Indeed, with the growth of real output below that of labor productivity for much of the period since 2000, aggregate hours and employment have fallen, and the unemployment rate rose last month to 6.4 percent of the civilian labor force.
    Although forward-looking indicators are mostly positive, downside risks to the business outlook are also apparent, including the partial rebound in energy costs and some recent signs that aggregate demand may be flagging among some of our important trading partners.
    Inflation developments have been important in shaping the economic outlook and the stance of policy over the first half of the year. With the economy operating below its potential for much of the past two years and productivity growth proceeding apace, measures of core consumer prices have decelerated noticeably. Allowing for known measurement biases, these inflation indexes have been in a neighborhood that corresponds to effective price stability—a long-held goal assigned to the Federal Reserve by the Congress. But we can pause at this achievement only for a moment, mindful that we face new challenges in maintaining price stability, specifically to prevent inflation from falling too low.
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    This is one reason the Federal Open Market Committee has adopted a quite accommodative stance of policy. A very low inflation rate increases the risk that an adverse shock to the economy would be more difficult to counter effectively. Indeed, there is an especially pernicious, albeit remote, scenario in which inflation turns negative against a backdrop of weak aggregate demand, engendering a corrosive deflationary spiral.
    Until recently, this topic was often regarded as an academic curiosity. Indeed, a decade ago, most economists would have dismissed the possibility that a government issuing a fiat currency would ever produce too little inflation. However, the recent record in Japan has reopened serious discussion of this issue. To be sure, there are credible arguments that the Japanese experience is idiosyncratic. But there are important lessons to be learned, and it is incumbent on a central bank to anticipate any contingency, however remote, if significant economic costs could be associated with that contingency.
    The Federal Reserve has been studying how to provide policy stimulus should our primary tool of adjusting the target Federal funds rate no longer be available. Indeed, the Federal Open Market Committee devoted considerable attention to this subject at its June meeting, examining potentially feasible policy alternatives. However, given the now highly stimulative stance of monetary and fiscal policy and well-anchored inflation expectations, the Committee concluded that economic fundamentals are such that situations requiring special policy actions are most unlikely to arise.
    Furthermore, with the target funds rate at 1 percent, substantial further conventional easings could be implemented if the Federal Open Market Committee judged such policy actions warranted. Doubtless, some financial firms would experience difficulties in such an environment, but these intermediaries have exhibited considerable flexibility in the past to changing circumstances. More broadly, as I indicated earlier, the Federal Open Market Committee stands ready to maintain a highly accommodative stance of policy for as long as it takes to achieve a return to satisfactory economic performance.
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    Thank you very much. I trust the remainder of my remarks will be included in the record, and I look forward to answering your questions.
    Mrs. KELLY. Without objection.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Hon. Alan Greenspan can be found on page 47 in the appendix.]
    Mrs. KELLY. The Chair will now recognize herself for questions, but first noting that because of the constraints on Chairman Greenspan's time and the desire to get as many members as possible able to ask questions, the Chair will strictly enforce the 5-minute rule. Please take note of that.
    Mr. FRANK. I want to associate myself with your strictness.
    Mrs. KELLY. Thank you very much, Mr. Frank.
    Mr. FRANK. In this context.
    Mrs. KELLY. Mr. Chairman, your statement contains a recitation of both household and business balance sheet restructuring. To the extent that you make the overall restructuring of the economy sound nearly as dramatic as that of the late 1970s, which led to a long period of expansion in the U.S. economy and a clear advantage over our foreign trading competitors, is this comparison, in your view, an accurate one?
    Mr. GREENSPAN. Madam Chairperson, the evolution of trends within the economy, especially one as dynamic as that of the United States, are almost always different; that is, we do draw on analogies in the past, but it is very rarely that we replicate any close convergence patterns which have prevailed in long periods over the past.
    But it is certainly the case that, confronted with a period of low inflation and low-risk premiums and quite favorable financial conditions, we could very well be embarking on a period of extended growth, especially when, as I indicated in earlier testimony, it appeared as though the sharp market declines and decline in economic activity in the year 2000 and into 2001, largely reflected a break in the pattern of capital investment expansion which had not been completed in the sense that a considerable amount of networking had been developed during the 1990s which, according to recent surveys, suggests that it has not been completed.
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    So if we can ever return to a state of business confidence, there is, in my judgment, as I have indicated previously, a fairly substantial backlog of unexploited profitable investment opportunities in the capital goods markets. And that should, if it occurs, be a signal of fairly sound economic performance and, doubtless, long-term growth.
    Mrs. KELLY. Thank you.
    Were you disappointed that the 10-year yields backed up so much after the June Open Market Committee meeting? And to what do you attribute that, and what effect has it had and will it have on our recovery?
    Mr. GREENSPAN. Well, we clearly expected that because, you may recall, just prior to that meeting there was an expected probability, as reflected in the Federal funds futures market, of a fairly good chance of a 50-basis-point cut rather than the one we chose, namely 25 basis points. So we clearly expected that the markets would adjust. How much they would adjust was very difficult to anticipate in advance, especially since interest rates had been firming in the days immediately before the meeting as well.
    But surprised? No.
    Mrs. KELLY. There is going to come a time when the Open Market Committee is going to have to raise rates. Obviously, that is not soon, but what kind of concerns will you have about a fragile recovery at that point? And what kind of precautions do you intend to take?
    Mr. GREENSPAN. Well, if the recovery is indeed fragile, as you imply, I would suggest to you it is unlikely that we would be moving rates. As I indicated in my prepared testimony, we would seek a significant improvement in economic performance from what we currently see before that is even on the table.
    Mrs. KELLY. Mr. Chairman, natural gas prices are well off their historic highs, but your regular recent comments about the possibility of spiking—of pricing spikes have rattled the markets to some extent. I am wondering why you have been focusing on that issue, and I also wonder why prices are still so high. If there is anything that you would like to speak about that, I would appreciate hearing from you.
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    Mr. GREENSPAN. The rise in natural gas prices, which I might say to you has essentially, over the long term, been in a significant upward trend, has been having obvious impacts on the economy, on profit margins, on costs of home heating, and a number of other uses, especially in the chemical industry.
    It is very clear to us that energy costs are a quite important factor in what is happening to the economy, and as a consequence, are a very important input into monetary policy. So we have been looking at the nature of pressures in energy markets, especially oil and gas, but others as well and as a consequence of that, have been somewhat concerned about what we see, namely, that the continued rise in demand for natural gas in the North American market is clearly putting significant pressure on the ability of production in Canada and in the United States, especially, to meet that demand. And the failure to be able to import significant amounts of additional gas—which, incidentally, we can do in oil when we run into similar problems—has created severe problems with respect to both natural gas price volatility and price levels.
    The futures markets, which go out quite a long way, indicate that natural gas prices, as I indicated in my prepared remarks, are projected to go beyond $4.50 per million BTUs, which is a doubling from where the long-term expected price was several years ago. And what is even more remarkable is that it is selling at a premium to crude oil, which is very rare.
    Mrs. KELLY. Thank you. My time is up.
    Mr. Crowley.
    Mr. CROWLEY. I thank the gentlelady from New York.
    And, Mr. Chairman, good to have you back in front of our committee again. You made reference in your remarks to the fact that the jobless growth, the unemployment rate, has jumped to 6.4 percent, nationwide, of the civilian population. So to sort of point out in my district, or at least the statistics that I have been able to gather from my district, in New York, Queens and the Bronx, Queens is at 6.6 percent and the Bronx is at 9.4 percent; understand that some will be below that number and some will be above that number.
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    Unfortunately for me, and for the rest of my city as well, we find that those numbers are above the 6.4 percent. And just yesterday the Department of Labor reported that the number of people filing for unemployment benefits for the first time rose by 5,000 new people to 439,000. But the overall number of people collecting unemployment benefits rose to a 20-year high.
    This morning, the White House will release its new deficit figures, showing the Nation running to over $450 billion this year—which, by the way, does not include in that equation the raiding of $150 billion from the Social Security Trust Fund.
    In response to the Administration's release—press release stating how the tax giveaways of this Administration have led to, and I quote, ''private forecasters are expecting a higher''—or ''expecting a return to higher growth, increased jobs and lower unemployment over the next year and a half.'' without tax cuts, job losses would continue. In fact, while many economists have been predicting the U.S. economy to grow in the second half of this year, these, in my opinion, awful job loss and unemployment numbers during of this recession have caused many to reconsider their once-positive outlooks on job growth.
    In fact, the Wall Street Journal quotes several economists who are looking at lowering their expected growth rates and job creation rates for the rest of the year because of this data. Even Secretary Snow has indicated he predicts that greater job loss should be—could be expected in the coming months.
    Seeing that recent economic policies have resulted in over 3.1 billion private sector jobs disappearing, my questions are:
    Where is the momentum in this economy? For the past few sessions here, you have projected job growth and wealth creation and all we have seen, at least in my city, is more job loss and the loss of wealth. Will you revise your past statements of economic growth and job creation, or at least would you admit that they may have been mistaken in the past few sessions here?
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    And secondly, seeing that you are Chair of the Fed now, during the tenure of several Presidents, including the previous Presidency, is this Presidency the weakest job—the weakest in job creation you have ever seen, especially compared with the last Administration?
    I will just point out to my colleagues that to escape the black hole of this recession, this Administration will have to create over 500,000 new jobs each month until the end of the year 2003 in order to avoid making this the most protracted period of job loss since the 1930s.
    Have the policies of this Administration been the killer to the economy and especially to American jobs?
    Mr. GREENSPAN. Well, first of all, Congressman, as I indicated in my prepared remarks and as Congressman Frank also suggested, a significant part in this equation is the productivity numbers. Growth in GDP has been really quite sluggish, but it has been growing. In other words, the economy has been growing.
    The problem is that productivity, which is generally a favorable economic factor, has enabled a significant part of the business community to meet rising sales requirements with lowered work forces. And obviously the only way to do that is improved efficiency. We are seeing that process going on. We have seen it going on for quite a good deal of time, and I will tell you it was not anticipated in the sense that with the presumed sluggish rate of growth that we have all been projecting, a weaker growth in productivity was projected and accordingly, a less adverse pattern of employment, arithmetically, naturally would arise from that.
    I strongly expect, the growth rate will be picking up in the months ahead and rising above the relevant rate of productivity, then clearly increased workforces will be required to meet the increased growth. That is our forecast that is what I expect to happen and, indeed, what I think the vast majority of economists examining the American economy expect to happen.
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    Mr. CROWLEY. I appreciate the Chairman's response. I think, though, it does little to inspire those whom I and Mr. King represent in terms of their future of job loss.
    I would also like to ask later, in writing, on the deflation issue that you mentioned in your comments.
    Thank you, Madam Chair.
    Mrs. KELLY. Thank you.
    Mr. KELLY. Mr. Leach.
    Mr. LEACH. Mr. Chairman, I have two questions. One you might answer based on prior press, one you might prefer not to.
    The first one: This committee has given a green light to expanding a little-known charter, the industrial loan charter, to become functionally equivalent to a bank charter and to allow expansion of this charter's use nationwide without Federal Reserve or OCC oversight. Is this sound public policy?
    The second question relates to currencies, and the major factor obviously in international trade is the competitive position of currencies. As the world has noted, you are in a flexible exchange rate environment that has strengthened vis-a-vis the dollars; that is helping our exporters, but the Chinese currency remains locked in an unrealistically low, fixed relationship with the dollar. And shouldn't the Chinese currency be subject to market forces and allowed, presumably, in this kind of economic environment, to appreciate in value?
    Mr. GREENSPAN. They appear to be very significantly different questions. Let's see if I can join them.
    Mr. LEACH. Go ahead.
    Mr. GREENSPAN. The industrial loan company issue is really a major problem with respect to commerce and banking in this country. I have always been of the opinion that over the very long run we are going to find that it is going to be very difficult to distinguish between commerce and banking with individual firms, and the issue of the notion of the current policies will become moot.
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    But, well prior to that, we have a very significant problem which I think we need to address, namely, having now made a major expansion in banking and finance through Gramm-Leach-Bliley and a number of other earlier activities, we have opened up our financial system very aggressively and we need to take time to begin to evaluate how significant those changes are in the world economy and in our own, and what type of regulatory structures are required and what type of risks are we running by our new, very expansionary regulatory initiatives.
    It is much too soon at this stage, in my judgment, to make an evaluation of what the consequences of our recent, very expansionary regulatory policies have been. If there is going to be a major change in policy, which, as you know, Gramm-Leach-Bliley implied and indicated that commerce and banking were still to be separated, if we are going to make that very major change—and it is a major change in regulation it is a decision which this committee and your counterparts in the Senate, as well, both bodies, need to make, and it is a crucial decision and should not be determined by, in effect, a relatively small, presumably, act which is currently under discussion. And, indeed it is merely an amendment to a specific act which this committee is evaluating.
    Without going into the substance, which would take a while, I merely state to you that if this issue is on the table, what really is being discussed is a very much broader question, which is the issue of commerce and banking and I hope that this committee will not allow that decision to be made inadvertently through another discussion vehicle for which there have not been significant hearings, in my judgment.
    With respect to the question of currencies, as you know, there is an agreement within this Administration that with respect to the exchange rate only the Secretary of the Treasury should be discussing the issue. I would note, however, that in order to maintain the existing exchange rate, the People's Bank of China has been accumulating very significant quantities of U.S. dollars, as they are reporting currently and that does suggest that a monetary expansion, which occurs as a consequence of building up their monetary base by the accumulation of dollars, is creating a significant growth in money supply which, over the long run, they will have to address.
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    Mr. LEACH. Madam Chairman, just one minor comment. Let me suggest to the Chairman——
    Mrs. KELLY. Please finish your statement, Mr. Leach, but the time is finished.
    Mr. LEACH. There is a separation of powers doctrine in America, but there is no such thing as a separation of economic judgment doctrine.
    As one of your greatest admirers, let me suggest, I think it is incorrect for the Fed to allow any economic policy set of judgments to be the exclusive province of an executive department. The Fed is an independent arm of the United States Government, and I hope you will review the issue of whether the Fed can opine on currency relationships. This is a fundamental economics issue for which the Congress and the American public deserve a full panoply of opinion.
    Mr. GREENSPAN. Well, I appreciate that, Mr. Leach. I did not say that we do not engage in discussions with the Treasury on the issue of exchange rates. I merely stipulated that in expressing the views of this government, we have found that it is far better to have a single voice expressing the consensus view of what the government's position is with respect to this policy.
    Mrs. KELLY. Mr. Kanjorski.
    Mr. KANJORSKI. Thank you, Madam Chairman.
    Mr. Chairman, the news reports of the last day indicate that the White House is about to increase its estimate of this year's Federal budget deficit to more than $450 billion, which exceeds by 50 percent their earlier projection. In President Bush's State of the Union address January 20th, 2003, he said, quote, ''This country has many challenges. We will not deny, we will not ignore, we will not pass along our problems to other Congresses, to other Presidents, or other generations. We will confront them with focus and clarity and courage.''
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    First of all, did you get that portion of the State of the Union speech, Mr. Chairman?
    Mr. GREENSPAN. Yes.
    Mr. KANJORSKI. Do you feel that in light of this unusual increase in our deficit projection that it will be able to be cleared up within this Presidency or within this Congress?
    Mr. GREENSPAN. Your previous question, had I heard that particular statement?
    Mr. KANJORSKI. I said, Did you get that particular sentence?
    Mr. GREENSPAN. I am sorry, I missed the word that you were using.
    Mr. KANJORSKI. Get. Get. Did you get that?
    Mr. GREENSPAN. In other words, did I look at the remarks before?
    Mr. KANJORSKI. Did you look at it and approve it.
    Mr. GREENSPAN. Before they were given? The answer is no, I did not.
    But did I see them after? I did.
    Mr. KANJORSKI. In light of that statement and the enormous increase in deficits and what others, particularly fiscal conservatives, would think, that we have a runaway Federal budget, if you look at, as Mr. Frank indicated, the deficit that will increase in just this year and next year will exceed the entire debt growth of the United States from its very beginning to when Mr. Reagan took office in 1980, well over a trillion dollars.
    And what I would like to know from you is, one, is this going to be cleared up in this Congress and in this Presidency, or are we passing something over to the next generation? And is that important? Or do deficits not matter anymore?
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    Mr. GREENSPAN. Oh, on the contrary, it matters a great deal.
    Congressman, I haven't changed my views since I was here in April, on this issue. As you may recall, when the September deadline on extending PAYGO and discretionary caps were on the table, I strongly argued that they should be reinstituted; and indeed when the budgetary process, which I thought had created some fairly significant momentum to resolving long-term deficits, began to break down with the surpluses, I argued as best I could for a restoration of some semblance of fiscal responsibility. And I trust that the most recent numbers will push more and more of government in the direction of getting a far more stable long-term fiscal outlook.
    Mr. KANJORSKI. Last year, as I think Mr. Crowley indicated, we lost 3,000 overall jobs in the economy. But what people aren't mentioning is that more than 10 percent of those jobs in the manufacturing industry have been lost, amounting to about two-thirds of the job loss in the last three years.
    One, I would like to know, is it unimportant for us to have manufacturing jobs to have a successful economy in the future? And if it is important, now that we are down below 15 million manufacturing jobs in our overall economy, where is the minimum that we can go to in manufacturing without losing added value and creation of wealth in our system?
    Mr. GREENSPAN. Well, first of all, manufacturing, in broad value sense, has been declining modestly relative to the GDP for quite a long period of time. The actual physical goods included in that manufacturing per real dollar of value has gone down quite appreciably, and what we used to call manufacturing heavy steel mills, big automotive assemblies, has very gradually moved toward impalpable types of values. The distinction between what is a manufactured good and a nonmanufactured good is becoming increasingly more tenuous.
    On top of that, the productivity rates in manufacturing are moving up faster than those for the Nation as a whole; and, as a consequence, what we find is that the share of total employment that is engaged in manufacturing is falling even further than the rate of decline in the gross product originating in manufacturing as a percent of total GDP.
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    Is it important for an economy to have manufacturing? There is a big dispute on this issue. What is important is that economies create value. And whether value is created by taking raw materials and fabricating them into something consumers want, or value is created by various different services which consumers want, presumably should not make any significant difference so far as standards of living are concerned, because the income, the capability to purchase goods is there.
    If there is no concern about access to foreign producers of manufactured goods, then I think you can argue it does not really matter whether or not you produce them or not. The main issue here is the question of the security of supply, of those essential types of goods which will always be required by human beings, food, clothing, shelter and the like.
    Mr. KANJORSKI. Well, it may matter to the 15 million people that are employed in manufacturing. Should we——
    Thank you, Mr. Chairman.
    Mrs. KELLY. Thank you, Mr. Kanjorski.
    Mr. Bachus.
    Mr. BACHUS. Mr. Chairman, on page 5 of your testimony, you acknowledge that the President's recently-passed tax cuts are having a beneficial effect on consumer spending and are lifting the economy.
    Mr. GREENSPAN. That is correct, Congressman.
    Mr. BACHUS. And you state, going forward, that it appears that will continue to be the case with lowering withholding rates and the child tax credit payments, that it will continue to lift consumer spending and actually have a spillover effect into capital goods spending. Or into——
    Mr. GREENSPAN. That is what most models project. I have nothing against cutting taxes. I would just like to be sure that a constituency arises eventually for cutting spending as well, and that has not been the case. And that is one of the reasons why over the longer run, we have had some difficulties in holding budget——
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    Mr. BACHUS. In other words, tax cuts are good if they are followed up by spending cuts or spending limitations or restrained spending?
    Mr. GREENSPAN. Correct.
    Mr. BACHUS. So what you would advocate to this committee is that we focus not on—that we don't raise taxes, but that we focus on discipline in our spending habits.
    Mr. GREENSPAN. I would like to see the restoration of PAYGO and discretionary caps, which will restrain the expansion of the deficit and indeed ultimately contain it. It did that. Back in the early 1990s, I thought it was quite surprisingly successful in restraining what had been a budget which had gotten out of kilter. I would like to see these restraints reimposed, and by their very nature they will bring back fiscal balance.
    Mr. BACHUS. Mr. Chairman, I am very optimistic, I hope you are. You have heard from this committee, members this morning that we are all concerned about the Federal deficit. And we realize we ought to do something about it. And I think that restraining spending and fiscal discipline is the answer.
    And I appreciate your cautionary remarks that we do engage in that. BASEL II, if it goes forward on schedule, we will be finalizing that agreement, or the world community, at the first of December. Do you have concerns about us adopting—agreeing to such agreements that will have some effect on our regulatory scheme?
    Mr. GREENSPAN. Well, Congressman, I would say that as our financial system, specifically our banking system, evolved fairly rapidly over the years, we have had significant changes in financial technology and in opening up markets, as I indicated earlier.
    And it is important that supervision and regulation keep up to date with the changes in banking practice. BASEL I, which as you know was initiated in 1988, is becoming increasingly obsolete and burdensome. We need to change where we are, but we certainly are not going to move the regulation in the United States until we have thoroughly vetted all various options that are required to get agreement amongst the regulatory authorities and a structure which looks to be viable, and indeed is a major improvement over BASEL I.
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    Obviously we hope to do it in a time frame as expeditiously as possible. But, it is far more important to get it right than to do it quickly.
    Mr. BACHUS. Thank you. I am not sure about my time.
    Mrs. KELLY. You have 36 seconds.
    Mr. BACHUS. Okay. Mr. Chairman, every economic recovery since World War II has been proceeded by a stock market recovery. And we are in a stock market recovery now. And Wall Street pundits are saying that actually that is indication that we are having an economic recovery or it will come.
    Would you like to comment on that, whether you think that the stock market recovery is, in fact, predicting an economic recovery?
    Mr. GREENSPAN. Well, let me just say it is not, I think, wholly accurate that the stock market always predicts correctly. Indeed, there is an old saw that some skeptic once stated a number of years back that the stock market has predicted 10 of the last six recoveries.
    I am not saying that is the case at this particular moment. But, there is no question that it is not only an indicator, but more importantly, it changes the cost of capital, so the very rise in equity prices themselves, by lowering the cost of capital for capital investment will, in fact, be a factor in economic recovery.
    And indeed that is a view held, as I said, by pretty much most economists looking for economic expansion in the months immediately ahead.
    Mrs. KELLY. Thank you, Mr. Bachus. I want to remind members that while we are following the 5-minute rule, without objection all Members may submit written questions, and the hearing will be held open for 30 days following for written questions and responses from the Chairman.
    With that we turn to Mr. Frank.
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    Mr. FRANK. Thank you. Mr. Chairman, I was struck, as I indicated by the comments on page 12 of the monetary policy report, which does suggest fairly severe consequences if we aren't able to get on top of the budget situation. I know there was a suggestion that tax cuts are a good thing, as long as they are accompanied by spending cuts.
    I notice on page 13 you note: Federal spending, during the first 8 months of fiscal year 2003, was 6-1/2 percent higher than during the same period last year, and 7-1/2 percent, if you exclude the drop in interest costs because of the drop in interest rates. So what we have got is a situation where revenues have been cut, but spending has gone up significantly.
    And I really want to focus on this. What you are saying here is that if we don't reverse the trend that we are in now, and I say this for this reason. Previously there was some conversation, yourself and others, that the real crunch with the deficits would come 2010, 2011 when there is a reversal, and Social Security in particular begins to draw money out rather than put it in. But this does seems to me to suggest that there could be earlier consequences, particularly when we talk about a trillion dollars in two years, back-to-back 2-year deficits are going to be a trillion dollars now.
    And what you say here is that this has reduced the national savings, and this is quite striking. National savings down from 6-1/2 percent of GDP to 1 percent of GDP, almost exclusively, I guess, because of the switch in the Federal situation from surplus to deficit, and you say if this continues, it will eventually impinge on the formation of private capital.
    When do we have to get this reversed for this to avoid what is a very severe consequence.
    Mr. GREENSPAN. Well, I would suggest to you that you can take, as we have over the years, several years of fairly large deficits provided that they turn around at some point within the——
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    Mr. FRANK. How much time do we have, do you think?
    Mr. GREENSPAN. I really, without seeing the details of the latest OMB sets of projections, don't have the feel of exactly what the patterns will be. But, I can say in principle, that it clearly has got to move down significantly from where it is now.
    Mr. FRANK. I am not asking you to project the deficits. Mr. Bolten says they are going to drop after 2004. But he wasn't under oath. I am not asking you to project the deficits. I am asking you to tell me, in your view, based on this analysis here in the report, for how many years can we sustain multi hundred billion dollar deficits in a row before we being to get this impingement on private capital formation.
    Mr. GREENSPAN. First of all, ultimately you need private savings to finance private investment over the long run. And clearly without private investment, it is difficult to get economic growth.
    But, it is also the case that it is not only the amount of private investment that matters, but the nature of the investment itself. Because what we have found in recent years is that half of the productivity increases in this country have been unrelated to the amount of capital stock, meaning capital investment.
    It has basically been ephemeral technologies and the shift toward capital investment of a highly productive nature which has enabled these productivity numbers to——
    Mr. FRANK. I understand that. But I don't want to swerve. I am quoting your report.
    Mr. GREENSPAN. I understand.
    Mr. FRANK. Your report also clearly says that the Federal deficit is part of the problem. So let's focus on that part.
    Mr. GREENSPAN. I have acknowledged that is indeed the case.
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    Mr. FRANK. I know. But then you are trying to avoid talking about it. How many years of the deficits of the sort we now have can we sustain before what you say is, it could eventually impinge on the formation of private capital? How many years?
    Mr. GREENSPAN. I would say that the major issue, not on private capital, per se, because there are lots of different issues that are involved there, the basic issue—remember——
    Mr. FRANK. I am just quoting your report.
    Mr. GREENSPAN. I understand. The major issue on fiscal policy is to make sure that the debt as a ratio to income is stable. The question of capital formation, remember, you can import a significant amount of——
    Mr. FRANK. I am sorry. But I am disappointed, because I was trying to get you to talk——
    Mr. GREENSPAN. You are asking a question which is not answered in the form——
    Mr. FRANK. Well, I am quoting—but, there is clearly an aspect of it, and your report documents it, that you are trying to avoid.
    Mr. GREENSPAN. You tell me that private savings are zero for a protected period of time, and that we cannot import significant amounts of capital from abroad, then I would say we are having difficulty.
    Mr. FRANK. You don't say that in this report, and I think you are not facing up to the implications of your own report. Could I just ask unanimous consent, on behalf of Mr. Baca, to submit a question about unemployment, particularly with regard to Hispanics and African-Americans.
    Mrs. KELLY. Without objection, it is in the record. We go now to Mr. Castle.
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    Mr. CASTLE. Thank you, Madam Chairwoman.
    Mr. Chairman, I actually share all of those concerns that everyone has asked you in terms of where we are going. I am afraid that we have not had spending restraint in this Congress, and we have more pending, such as the prescription drug bill, as well as the problems in Iraq, and we have not shown a lot of restraint in terms of tax cutting, and at some point, that is a serious issue. I know you have been asked a lot of questions about that, so I will forego that and go to something else.
    But, we are all vitally concerned about that, as it affects monetary policy and the economy of the country. The other area that I am somewhat concerned about today is the area of unemployment. As I always say, if someone is unemployed, their unemployed rate is 100 percent. That is a huge impact on families and individuals in the United States of America. And I have always been more or less a supporter of free trade. I realize that we are probably giving up low-paying jobs, if you like, at the history decade by decade of this country in our lifetimes, you see that has happened, lower income, lower skilled jobs, if you will.
    We have always filled it with higher paying, usually higher skilled type of jobs. But, recently, I have become increasingly concerned, not just with the manufacturing jobs, but that we are giving up more and more high skilled jobs, particularly in the computer area and in various other high tech areas that we had not before.
    One of the reasons that we are not back filling with new kinds of jobs and new jobs to get the unemployment rate down is that more of these jobs are going overseas with the use of instant communications, computers, et cetera, it is relatively simply to carry out these jobs in other countries other than the United States. And sometimes that proves a lot less expensive even for our own companies here in America.
    I would be interested in your viewpoint on that, and if that is the case, what new high skill industries do we see on the horizon that might be a fill for that loss of jobs which we have had?
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    Mr. GREENSPAN. Well, the problem, Congressman, is that innovation by its nature is unforecastable. That is, there will be new jobs openings at some level of high tech, because what we observe is that originally we start losing jobs in low tech, high-commodity-type areas and then, we find that——
    Mr. CASTLE. If I may interrupt. What is your comfort level that if there are new high tech level jobs, it is unpredictable as to what they will be, and I do agree with that, that they will stay in America? It seems to me there is a much easier transition out of America than there used to be of these jobs.
    Mr. GREENSPAN. Well, that question has been coming up for generations, namely how are we going to maintain full employment when we continuously lose jobs, so to speak, abroad, and that has been going on for a very substantial period of time.
    The answer to the question is, it will happen. In other words, if anybody had projected 10 years ago that we would run an unemployment rate under 4 percent only several years later, they would have said that was not possible because we are losing jobs.
    It is a very difficult question to answer, because we cannot forecast technology effectively. But, what we do know is that if we have a sufficiently flexible labor market and a capital goods market which is functioning appropriately, that jobs will be created. They will be high tech, but we don't know exactly what they will be.
    Mr. CASTLE. Let me change subjects. I want to talk about stock options. I believe that you have indicated in the past that the expensing of stock options as a means of giving investors and analysts a way of really understanding the costs of companies was a good concept. And obviously, I think the Microsoft decision was very significant, because that is really a broad-based stock option plan, which they had as opposed to just top management, et cetera.
    I would be interested in your viewpoint on the Microsoft decision, and are you willing to make any kind of prediction as to the furtherance of the expensing of stock options. We have had a lot of it in recent months, but will this trigger another round of more companies going to the expensing of stock options voluntarily without the government, either Congress or any of our agencies interfering at all?
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    Mr. GREENSPAN. Well, what the Microsoft decision did for the company is to lower the leverage of employees in the stock. In other words, obviously getting restricted stock does give you, after time, ownership rights. But the fluctuation in the value of the stock is a much smaller change than the implicit fluctuation in an option on that stock. So stock options have the capacity of very significantly leveraging a rise in stock prices, and they were a highly desirable vehicle when the overall stock market was rising and ceased to be thereafter.
    As a general rule, if stock prices are going down or are flat, clearly, the restricted stock is a more significant incentive for employees than are options on that stock.
    Mr. CASTLE. Thank you, Mrs. Chairman.
    Mrs. KELLY. Thank you.
    Ms. Waters.
    Ms. WATERS. Thank you very much. Welcome back, Mr. Greenspan. I have two questions I would like to try to get in. The first one continues this discussion about jobs and unemployment. Can you give us any specific examples of how the President's tax cut has created jobs? We know the supply side theory of make the tax cuts, the money will be put back into inventory and job expansion, et cetera.
    But, since we are experiencing this great unemployment in some portions of my district and other districts around the country, can you give us some specific examples of how the President's tax cuts have created jobs? No theory. Specifics. If you don't have any, you can just say that you don't have any.
    Mr. GREENSPAN. Well, the basic way in which tax cuts generally create jobs is by increasing capital investment, raising the level of economic growth——
    Ms. WATERS. We know the theory.
    Mr. GREENSPAN.——and requiring people—and as a consequence, jobs get created in the process. You don't get specific examples except in issues where you have very specific things like accelerated depreciation, which is very important for a specific industry or a specific company, but, so far as general tax cuts are concerned, especially for individuals, their purpose is to broadly increase GDP and jobs generally, and are not focused by their very nature on any specific company or industry.
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    Ms. WATERS. So you don't have any specific examples. Because, as you said, the theory does not translate into reality.
    Mr. GREENSPAN. No, it translates into reality.
    Ms. WATERS. Does any of you know that you have ever talked to, can tell you about a company that took its tax cuts and put them back into equipment and expanded job opportunities? Have you heard that in your travels anywhere?
    Mr. GREENSPAN. Yes, I have fairly recently.
    Ms. WATERS. Could you give me an example of one of those companies?
    Mr. GREENSPAN. I don't wish to, largely because it was in private conversations.
    Ms. WATERS. I see. Okay. So we don't have any examples today. Maybe we will just keep looking for some. Let me move from there to the deficit. We will probably get a supplemental appropriations bill at some point to deal with the ongoing costs of Iraq. Isn't the Administration low-balling the deficit by failing to include any figure for our ongoing Iraq involvement in its deficit projection? Has the Administration provided you with any information as to what they project the ongoing costs of our involvement in Iraq, what is our current monthly burn rate for our role in Iraq?
    If you were to include all of the costs connected with Iraq involvement in your deficit estimates, what would your deficit estimates be?
    Mr. GREENSPAN. Well, Congress——
    Ms. WATERS. Well, first before you do that, the general question of—I am sorry to interrupt you—do you think we can get true figures about the deficit without having the costs of Iraq factored into it? And then, onto the other part of the question.
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    Mr. GREENSPAN. I would assume, not having evaluated the OMB submission, which I presume we will get today——
    Ms. WATERS. They don't have it as of today. It is not included.
    Mr. GREENSPAN. Clearly, the costs of the war in Iraq are in the Defense Department numbers. And one would presume that they are in the fiscal 2004 numbers as well. I would presume that the burn rate, what was it $4 billion a month which the Secretary——
    Ms. WATERS. How much?
    Mr. GREENSPAN. $3.9 billion. The Secretary of Defense stipulated that, as I vaguely recall in some press conference or something of that nature, that particular number is the rate of that particular month. As he pointed out, it changes from month to month. But, implicit in the Defense Department's submission would be costs of Iraq.
    Ms. WATERS. The Administration today will project funding your 2004 budget deficit of between 470 and $480 billion, even though the Bush Administration's funding year tool for budget submission in February projected a funding year 2004 deficit of 307 billion. Are we to conclude—thank you.
    Mrs. KELLY. Thank you.
    Mr. Royce.
    Mr. ROYCE. Thank you, Madam Chair. Welcome, Chairman Greenspan. As you know, the robust housing market has been really the strength in the U.S. Economy over the last three years. And as a result, many financial institutions have grown their business models around financing the housing market. Are you at all concerned, Mr. Chairman, that these financial institutions have not hedged interest rate risk appropriately in the event of an increase in interest rates, and/or do you think that the financial system is prepared for such a move?
    Mr. GREENSPAN. Well, I think that sophisticated chief financial officers engage in various different types of hedging. As best I can judge, markets adjust accordingly. I can't comment on individual behavior, but the tools that various different companies have to adjust to the future are far more formidable than they ever have been. And I would suggest to you that is not a worry of mine.
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    Mr. ROYCE. All right. Thank you, Chairman Greenspan. I have two other questions. The first would be, in the first quarter of this year, the current account deficit reached an annualized rate of 5.1 percent of our GDP. To finance these continual current account deficits, the United States economy must continue to attract overseas capital at record rates.
    In your view, what are the biggest challenges to attracting overseas capital in the United States?
    Mr. GREENSPAN. Well, Congressman, there have been very significant amounts of private and public capital, as you know, that have been employed to finance our current account deficit. In the last year or two, an increasing part has represented the accumulation of dollar assets by foreign central banks in an endeavor to stabilize their currencies. But, overall, we have had no difficulty attracting investment, and the flows have obviously been quite significant, because that is where the markets have balanced.
    Mr. ROYCE. The last question I was going to ask you is that there is more and more talk that the Fed will start buying longer term maturity Treasury securities to lower interest rates out the curve. And would the Fed consider such actions, and what circumstances would trigger such a policy?
    Mr. GREENSPAN. That is part of what we call nontraditional monetary policies, which would occur should we find that it is required in the months ahead to significantly ease conventional monetary policy, which, if necessary, we would do.
    But, it is also clear to us that with a 1 percent Federal funds rate, there is a downside limit, zero being the obviously ultimate lower bound. And if we got to a point where we found conventional policy left us very little room, we have the tools, as I have indicated before this committee before, to move in significant other ways to expand the balance sheet of the Federal Reserve. And one of the vehicles would be moving out on the maturity schedule and purchasing securities, which we might not otherwise be purchasing if our sole purpose was to address the overnight Federal funds rate.
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    Mr. ROYCE. Thank you, Mr. Chairman. I will ask you one last question. A few years ago, many people were expecting Europe to take the lead in pulling the world economy out of the global slowdown. Instead, Europe has been slower to recover than East Asia or the United States. Are you encouraged by recent moves in European monetary policy and by the reform efforts in Germany, or does more need to be done?
    Mrs. KELLY. Mr. Royce, would you please submit that question for the record?
    Mr. ROYCE. I will be happy to do that, Madam Chair. Thanks again, Chairman Greenspan.
    Mrs. KELLY. Thank you.
    Mr. Sanders.
    Mr. SANDERS. Thank you, Madam Chair and Mr. Greenspan, nice to see you again.
    Mr. Greenspan, I have long been concerned that you are way out of touch with the needs of the middle class and working families of our country, that you see your major function in your position as the need to represent the wealthy and large corporations, and I must tell you that your testimony today only confirms all of my suspicions, and I urge you, and I mean this seriously, because you are an honest person, and I think you just don't know what is going on in the real world.
    And I would urge you, come with me to Vermont. Meet real people. The country clubs and cocktail parties are not real America. The millionaires and billionaires are the exception to the rule.
    You talk about an improving economy, while we have lost 3 million private sector jobs in the last two years. Long-term unemployment has more than tripled. Unemployment is higher than it has been since 1994. We have a $4 trillion national debt. 1.4 million Americans have lost their health insurance. Millions of seniors can't afford prescription drugs. Middle class families can't send their kids to college because they don't have the money to do that.
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    Bankruptcy cases have increased by a record breaking 23 percent. Business investment is at its lowest level in more than 50 years. CEOs make more than 500 times what their workers make. The middle class is shrinking. We have the greatest gap between the rich and poor of any industrialized nation, and this is an economy that is improving. I hate to see what would happen if our economy was sinking.
    Now, today you may not have known this. I suspect that you don't. But you have insulted tens of millions of American workers. You have defended over the years, among other things, the abolition of the minimum wage, one of your policies, and giving huge tax breaks to billionaires. But today you reach a new low, I think, by suggesting that manufacturing in America doesn't matter. It doesn't matter where the product is produced.
    We lost 2 million manufacturing jobs in the last two years alone; 10 percent of our workforce. Wal-Mart has replaced General Motors as the major employer in America, paying people starvation wages rather than living wages, and all of that does not matter to you? Doesn't matter if it is produced in China where workers are making 30 cents an hour, or produced in Vermont, where workers can make 20 bucks an hour, it doesn't matter.
    You have told the American people that you support a trade policy which is selling them out, only working for the CEOs who can take our plants to China, Mexico and India. You insulted, Mr. Castle. Mr. Castle a few moments ago, a good Republican, told you that we are seeing not only the decline of manufacturing jobs, but white collar information technology jobs. Forrester Research says that over the next 15 years, 3.3 million U.S. Service industry jobs and 136 billion in wages will move offshore to India, Russia, China and the Philippines. Does any of this matter to you? Do you give one whit of concern to the middle class and working families of this country? That is my question.
    Mr. GREENSPAN. Congressman, we have the highest standard of living in the world.
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    Mr. SANDERS. No, we do not. You go to Scandinavia, and you will find that people have a much higher standard of living in terms of health care and decent paying jobs. Wrong, Mr. Greenspan.
    Mr. GREENSPAN. May I answer your question?
    Mr. SANDERS. You sure may.
    Mr. GREENSPAN. For a major industrial country, we have created the most advanced technologies, the highest standard of living for a country of our size. Our economic growth is crucial to us. The incomes, the purchasing power of our employees, our workers, our people, are by far more important than what it is we produce. I submit to you that—may I?
    Mr. SANDERS. I am just making faces.
    Mr. GREENSPAN. I submit to you that the major focus of monetary policy is to create an environment in this country which enables capital investment and innovation to advance. We are at the cutting edge of technologies in the world. We are doing an extraordinary job over the years, and people flock to the United States. Our immigration rates are very high. And why? Because they think this is a wonderful country to come to.
    Mr. SANDERS. That is an incredible answer.
    Mrs. KELLY. Mr. Paul.
    Mr. PAUL. Thank you, Madam Chairman. Chairman Greenspan, I too am not pleased with the Fed. But, my approach will be slightly different. While here in the Congress, over the past several years, there has been several things that have been pointed out to me that we shouldn't bring up at committees. One is the Constitution and the other, of course, is dollar policy, before the Banking Committee.
    You explained earlier that the Secretary of Treasury speaks for the dollar. I find that interesting and a bit ironic, that you have the monopoly control over the money, creating new money and control over the interest rates. But you don't speak for the dollar, and that is deferred to the Treasury and we know that. But, I think that is sort of academic anyway, because ultimately, the number of dollars you create and the marketplace determines the value of the money.
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    So no matter what you say or the Secretary of Treasury says, it won't matter a whole lot. But, dealing with the Constitution, I would like to point out to my colleagues and others, that the Constitution is I explicit on the type of monetary system that we have, or are supposed to have. For the past 3two years, we have been operating with a fiat monetary system, and it hasn't done well. And history has shown that fiat money never does well. It always ends badly. And we may be seeing the beginnings of the end of that system; not only nationally, but internationally.
    And I think that is something we should give consideration to, but not particularly today, because I have been told that these parts of the Constitution, such as declaring war, are anachronistic, and we just ignore them. I find that sort of sad. But that is the way it is around the Congress too often.
    But also I would like to point out that you are concerned about deflation. Of course, your definition of deflation is slightly different than the free market definition, because we believe deflation requires the shrinkage of the money supply, and the increase in the purchasing power of the dollar.
    But, anyway you show that decreasing prices are a threat, and therefore you have to print faster than ever, and you have been doing a pretty good job there. Since January of 2001 you have taken M3 from 6.5 trillion up to 8.2 trillion. That is a pretty hefty hunk of new money, $2.3 trillion of new money. It hasn't done a heck of a lot of good.
    So I think that it is interesting that you have this concern, and to address it, you plan to print whatever money is necessary. At the same time, you come to us and say your biggest concern, and this too is entertaining or interesting, that the Chairman of the Federal Reserve isn't talking so much about monetary policy, but he is talking about energy prices, because they are going down and they are deflationary? No, because they are going up and they are inflationary.
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    So I don't know how we can have it both ways. First we worry about deflation. In the next breath we worry about inflation. Now, my concern and my question, or something I would like you to make a comment on, deals with the fairness of this system. For instance, I think this is very unfair to the elderly. In the old days, under the free market, we encouraged savings.
    The elderly have CDs. They used to make 6 percent. Now they make less than 1 percent sometimes. They have lost their purchasing power. At the same time, they are suffering from the increase in the cost of living because of the energy prices going up. And just because low interest rates might help the stock market, might help the housing market, doesn't seem to me to be fair to the elderly who have saved their money, suffered from the inflation that still exists, and at the same time, they lose their income.
    And for that reason, I think the system that we work with now is very biased. It is biased toward those who want to consume. We have a system, both the Treasury and the Fed encourages the Fannie Mae/Freddie Mac program of increasing equities and borrowing against it and then suffering the consequences.
    Mr. GREENSPAN. And your question?
    Mr. PAUL. I would like you to comment on the fairness of what you are doing to the elderly who lose their income.
    Mr. GREENSPAN. Well, we have lowered interest rates quite considerably since early 2001. As best we can judge, the consequence of that has been a fairly dramatic expansion in housing, house turnover, and market values of homes from which a significant amount of equity has been extracted. All of that has supported the economy and kept it from edging lower after the very significant shocks that we had as a consequence of the post 2000 period.
    As far as I can judge, we have had a really quite extraordinary period having suffered all of those shocks and still showed a resilience and an expansion, which, even though below our desires, has been positive.
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    We had a very shallow recession, and as a consequence, the recovery has been quite modest. Now, we haven't have it both ways. In other words, you cannot both have high interest rates, which give significant incomes to those who hold interest instruments, and low interest rates, which will stabilize the economy and expand it.
    We at the Federal Reserve have chosen to lower the rate structure, because we judged that was the most appropriate way to stabilize what had been an unstable system, and in retrospect, the policy seems to have been quite effective.
    Mrs. KELLY. Mrs. Maloney.
    Mrs. MALONEY. Thank you, Madam Chairwoman, and Mr. Greenspan. Following up on your statement, and your statement earlier today that you were willing to maintain a highly accommodative stance of policy for as long as needed, and you also said, ''with the target funds rate at 1 percent, substantial further conventional easings could be implemented.'' .
    Already this morning, Treasury notes have fallen in response to your statement. And my question is, do you have a concern that further rate decreases could have a negative impact on the money market fund industry, and when you reference conventional easings, do you refer only to interest rate reductions or other tools in the Fed's disposal?
    And, following up on Mr. Royce's question, how likely is this to occur this year? Do you think that there is a floor, that we will ever reach a floor, or can we just continue reducing down?
    Mr. GREENSPAN. Well, Congresswoman, remember that when you are dealing with financial intermediaries, they can expand and contract fairly quickly, because you are only dealing with financial instruments. We have a remarkably resilient financial intermediary system, which, if short term interest rates fall, undoubtedly will put compression on certain institutions. They have shown quite considerable flexibility to absorb that over reasonable periods of time.
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    So I don't perceive that if it is necessary, there is a downside limit to what we can do conventionally. I don't envisage that that will be necessary. But, to presume that there is a certain level that has often been stated, say 75 basis points, that that is as low as we can go, I think that is mistaken. I do think that we have far more flexibility than is implied in that question.
    Mrs. MALONEY. Earlier, you testified that again in response to Mr. Royce's questions, that we have no difficulty attracting foreign investment. And that that has been true up to now. But, what about the future, given the growing deficit, now they are announcing it is 450 billion, the largest in the history of the United States. And what is the impact of the deficit on U.S. Credibility internationally, given that our debt exceeds 4 percent of our GDP, which is higher than the 3 percent ceiling allowed by the European Union, and additionally, our current accounts deficit exceeds 5 percent of the GDP.
    In the past, we have had absolutely no difficulty. But, there have been some reports that possibly we could have difficulty in the future, given our economic situation.
    Mr. GREENSPAN. It is a relative issue. Remember that the rest of the world is not doing significantly better than we.
    Mrs. MALONEY. That is true.
    Mr. GREENSPAN. We are still getting a considerable amount of foreign investment coming in because as tepid as our recovery has been, it is still perceived to be superior to most other alternatives. And, as a consequence, we have not experienced any really significant problem in financing what is admittedly a fairly large current account deficit.
    I have said in the past that I have always expected that eventually we would adjust, but I have been making that statement for five years, and we have been managing to sustain an ability to attract investment through an expansion period and through a contraction period.
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    Mrs. MALONEY. Thank you, Mr. Greenspan. But, the rest of the world is not putting massive structural deficits that they confront in the long term as we are putting into effect.
    Today they came out saying it is the largest in the history of the United States, the largest deficit they are projecting—all types of economic indicators have projected that it will be much larger, that it doesn't even include the war in Iraq and Afghanistan and homeland security, as we have heard earlier.
    So I guess my question is, in relation to the rest of the world, if they are not putting on this massive deficit, and we are, will that not have some impact on their judgment in making their investments in the future?
    Mrs. KELLY. Mrs. Maloney, would you please submit that question for the record?
    Mrs. MALONEY. Okay. Thank you.
    Mrs. KELLY. Mr. Ose.
    Mr. OSE. Thank you, Madam Chairman. Mr. Greenspan, first of all, I want—I wanted to welcome you. I do have a question. I want to first apologize for what I consider to be rude treatment of you by some members of this panel. And the manner in which you were addressed was rude. And I apologize for it.
    I am tempted to ask questions. You mentioned in your testimony, a discussion that the Board, of the alternatives for implementing monetary policy that were considered to be a low probability for adoption. I am tempted to ask about that. Perhaps I will do that in writing.
    I am also very appreciative of the comments you made about the importance of energy to the economy overall. And I do want to just briefly—I want to briefly mention in the context of perhaps the British withdrawing from Yorktown and playing how the world has turned upside down, a discussion of the condition of our economy relative to inflation, to the GDP, to the levels of productivity, to employment levels, to asset utilization rates and the like. I find it fascinating that when we have this inflation at 1 to 2 percent, interest rates at 1 to 2 percent, productivity going through the roof, gross domestic product growing, albeit slowly, employment levels at significantly reduced rates from what we would have had say in the late 1970s or early 1980s, asset utilization rates creeping towards 80. These are all very strong economic indicators. And I compliment you and your colleagues for implementing these successes accordingly.
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    My question has more of a regulatory nature. I have been following closely the issue of Credit Lyonnais, and its activities in California in the early 1990s, relatively, to buying the bond portfolio from Executive Life. I am curious as to the Federal Reserve's status of any investigation it has undertaken relative to Credit Lyonnais's eligibility to operate in the United States, in particular, the potential approval of the Credit Agricultural acquisition of Credit Lyonnais, and whether the Fed, in fact, intends to grant the new entity a bank license for operation in the United States?
    Mr. GREENSPAN. Congressman, I am not clear on what particular discussions are confidential or not. And I would much prefer to answer you for the record on that, if I may.
    Mr. OSE. I would be happy to put it to you in writing.
    Madam chair, that is all I have. Thank you.
    Mrs. KELLY. Thank you.
    Ms. Velazquez.
    Ms. VELAZQUEZ. Thank you, Mrs. Chairman.
    And, Chairman Greenspan, I am having some difficulty in understanding your perspective on budget deficits. I heard your answer to Mr. Kanjorski where you say that we have to deal with expenditures. But, that is one part of the equation.
    What about the fact that during this economic situation that we are facing in our economy, and the fact that the money that we are spending in the war with Iraq, that we, this Administration passed a huge tax cut. Can you tell me, do you believe that our Nation will run long-term deficits if we continue to cut taxes in the future?
    Mr. GREENSPAN. Well, I have commented on that in the past. I would just merely stipulate that my general view is that over the long run, it is essential to run a fiscal policy which is stable, meaning, effectively that the level of debt to the public, as a ratio to GDP, tends to be relatively flat.
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    I have also stipulated that I do believe that tax cuts, properly constructed, can be a significant factor in long-term economic growth, but it obviously requires that if you cut taxes and maintain a viable long-term budget deficit or surplus policy, you have to address spending as well.
    And I have been most concerned that after having gained considerable control over spending a decade ago, we have allowed that to slip. And I think that that will be creating major problems for us in the future unless we turn it around, and I trust that the statement that will be forthcoming from the Office of Management and Budget I presume today, will address the longer term concerns that I have.
    Ms. VELAZQUEZ. What sort of long-term effects will these long-term deficits have on our economy?
    Mr. GREENSPAN. As I have indicated in testimony, back in April here, it is our view that changing long-term deficits do affect long-term interest rates. And accordingly, very substantial deficits projected, which are destabilizing—that is, create a rise in the level of debt relative to GDP—are also likely to be consistent with rising interest rates which would slow economic growth.
    Ms. VELAZQUEZ. Mr. Chairman, with the Federal funds rate at 1 percent, many have argued that the Federal Reserve's ability to conduct monetary policy is hindered. What other tools can the Fed use to conduct monetary policy?
    Mr. GREENSPAN. Well, as I have indicated previously, should we get to the point, and as I want to emphasize we don't expect that to happen, that we run out of conventional monetary policy which we define as addressing the overnight Federal funds rate, we still have fairly significant expansion capabilities for our monetary base, well beyond what we would do if our sole purpose was addressing overnight interest rates.
    And indeed there are numerous ways which I and my colleagues have discussed in various speeches and other fora in recent months.
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    Ms. VELAZQUEZ. What potential side effects are there of using these other policy tools?
    Mr. GREENSPAN. This is one of the issues which we focus on quite considerably. As I have indicated previously, our general evaluation is that inflation is exceptionally well controlled and extraordinarily unlikely, in our judgment, to create a problem in the future. The types of problems which would be created by those types of actions are all generally inflationary in nature, and that is not an issue which we perceived to be something which should be of concern to us at this stage.
    Ms. VELAZQUEZ. Thank you.
    Mrs. KELLY. Thank you.
    Ms. Biggert.
    Mrs. BIGGERT. Thank you, Madam Chairman. Mr. Chairman, I have two questions and a short period of time. First of all, I would like to ask your opinion about a matter that relates to the committee's efforts to permanently extend the Fair Credit Reporting preemptions. And the bill contains a provision that calls for a free credit report and another provision that calls for credit bureaus to provide credit scores and a summary of how the scores were derived as well as information as to how consumers can improve their credit score.
    As a policy matter, do you think—what do you think about the implications of federally mandating the free provision of products such as credit reports and credit scores?
    Mr. GREENSPAN. You mean to say that—to make available the credit scores?
    Mrs. BIGGERT. This is going to make them available, and the credit—the companies will have to provide these to consumers, at least one free. And this actually is somewhat of a mandate that we will be saying, that they should give their product free, at least one a year.
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    Mr. GREENSPAN. Yes. We have developed, in part with the technology which we have managed to create, a really quite major consumer credit market which enables individual institutions to fairly well evaluate the credit status of the people to whom they lend.
    That has enabled interest rates to borrowers to be lower and credit access to be greater than it otherwise would be. Part of that ability is the development of credit scoring models, which are usually proprietary to individual institutions, and obviously, they are costly to create and function.
    And while I can't comment on the individual cases with respect to what the form of the legislation would make those available to various different individual borrowers, I will say to you that it is very important for us to maintain a system which enables those models and those technologies to advance because if they don't, we are probably going to find that interest costs are likely to rise and the availability of credit, to the average consumer is likely to fall.
    So we have got a trade off here of trying to improve the system, make it more transparent, remove the mistakes which is crucial, but yet maintain the structure which enables those systems to function in an effective way and in a profitable way so that people will have the incentive to develop still more sophisticated credit-scoring models.
    Mrs. BIGGERT. Thank you. Then my second question, in the last week the Administration has proposed shifting how companies calculate pension liabilities from a single interest rate to a yield curve idea. And my question is, what do you see as the macroeconomic effect of these increased contributions? This would be where I think companies are concerned about having to make greater contributions to their defined benefit plans if the Administration's yield curve is used instead of the 30-year Treasury bond.
    Mr. GREENSPAN. Yes, it is the developments in defined benefit plans and their accounting and the procedures by which companies make or don't make contributions, which I must say, have gotten unduly complex and in my judgment, are capable of very significant improvement. The suggestions of the Secretary of the Treasury I think do advance the process and would create a superior system, especially after the two year hiatus, than the one we have today. But I do think it is something which probably is capable of quite significant improvement. In other words, a number of the things which FASB employs with the accounting and the IRS strike me as more complex than we need, and I suspect that part of the problem is that the technologies which enable us to do a far more sophisticated process of evaluating the liabilities of workers and the ways of defeasing of those liabilities, have improved measurably, and I think major advances are possible in this area and I hope we proceed to do so.
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    Mrs. BIGGERT. Thank you.
    Mrs. KELLY. Thank you, Mr. Chairman. The Chair will announce that the committee will stand in temporary recess pending these two votes, but that it intends to resume as quickly as possible after the votes. And we appreciate your patience, Mr. Greenspan.
    Mr. GREENSPAN. Thank you, Madam Chairman.
    Mrs. KELLY. The committee will come to order. We go now to Mr. Watt.
    Mr. WATT. Thank you, Madam chair. And Mr. Chairman, welcome. Let me deal with one thing quickly, I hope, and then ask you to comment on something that might take a little bit more time. On page 5 of your testimony, you, and you have said in general, that you think the tax cuts have been beneficial and stimulative. And on page 5 you say that most firms have likely implemented the lower withholding schedules that have been released by the Treasury and advance rebates of child tax credits are being mailed beginning later this month. I take it that you think those are stimulating the economy because they are getting right back into the economic flow, at least that is the short term stimulus that we were looking for?
    Mr. GREENSPAN. As I tried to indicate in my prepared remarks, Congressman, what they are in the process of doing is increasing disposal income.
    Mr. WATT. I take it then that the short term impact of that, the advance rebates and the child tax credits is to get money into people's hands quickly, they put it back into the economy, you are not looking so much at the longer term consequences, savings, investment, that is the stimulative impact that we are talking about.
    Mr. GREENSPAN. That is correct, sir.
    Mr. WATT. And would I then be correct in assuming that if we were to pass the balance of the refundable child tax credit and get that into the economy, you would think that would be consistent and stimulative also?
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    Mr. GREENSPAN. That would have very much the same effect.
    Mr. WATT. Yes. Okay. The prepared report that Mr. Frank has referred to a couple of times has an interesting comment on page 13, that I am wondering if you could comment a little bit more on the significance of. It says in addition, the change in the distribution of income in the late 1990s which concentrated more income in the upper tax bracket may have been reversed during the past couple of years. There is no elaboration on the significance of this, but there has been a lot of discussion about the growing disparity between rich and poor, and I assume this has something to do with that. How do we effectively, in your opinion, address this growing disparity between rich and poor? And is it important, from your vantage point, to try to address that growing disparity?
    Mr. GREENSPAN. Congressman, there was a very significant surge in the latter part of the 1990s owing to a combination of realized capital gains and very significant increases in income, and as a consequence of the exercise of stock options. Indeed, that is one of the reasons why Treasury receipts went up significantly and contributed to the surplus that we experienced. With the stock market turning down after mid 2000, that process went 180 degrees in the other direction. There has been a significant decline in realized capital gains. There has been a marked decline in the incomes engendered by exercise of stock options. And that of course, is disproportionately concentrated in the upper income groups, and as a consequence, the shift toward income inequality which was so evident in the latter part of the 1990s has turned around.
    Indeed the actual tax receipts now are relative to incomes exceptionally low. And one must presume that a goodly part of that is coming out of the upper income groups and the lower incomes there, but we won't have those data complete for probably another year or so to get a good judgment as to what has actually occurred in the distribution of income.
    With respect to your second question, it has been my view that the less the concentration of income in a society, the more stable it will tend to be. But if there is a significant endeavor on the part of government beyond, say, the tax system that we have, for example, to try to markedly alter the distribution of income, history does tell us that it is often counterproductive. So I think that what we ought to endeavor to do is to move toward as much an equality of income as we can coming from enhanced education, enhanced capabilities, and removal of discrimination where we can in order to balance skills and, therefore, incomes. I think we have a mixed record on that, but that doesn't mean we should stop trying.
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    Mr. WATT. Thank you, Madam Chairman.
    Mrs. KELLY. Mr. Green.
    Mr. GREEN. Thank you, Madam Chair. Mr. Chairman, you said earlier that there is a public debate over the value of manufacturing to our economy versus the service sector. Well, you are well known for your understatement. I think you could tell after that that a number of us feel very strongly that manufacturing is crucial, and I think you got a little flavor of that feeling in that debate. Assuming for the moment that manufacturing is crucial to our economic vitality in the long run, what economic policies, what monetary policies do you believe we should examine as we look for ways to add some energy to the manufacturing sector, to address some of the barriers that we believe are out there.
    Earlier on, it was alluded that many of us believe there are some problems with currency exchange rates. But what are some of the larger economic policies and monetary policies that we could examine that would help the manufacturing sector.
    Mr. GREENSPAN. Well, I think what we are doing in part is the right thing in that what we are trying to do is to concentrate in those areas of manufacturing which are growing fastest. They are essentially the high tech—I guess the proper word is ''marginally ephemeral'' parts of our manufacturing. As I have testified before this committee before, one of the most unusual things about our economy is that the weight of the GDP, and especially of manufacturing, is actually declining relative to the real value of what we turn out. In other words, we have got more economic value in a few pounds of high tech equipment than we will have, for example, with a ton of raw material of various different types. And what we have succeeded in doing in this country is that even though manufacturing as we measure it has been going gradually down relative to the economy as a whole, we have shifted our resources toward those most effective parts of manufacturing. And indeed, one is hard pressed today to find even in old line manufacturing establishments a lack of high tech equipment. You go into a textile weaving plant, and I used to go visit textile plants 50 years ago, and I know they are producing the same product, but I can assure you they are producing it very differently with far more technology and wholly different infrastructure of production.
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    And what we ought to be doing is more of the same. I don't think it requires incentives, but what it does require is a skilled workforce and an emphasis on meeting consumer demands, which are best met these days by employing a type of technology which virtually all of our manufacturers now, to a greater or lesser extent, are employing.
    Mr. GREEN. But you also indicated earlier, if you take a look and try to examine the value of manufacturing to our economy, there may be cases where depending upon the type of manufacturing, the type of goods that we are talking about, there may be a national interest in maintaining the vitality of that sector, nationality security reasons, for reasons of self-sufficiency. We have seen the energy sector, the costs are being dependent upon foreign sources of energy. Isn't it true that it would be in our interest, then, not to simply hope that the shift to high value manufacturing sectors doesn't completely coincide with our national interest? What about the other types of manufacturing? I understand what you are saying over the long haul, but——
    Mr. GREENSPAN. This is the reason, Congressman, I mentioned earlier that if we feel secure in importing from broad of types of goods that we used to produce here, then from an economic point of view, it is irrelevant whether we produce it here or abroad. But clearly, that is not the case in certain circumstances, and it obviously is not the case for national security. I wouldn't say, however, self-sufficiency per se is a value because that is indeed counter to the division of labor and globalization, which has been extraordinarily valuable to us.
    But national security is. And to the extent that there are national security issues involved, then for much the same reason that we have special programs in the Defense Department and our procurement policies in DOD which recognize that, one can make that argument. But I would not make it for self-sufficiency. I do think it is a valid argument for national security.
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    Mr. GREEN. Thank you. And thank you, Madam Chair.
    Mrs. KELLY. Mr. Sherman.
    Mr. SHERMAN. Mr. Chairman, thank you for coming before us again. I know that the 5-minutes rule will be strictly enforced so I would like to lay out a number of questions and invite you and your staff to submit responses for the record, and maybe one or two of them will be worthy of an oral response.
    You talked about a quote, ''inflation rate'' being too low. And I know that in prior testimony to us maybe 3, 4 years ago, actually to the Budget Committee, you put forward the idea that the CPI overstates the rate of inflation by between half a point and 1-1/2 points. So I hope you would respond, for the record, and say okay with the CPI as our measure of inflation with all its flaws, but as to CPI measured inflation, what is the Fed's target rate of inflation, or what would be the best CPI measured inflation rate for us to have?
    Mr. GREENSPAN. I know there has been fears of deflation, and one way to deal with that to cut the Fed discount rate, but you are down to about 100 basis point of cutting left, maximum. So some of my constituents have asked what are the legal—well, they don't phrase it this way, but what are the legal and practical opportunities or impediments to simply printing more green backs and earning some signer and for the Fed and ultimately for the Federal Government?
    Mr. GREENSPAN. The lead story today is $450 billion deficit and we have had several exchanges in which you have talked about a world in which tax cuts are good because they lead to spending cuts. I look forward——
    Mr. GREENSPAN. I don't remember making that statement, Congressman.
    Mr. SHERMAN. Ah. Let's put it this way: You were not condemning tax cuts, but you believed in a reduced budget deficit—you were against deficits but you weren't against tax cuts.
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    Mr. GREENSPAN. I am in favor of economic growth, and I do believe that over the long run, certain types of tax cuts do enhance economic growth.
    Mr. SHERMAN. Even if appropriations are fixed, and so those tax cuts do lead, at least in the scoring and in their initial impact, to an increased deficit?
    Mr. GREENSPAN. No. If they increase the long-term deficits, as I believe I testified before this committee in April, interest rates would rise and very likely limit, if not considerably diminish, any growth that might be achieved.
    Mr. SHERMAN. Well, do you know of any tax cut that does not increase the deficit, assuming spending remain fixed, assuming the majority party doesn't have us spend money today, except on the necessities? If spending is fixed, is there any tax cut that is good when a country is——
    Mr. GREENSPAN. You mean to say is there a tax cut which pays for itself?
    Mr. SHERMAN. Yes.
    Mr. GREENSPAN. I doubt it.
    Mr. SHERMAN. So if you oppose deficits and if appropriation—if appropriations and spending aren't going to decline, it is hard to find a tax cut that you would support?
    Mr. GREENSPAN. I would prefer to find the situation in which spending was constrained, the economy was growing, and that tax cuts were capable of being initiated without creating fiscal problems.
    Mr. SHERMAN. I would prefer to find a world in which Julia Roberts was calling me, but that is unlikely to occur. I want to focus, though, on the trade.
    Mr. GREENSPAN. She might now.
    Mr. SHERMAN. I think we are about equal likely. As long as we are at equal likelihoods, we are running a $35 billion trade deficit every month. We have talked about this several years in a row. Imagine the Rip van Winkle disease afflicts you and you do go to sleep and wake up 15 years later. Which would shock you more, waking up in an America that had just continued to run a $15 billion-a-month trade deficit, 400 billion a year, just things pretty much run for another 15 years the way they have now, or would you be more surprised to learn that the dollar had declined significantly in value 40, 50 cents to the euro? Which of these two scenarios would surprise you more 15 years from now, a decline in the dollar of significant magnitude or a month-after-month continuation of our trade deficit with everybody happy?
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    Mr. SHERMAN. Thank you, Madam Chair.
    Mrs. KELLY. Would you like to submit that?
    Mr. SHERMAN. I would like to submit that for the record. I have no further comment. I don't know if the Chairman does.
    Mrs. KELLY. Well, I have one comment to make and that is representing the district where Rip van Winkle was, I want to tell you we are very appreciative of your mentioning us today. Thank you very much.
    We go now to Mr. Kennedy.
    Mr. KENNEDY. Thank you Madam Chairman, and thank you, Mr. Chairman for being here. My question deals with, in your opening testimony, you talked about the advantages of having households stretch out their maturities by paying off their credit debt and putting that on debt that is longer term. You also mentioned that firms were doing that as well. A key concern I have at a time period where we do have deficits projected, and we do have significantly lower rates than we have experienced recently, is this a time for us to consider bringing back a 30-year Treasury bond and moving towards more of a longer maturity for the governments, just as you mentioned its positives that households and businesses have?
    Mr. GREENSPAN. This is an issue which Treasury always has under consideration. And there are pros and cons to that. I am conflicted at this particular stage. And I would like to hear the arguments that Treasury is going to be bringing up with respect to that issue at some point. They do it on a continuing basis in the sense of reviewing what the distribution their issuance should be and at what maturity. There are pros to bringing the 30-year back but there is a serious question of whether it is desirable. And frankly, I have not myself come to a conclusion on that.
    Mr. KENNEDY. I appreciate that, and I know from the risk protection perspective of an increasing interest rate environment certainly would put our budget in a stronger position. I think we should consider that. I just want to go back to the currency discussion and do it from a little bit different angle. That has to do, you mentioned foreign economies and their effect on our economic growth. We obviously have a significant current account deficit. What type of scenarios would the changes in say, Asian currencies have on the growth of the European economy and their ability to benefit us as well as our ability to get our current accounts more back in line?
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    Mr. GREENSPAN. Well, it is fairly apparent that the emerging economies of east Asia have been the dynamic elements in everyone's trade balances. It is clear that, from the United States' point of view because of the fact that we have a much higher propensity to import relative to our incomes than our trading partners do, we tend to chronically go toward trade deficits in the sense that if all economies rose at the same rate, because of the disparity that we have with respect to our propensity to import, we would create a trade deficit which would be increasing through time matched obviously by equivalent trade surpluses in other economies.
    So the critical question is not only what happens to exchange rates and not only what happens to various growth rates in these various different regions, but what are changing propensities to import relative to incomes and they are very difficult to project. So all I can suggest is that the less restrictions that exist on trade in both goods and services, the better we all are because there is no doubt in my mind, looking at the advantages of globalization over the last 30, 40 years, that we have all appreciably gained in standards of living owing to the successive reduction in tariffs and the opening up of trade barriers.
    And indeed I would argue that we in the United States have been the greatest beneficiaries of the most—of those changes. We have benefited more than anybody else. And therefore, I am very much strongly supportive of continuing the opening up of trade, which we have always been in the fore-front of, and I look forward to increased globalization which I think will be assisting all people with whom we trade but especially ourselves.
    Mr. KENNEDY. Would this propensity to import more than others can we have a dollar policy that ultimately does allow the current account to get back in balance at the same time that we have rising economic growth?
    Mrs. KELLY. Mr. Kennedy, I would like to ask if you would submit that in writing. Mr. Greenspan has little time. We have agreed to let Mr. Greenspan go because he has things he must do at 1:00. If you would indulge, sir, with a few more minutes of your time, I would like to try to get a few more people who have been waiting patiently to speak. But I would ask members to please keep your questions short and we will try to fit as many of you in as we can. With that we go to you Mr. Meeks.
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    [Chairman Greenspan subsequently provided the following response for the record.]
[The Treasury Secretary speaks on U.S. dollar policy. Over the long term, the U.S. current account deficit may well have to adjust, although when or how is by no means a certainty. The only thing that is clear is that it cannot keep expanding relative to the size of the economy indefinitely. Change in the foreign exchange value of the dollar are just one mechanism for adjustment; another key mechanism is stronger growth abroad.
I think the main insight with regard to the current account balance and economic growth is the importance of sound fundamental policies aimed at achieving the maximum sustainable economic growth rate. Within a sound fundamental policy framework, the value of the dollar and the level of the current account are determined by the operation of markets based on the opportunities and preferences of individual consumers and investors.]
    Mr. MEEKS. Thank you, Madam Chair. Thank you, Mr. Chairman for being here. I will try to do just that. In fact, I will ask two questions and maybe leave one for you to answer on the record later. Previously you came before the committee, we talked about the war, pre war, we talked about how long we would be in Iraq, and what it would cost the economy, et cetera. We now know that you know, despite what I see that is in your statement that we are indefinite, if you listen to some of our Department of Defense, you say we will be there 4 to 5 years, costing is now $4 billion a month and going up with the tax deficit.
    So it seems to me that literally, I don't claim to be an economist, but the little bit that I learned is that the greater the deficit, the more pressure that it puts on interest rates. And our deficits are now just mounting and mounting and mounting, and also there your testimony seeing that the only thing that has kept us afloat really has been the fact that we have had lower interest rates as far as mortgages are concerned, et cetera.
    Do you—my first question is, do you foresee a time where that pressure meets and interest rates will soon have to go up, thereby stemming that part of our economy that has kept us afloat? And so that is the first question. Do you see that happening? Do you see it happening any time in the near future?
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    And my second question, basically, is an offshoot of what Mr. Sherman had asked, you know I have been talking to a number of foreign countries, and it seems to me as though the Euro is growing in strength. And looking at these countries, they are looking to maintain their Euros for their foreign currency accounts in place of a percentage of the dollars. I am interested in this from your perspective. Some say that is good, some say that is bad. Is the result in the decrease in the dollar strength more beneficial to our economy due to the potential rise in exports, or might it eventually challenge the stability and reliability of our dollar?
    Mr. GREENSPAN. Well, first with respect to the deficits and interest rates there is a relationship there. But it is long term and it is not something which is on the immediate horizon. What is on the horizon is not yet the period, say, 2011, 12, 13 when we begin to see the major change in the retirement of the baby boomers and a very large pressure on the deficit. It is when that gets on the five-year horizon that history tells us it begins to probably impact on rates. It is something we should keep in mind and not keep leaving for another day because it will come up and get us. But now I would say probably not because one must presume that the current deficits are short term, and if normal extensions of programs are projected out, that deficit should be coming down as a percent of the GDP.
    With respect to the current account, as I said before, there is a long history of financing of this, and I think I have said about as much as I can say without getting into the exchange rate issue, which I find a little bothersome, in other words, to comment on the Euro, I can't. I can say this though with respect to your remarks relative to the distribution of currencies: there is no real strong evidence that there has been significant shift out of the dollar into Euros. I think there probably has been some percentage, but not a large run against the dollar. Indeed, if anything, central banks, in an endeavor to support their own currency vis-a-vis the dollar, have been reasonably heavy purchasers of American dollar instruments, and that is showing up in the stock of assets of the central banks.
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    But there is no question that the complexity of what determines exchange rates and the allocation of assets is something we don't know as much about as we should. These markets are very complex, and a lot of them work in a very effective way without full knowledge on our part of exactly how they are doing that. There is an invisible hand here, which is obviously working to our advantage, but it is very frustrating because we can't figure out exactly how it is doing it.
    Mrs. KELLY. Thank you very much Mr. Chairman. I thought perhaps we could extend this to 1:15. If that is the case, we have 4 minutes.
    Mr. GREENSPAN. I can do that.
    Mrs. KELLY. Is that possible?
    Mr. GREENSPAN. Yes.
    Mrs. KELLY. Thank you. We have four people here. We have 10 minutes. If you ask one question please do it and then get on with it. Because you can certainly submit any further questions.
    Mr. SHAYS. I will take 3 minutes. Cut me off in 3 minutes, but I have more than one question. Capital terms, long term, short term, you favor two separate tiers. Is it conceivable to move that short term down from a year to six months? Would that be good or bad?
    Mr. GREENSPAN. I have always thought that capital gains taxation, as you probably remember, was not something which I thought was very effective taxation for capital formation. So if you can move the short term from a year to 6 months in that context, I would think that would be a desirable thing to do.
    Mr. SHAYS. The Treasury and the Federal Reserve is looking at allowing banks to get into real estate. Is this a positive thing or somewhat dangerous, and would you have concern that they are kind of getting into an economic transaction that they shouldn't be?
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    Mr. GREENSPAN. Well, as you know, the Federal Reserve has been looking somewhat favorably on the issue of increased competition in real estate brokerage and believes that commercial banking would create that. I am aware, however, that economics is not the sole criteria in determining that decision.
    Mr. SHAYS. One last area, I voted for free trade with China. I believe in free trade. I don't think you can repeal the law of gravity. But I am concerned that China has basically gotten into value-added type manufacturing. I thought it would be the cheap stuff. And with regard to their currency, I am told by our manufacturers it is 30 to 40 percent overvalued—undervalued. If one, do you agree? And two, what kind of effort should we make to try to have them have a floating system that would more reflect the true value.
    Mr. GREENSPAN. Well, remember it is to our advantage for the Chinese economy to enter into the global system. It will be of huge advantage to the United States for even noneconomic reasons. And they are doing that. And there is a good deal more free trade and emerging property rights. If the exchange rate is significantly undervalued, and indeed a reflection of that would be, for example, their accumulation of dollar assets, if that is indeed the case, the accumulation of dollar assets will expand their money supply to a point which will create problems in managing monetary policy and it will be in their interest to change.
    Mr. SHAYS. Thank you. Madam Chairman, thank you for how have you conducted these meetings.
    Mrs. KELLY. Thank you.
    Mr. Moore.
    Mr. MOORE. Thank you, Madam Chairwoman. Chairman Greenspan, can we tax cut our way out of this sluggish economy?
    Mr. GREENSPAN. There is no question that the tax cuts which are in place this month have been helpful. Can you tax cut a moribund economy? I doubt it. In other words, if an economy is truly moribund——
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    Mr. MOORE. I am talking about this economy.
    Mr. GREENSPAN. As I have said in my prepared remarks, we believe that we are at a turning point and that our best judgment is that things will be improving. So I wouldn't accept the view that it is a moribund economy. Obviously, the type of tax cuts that are in train at this particular moment will add to expansion if it is underway. So in that regard, is it helping? Yes, I think it is helping.
    Mr. MOORE. My real question is will tax cuts by Congress in the next 6 months to 18 months have an appreciable effect on turning around this economy, additional tax cuts?
    Mr. GREENSPAN. It depends on the type of tax cuts and the timing and the extent that they affect the deficit.
    Mrs. KELLY. Mr. Manzullo.
    Mr. MANZULLO. Thank you, Madam Chairman. Mr. Chairman, the National Association for Manufacturers in its white paper released 6 weeks ago made this statement: ''if the U.S. manufacturing base continues to shrink at its present rate and the critical mass is lost, the manufacturing innovation process will shift to other global centers. Once that happens, a decline in U.S. living standards in the future is virtually assured.'' Chinese manufacturing sector grew at 16.9 percent this past year. Their exports are up 32.6 percent. We have lost nearly 3 million manufacturing jobs at the rate of 54,000 a month for at least the past 34 months. The Congressional district I represent led the Nation in unemployment in 1981 at 25 percent. We are now at 11 percent, but because of a huge manufacturing sector. Could you comment on that statement by the NAM?
    Mr. GREENSPAN. I think it is incorrect. There are difficulties when you get fast adjustments in structures within an economy. But we have been having a gradual decline in the intensity of manufacturing production in this country for many years. When I first started out as an economic assistant back in the late 1940s, manufacturing was the U.S. economic bulwark. We went through the 1990s with significant losses, and yet we had an unemployment rate under 4 percent. Jobs do get created, they do not get created in manufacturing.
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    Mr. MANZULLO. Where have they been created?
    Mr. GREENSPAN. They have been created in a vast variety of service industries. And obviously, we are not under 4 percent, now we are 6.4 percent. What I am trying to say is over the long run, the population shifts, and in the United States, it has been increasingly toward high tech activities whether in the service area, software, computer servicing and the like, or in high tech manufacturing, which has been growing quite significantly. I do not deny that some of the very impressive major old line technologies, which we in this country essentially developed, are sharply reduced.
    Mr. MANZULLO. They are gone. And even in the engineering jobs associated with manufacturing, those are gone too. Very quickly.
    Mr. GREENSPAN. No, but that is in the nature of a dynamic economy, and we do have a dynamic economy.
    Mr. MANZULLO. The dynamic economy has gone down the tubes, a recovery without jobs, especially if you lived in my district.
    Mr. GREENSPAN. That is a valid statement. I would say if it continued that way, I would find that distressing. I don't believe it will happen though.
    Mr. MANZULLO. Roger Ferguson came out to our district to experience machine oil on his hands. Would you like to come out?
    Mrs. KELLY. Mr. Manzullo, if you would submit that in writing, we would appreciate that.
    Mr. MANZULLO. Just yes or no, but I will send the invitation. Thank you. Thank you, Madam Chairman.
    Mrs. KELLY. Mr. Ford.
    Mr. FORD. What can we in the Congress do to help stipulate employment? Clearly, that is the theme of the day on both sides of the aisle. What would you recommend we do?
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    Mr. GREENSPAN. I would say that the major thing to create employment in this country is to get economic growth. And over the years, what to me has been the most effective thing that created growth in this country is in the last quarter century——
    Mr. FORD. From a policy standpoint I agree sir. What can we do? I have only about 45 seconds and I have one last point. Just what can we do from here to the end of this session of Congress?
    Mr. GREENSPAN. So far as what can be done in the short run, I think it has already been done, and it is in train and it is presumably hopefully starting to work. Over the longer run, I would look at trying to find more ways to deregulate certain aspects of the technology industry and other aspects of the economy, which I think are bottlenecks in the creation of jobs.
    Mr. FORD. One of the things that I asked you over and over again is the predicament that States find themselves in. Do you think at some point it may be necessary, in light of the number of States that are cutting services and raising taxes, some States even releasing prisoners to meet budget shortfalls that we may have to provide some kind of relief package for the States? And, if so, when might you believe that is necessary?
    Mr. GREENSPAN. That is a decision on priorities which the Congress has to make. It is an issue which——
    Mr. FORD. State budget problems affecting the ability for the economy to grow?
    Mr. GREENSPAN. Well, the answer is yes. The contraction in budgets, the increase in not deficits but the equivalent in the State and local area has been negative for economic growth. There is no question about that. It is likely to be negative in the next year as well.
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    Mr. FORD. As I close out, Madam Chair, I would like to submit to the record a unanimous consent request to enter into the record about 30 articles from across the country indicating the steep cuts that are being made by governors and tax increases. And I know there have been points here we have to balance our budget by cutting expenses. And the follow up question to you, when do spending cuts begin to affect economic growth in a detrimental way?
    I would love to get your thoughts on that at some point. Thank you for coming. Thank you Madam Chair for allotting us all time to ask questions.
    Mrs. KELLY. Without objection but I would like to discuss with the gentlemen about whether or not they all need to be inserted into the record.
    Mrs. KELLY. And with that caveat, so moved. We thank you Mr. Greenspan, Chairman Greenspan. We do thank you for your insights that you have offered us today and for your great indulgence. This committee now stands adjourned.
    [Whereupon, at 1:17 p.m., the committee was adjourned.]