[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
FORMER FEDERAL RESERVE CHAIRS
ON RESPONDING TO OUR NATION'S
ECONOMIC CRISIS
=======================================================================
HEARING
BEFORE THE
SELECT SUBCOMMITTEE ON THE CORONAVIRUS CRISIS
OF THE
COMMITTEE ON OVERSIGHT AND REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
JULY 17, 2020
__________
Serial No. 116-103
__________
Printed for the use of the Committee on Oversight and Reform
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available on: govinfo.gov,
oversight.house.gov or
docs.house.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
41-894 PDF WASHINGTON : 2020
--------------------------------------------------------------------------------------
COMMITTEE ON OVERSIGHT AND REFORM
CAROLYN B. MALONEY, New York, Chairwoman
Eleanor Holmes Norton, District of James Comer, Kentucky, Ranking
Columbia Minority Member
Wm. Lacy Clay, Missouri Jim Jordan, Ohio
Stephen F. Lynch, Massachusetts Paul A. Gosar, Arizona
Jim Cooper, Tennessee Virginia Foxx, North Carolina
Gerald E. Connolly, Virginia Thomas Massie, Kentucky
Raja Krishnamoorthi, Illinois Jody B. Hice, Georgia
Jamie Raskin, Maryland Glenn Grothman, Wisconsin
Harley Rouda, California Gary Palmer, Alabama
Ro Khanna, California Michael Cloud, Texas
Kweisi Mfume, Maryland Bob Gibbs, Ohio
Debbie Wasserman Schultz, Florida Clay Higgins, Louisiana
John P. Sarbanes, Maryland Ralph Norman, South Carolina
Peter Welch, Vermont Chip Roy, Texas
Jackie Speier, California Carol D. Miller, West Virginia
Robin L. Kelly, Illinois Mark E. Green, Tennessee
Mark DeSaulnier, California Kelly Armstrong, North Dakota
Brenda L. Lawrence, Michigan W. Gregory Steube, Florida
Stacey E. Plaskett, Virgin Islands Fred Keller, Pennsylvania
Jimmy Gomez, California
Alexandria Ocasio-Cortez, New York
Ayanna Pressley, Massachusetts
Rashida Tlaib, Michigan
Katie Porter, California
David Hickton, Select Subcommittee Staff Director
Russ Anello, Chief Counsel
Senam Okpattah, Clerk
Contact Number: 202-225-5051
Christopher Hixon, Minority Staff Director
------
Select Subcommittee On The Coronavirus Crisis
James E. Clyburn, South Carolina, Chairman
Maxine Waters, California Steve Scalise, Louisiana, Ranking
Carolyn B. Maloney, New York Minority Member
Nydia M. Velazquez, New York Jim Jordan, Ohio
Bill Foster, Illinois Blaine Luetkemeyer, Missouri
Jamie Raskin, Maryland Jackie Walorski, Indiana
Andy Kim, New Jersey Mark E. Green, Tennessee
C O N T E N T S
----------
Page
Hearing held on July 17, 2020.................................... 1
Witnesses
The Honorable Janet Yellen, Distinguished Fellow in Residence,
The Brookings Institution Former Chair, Board of Governors of
the Federal Reserve (2014-2018)
Oral Statement................................................... 7
The Honorable Ben Bernanke, Distinguished Fellow in Residence,
The Brookings Institution, Former Chair, Board of Governors of
the Federal Reserve (2006-2014)
Oral Statement................................................... 8
Written opening statements and the written statements of the
witnesses are available on the U.S. House of Representatives
Document Repository at: docs.house.gov.
Index of Documents
----------
Documents entered into the record during this hearing and
Questions for the Record (QFR's) are listed below/available at:
docs.house.gov.
* National Academies Report on School Reopenings, article;
submitted by Rep. Scalise.
* American Academy of Pediatrics Guidance, article; submitted
by Rep. Scalise.
* Questions for the Record: to Dr. Yellen; submitted by Rep.
Green.
* Questions for the Record: to Dr. Bernanke; submitted by Rep.
Green.
FORMER FEDERAL RESERVE CHAIRS
ON RESPONDING TO OUR NATION'S
ECONOMIC CRISIS
----------
Friday, July 17, 2020
House of Representatives
Select Subcommittee on the Coronavirus Crisis
Committee on Oversight and Reform
Washington, D.C.
The subcommittee met, pursuant to notice, at 12:38 p.m.,
via WebEx, Hon. James E. Clyburn (chairman of the subcommittee)
presiding.
Present: Representatives Clyburn, Waters, Maloney,
Velazquez, Foster, Raskin, Kim, Scalise, Jordan, Luetkemeyer,
Walorski, and Green.
Chairman Clyburn. Good afternoon. The committee will come
to order.
Without objection, the chair is authorized to declare a
recess of the committee at any time. I now recognize myself for
an opening statement.
Today, the Select Subcommittee is pleased to welcome our
distinguished panel, Dr. Ben Bernanke and Dr. Janet Yellen.
Dr. Bernanke was appointed chair of the Federal Reserve by
President George W. Bush in 2006 and oversaw the Federal
Reserve's response to the global financial crisis. Before his
tenure as Fed chair, Dr. Bernanke served as chair of President
Bush's Council of Economic Advisors.
Dr. Yellen served as vice chair of the Federal Reserve
until 2010 to 2014 before being appointed chair in 2014 by
President Barack Obama. Dr. Yellen also previously served in
the White House as chair of the Council of Economic Advisors.
This is the first time that either Dr. Bernanke or Dr.
Yellen has testified before Congress since stepping down from
the Federal Reserve. These extraordinary times require Congress
to seek out advice for experts with extraordinary experiences.
As Congress works to end this economic crisis and enable
the strong recovery, we are fortunate to benefit from their
individual insights and gain from their unique position as
Federal Reserve chairs than the last economic crisis and
recovery. I want to thank both of them for agreeing to testify
today.
Six months into this crisis, the coronavirus pandemic
continues to spiral out of control. Today, over 3 million
Americans have tested positive for the virus, including a
record-breaking 75,600 confirmed yesterday. And more than
140,000 Americans have died, far more than any other country.
This administration has not only failed to fix the problem,
it has made things worse. The White House pushed states to
reopen without a plan to keep everyone safe. As a result, we
have new epicenters in Florida, Arizona, Texas, and here in my
home state of South Carolina. Florida's per capita infection is
now 20 percent higher than New York's was at the peak of the
outbreak in April. And now the administration is undermining
its own public health experts in the rush to reopen schools
again without a plan.
Our Nation's unemployment is at a historic high. According
to recent estimates, nearly 33 million Americans are collecting
unemployment benefits. Just last week, several Federal Reserve
officials expressed alarm that the country's modest recovery is
quote, ``starting to level off.''
This economic crisis has been especially damaging to
communities of color, who as our witness recently wrote or
quoted, ``burying a greater fear of COVID-19 deaths and also
face higher rates of unemployment than their White
counterparts.''
So, the question for today's hearing is, what can we do
about it? First, we cannot address our economic woes until we
first address the urgent public health crisis. It is far past
time for the White House to take responsibility for others'
crisis and provide the much-needed Federal leadership and a
clear national strategy to fight this pandemic.
Second, the Federal Reserve and Treasury must act quickly
to use the authority and funding Congress provided to help
America's families. This is an unprecedented crisis that
requires an unprecedented response. While the Fed has taken
significant steps to show up credit markets and protect big
businesses, it has done less to protect workers. In fact, the
Fed's primary mechanism to protect jobs, the Main Street
Lending Program, has struggled to get off the ground.
The Fed should do more to ensure the Main Street Lending
Program is accessible for the small businesses who most need it
and deserve this assistance and to protect the workers this
program was designed to help.
Third, the White House must work with Congress to act
boldly and decisively to prevent an economic catastrophe.
American families and small businesses cannot wait any longer
for relief. Congress must pass another economic recovery
package that includes support for low-wage workers and the
unemployed, new assistance to states and localities, and
programs that invest in public health. On May 15, more than two
months ago, the House passed the HEROES Act to do exactly that.
I urge my colleagues in the Senate to end the delays and pass
this vital legislation.
I would also like to address one final point. After we
announced this hearing, my Republican colleagues suggested we
add a witness who is not a Federal Reserve chair or a former
Federal Reserve chair. Now, I have accepted every other witness
my Republican colleagues have proposed, and I think it has been
five thus far. And I look forward to hearing from this proposed
witness at a future date.
But, today, my goal is to hear from the unique insights
from Chair Bernanke and Chair Yellen on their efforts to help
our Nation recover from the 2008 financial crisis as leaders of
the Fed.
For example, Dr. Bernanke has stated, and I quote, ``The
initial 2009 fiscal program was perhaps not adequately sized
given the size of the problem. We must not make that same
mistake again.''
Our witnesses today serve honorably under Presidents of
both parties. I am hopeful that all my colleagues will
participate in this hearing in a bipartisan manner and help us
search for solutions to benefit the American people.
The chair now recognizes the distinguished ranking member
for his opening statement.
Mr. Scalise. I thank you, Mr. Chairman. And I want to thank
our witnesses for appearing before the subcommittee as well.
They both have distinguished careers and can offer some
important insights on the hearing about responding to our
Nation's economic crisis, which is today's topic.
But with due respect, Mr. Chairman, both of today's
witnesses were selected by the majority. And I know you and I
spoke about this, but I requested as Rule 11 of the House of
Representatives actually requires that the minority get to also
have a witness, so that the Select Committee can hear from a
diversity of perspectives.
Whether people are from different parties, if they are both
bringing a similar perspective on an issue, that is not the
intention of the House rules, which is why I asked for a
witness as well, and somebody who is widely regarded as an
expert on the economy.
He has testified before Congress dozens of times. In fact,
he was a former head of the Congressional Budget Office. He is
the person tasked to inform us, Congress, on understanding
budget and economic impacts of policy decisions.
So, Mr. Chairman, I know you denied that witness, we talked
about it, but because of that decision, we are also being
denied the diversity of opinion that we should be getting on
today's topic. We should all request and seek that the House
rules, as they require, welcome that diversity of opinion,
which is why both parties are allowed to invite witnesses to
provide us with pertinent testimony. That was denied today to
us at this hearing, unfortunately, and it hinders our ability
it get all of the facts.
But with that, Mr. Chairman, pursuant to Clause 2(j)1 of
Rule 11, I am requesting that we get what we are allowed under
the rules on that, as a minority date of hearing under this
subject.
The Rules require it. They were not followed in the request
that we made. It doesn't allow the chair to select both a
Republican and Democrat. It allows the chair to select
witnesses, but it also allows the minority to be able to submit
a witness. We did that. It was denied.
So, in lieu of that, the rules require that we are able to
have a minority day of hearing. I just wanted to invoke that,
Mr. Chairman. I know you and I can, our staffs can work through
that. But as a point of order, I did want to bring that up, Mr.
Chairman.
Why don't we now talk about the state of the economy----
Chairman Clyburn. Gentleman, I want interrupt you for a
moment.
Mr. Scalise [continuing]. I will recognize you on that
point of order.
Chairman Clyburn. Well, thank you very much. I understand
that you have submitted the letter. I have received the letter,
and I will take it under advisement. I will commit to you today
that I will consider your request in accordance with the House
rules. In fact, as I understand it, that one of the witnesses
that you have requested already appeared before this committee
just last month.
With that, I would yield back and thank you, and I feel
that you and I will be able to deal with this in an amicable
manner.
Mr. Scalise. Thank you, Mr. Chairman. I am confident we
will be able to work through this as well.
Now, why don't we talk about the economy. The unemployment
rate in February was 3.5 percent. That is the lowest in over 50
years. The unemployment rate for African Americans and
Hispanics was the lowest in recorded history of this country.
Hourly wages were growing at the fastest pace we have seen in
over a decade. America was experiencing the hottest economy we
have ever seen, and every segment of our country was reaping
those benefits.
And then a global pandemic hit our shores. China lied and
hid the truth about it. The organization that the world looks
to for medical expertise and guidance in a pandemic, the World
Health Organization, was corruptly complicit in actually
regurgitating China's lies. America got hit hard, and it got
hit fast like the rest of the world did in this global
pandemic. The worst we have seen in over 100 years.
Immediately, America came together to fight the invisible
enemy and to prevent our hospitals from being overwhelmed, and
we did so without knowing nearly as much as we do today by this
unique destructive virus. All we could really do was shut down
and put the largest most prosperous economy in human history on
pause. The pause was necessary, but it came at a staggering
cost from lowest unemployment in almost 50 years to now over 40
million jobs lost.
Income inequality was made worse. Forty percent of people
making less than $40,000 were laid off. Children lost
irretrievable months of in-school learning. Vaccinations
plummeted. Progress on the opioid crisis that we made working
together was reversed. What America must now decide is whether
those losses are going to be short-term costs, or will they be
long term irrevocable damage?
I proudly supported the CARES Act. In fact, virtually all
Members of Congress did. And there are some important
structural building blocks for recovery in that legislation. We
already know about PPP, and we have had hearings on the
tremendous success that did in saving millions of jobs. But we
put billions of dollars in place for PPE to protect our
frontline healthcare workers. We put billions in place for
testing for the development of therapies and ultimately a
vaccine.
But let's be honest about the relief portion of the CARES
Act, what we did was float the U.S. economy with borrowed money
to temporarily compensate for shutting it down. The question
before us today is knowing now what we know about the
unintended cost of the shutdown, should we continue to extend
it, or instead focus on the building blocks of long-term
sustainable and equitable recovery.
A few key principals in shared goals should guide us in
this direction. Federal policy should reward and support
America's workers. Educating our children safely in the
classroom is a paramount responsibility. It is not just a goal,
it is something we have to achieve.
Federal policy should accelerate innovation and research
and manufacturing here in the United States. And only a healthy
and growing economy can support long-term sustainable and
equitable prosperity.
With that, all Americans are concerned about the continued
spread of the virus, and all Americans have a role and a
responsibility in helping to slow the spread, as we are all
wearing masks when we are out in public.
But let's also acknowledge some key developments. The death
rate continues to fall because we are doing better protecting
our most vulnerable population and improving the treatment of
COVID patients. President Trump's Operation Warp Speed is
showing great promise, including this week's remarkable
announcement of promising results from vaccine trials. Testing
capacity and PPE production continue to ramp up. Red tape is
being cut, and this progress can give hope to all of us who
want to end this pandemic.
America must continue to forge ahead with this can-do
attitude and find practical solutions to the challenges that
must be solved, beginning with safely reopening our schools.
Earlier this week, Vice President Pence brought his task
force down to Louisiana--and I had the honor of spending the
day with him, along with our governor who happens to be a
Democrat--talking with school officials, public health experts,
and even Coach Orgeron about the importance of getting kids
back to school and how to do it safely.
Dr. Birx, by the way, who is the White House coordinator,
coronavirus response coordinator and a respected medical
official was there and talking about how you can safely reopen.
Our attitude has to be, how to do it, not whether you can do
it, clearly, it can be done.
Children need to get back to school and continue their
education. For many children, the time lost will never be made
up. Children's health will improve and schools reopen.
Vaccinations will increase. Child nutrition for our most
vulnerable will improve.
The American Academy of Pediatrics, Mr. Chairman, issued an
important report, which among other things, quote, ``strongly
advocates that all policy consideration for the coming school
year should start with a goal of having students physically
present.'' The report goes on to say, quote, ``the importance
of in-person learning is well-documented, and there is already
evidence of the negative impacts on children because of school
closures in the spring.''
I would hope that we would be focused on the damage to
students of not reopening as we put our efforts behind how to
safely reopen.
Mr. Chairman, I would like to ask unanimous consent that
this report by the American Academy of Pediatrics be entered
into the record.
If there is any objection, but I did want to make that
request----
Chairman Clyburn. The gentleman has a right to object,
though, I do not intend to object.
Mr. Scalise. We will provide you with this report by the
Academy of Pediatrics.
Chairman Clyburn. OK.
Mr. Scalise. And I would ask that it be included if there
is no objection.
Chairman Clyburn. Without objection.
Mr. Scalise. To conclude, Mr. Chairman, thank you.
School reopening also helps the economy because parents can
more readily get back to work. We should resolve that no
business in America ever again has to compete with a Federal
policy that makes unemployment relief pay better than actually
going back to work.
Small business after small business has told me their
biggest obstacle of reopening right now is getting their
workers to come back because the temporary bonus unemployment
check in many cases pays more than the actual salary. This
policy needs to stop.
While some in Washington want to continue the shutdown with
the Federal Government continue floating the economy and have
the Federal Reserve just keep printing more money, that is not
a path to prosperity. We have faced big challenges throughout
America's history.
America put a man on a Moon. For goodness sake, we can
surely reopen our schools and safely rebuild our economy. Let's
rise to this challenge.
I yield back the balance of my time, Mr. Chairman.
Chairman Clyburn. I thank the ranking member for his
opening statement.
Now, I would like to introduce our witnesses. The Honorable
Ben Bernanke is a distinguished fellow in residence at the
Brookings Institution and served as chair of the Board of
Governors of Federal Reserve from 2006 to 2014.
The Honorable Janet Yellen is also a distinguished fellow
in residence at the Brookings Institution and served as chair
of the Board of Governors of the Federal Reserve from 2014 to
2018.
The witnesses will be unmuted so we can swear them in.
Please raise your right hands.
Do you swear or affirm that the testimony you are about to
give is the truth, the whole truth, and nothing but the truth,
so help you God?
Ms. Yellen. I do.
Mr. Bernanke. I do.
Chairman Clyburn. Let the record show that the witnesses
answered in the affirmative.
Thank you. Without objection, your joint written statements
will be made part of the record. With that, Chair Bernanke, you
are now recognized to provide your testimony.
Mr. Bernanke. Mr. Chairman, could I defer to Dr. Yellen to
go first?
Chairman Clyburn. Yes.
Mr. Bernanke. We coordinated our comments.
Chairman Clyburn. Very well. The chair now recognizes Dr.
Yellen.
STATEMENT OF THE HONORABLE JANET YELLEN, DISTINGUISHED FELLOW
IN RESIDENCE, THE BROOKINGS INSTITUTION; FORMER CHAIR, BOARD OF
GOVERNORS OF THE FEDERAL RESERVE
Ms. Yellen. Thank you. Chairman Clyburn, Ranking Member
Scalise, and members of the committee, I appreciate the
opportunity to testify before you today. My remarks will focus
on the economic impact of the coronavirus and the contribution
that fiscal policy can make in addressing it. Former Chair
Bernanke will then discuss the Federal Reserve's response.
In many respects, this recession is unique. Although, like
all recessions, it is imposing heavy costs. Most downturns
result from developments inside the economy. This recession was
triggered by a public health crisis. The unusual source of the
recession is reflected in the extraordinarily rapid decline in
economic activity earlier this year, and the sharp, but
incomplete rebound of recent months following the first steps
toward reopening.
The heaviest blows are falling on lower-paid workers as
well as women and minorities who are overrepresented in the
most affected service sectors. They have born a
disproportionate share of the losses of jobs and income.
By far, the most important factor determining the economy's
path will beat the course of the pandemic itself. To support
recovery, and more importantly to save possibly tens of
thousands of lives, controlling the spread of the virus and
mitigating its effects should be the first priority for Members
of Congress, local leaders, and other policymakers. This
requires support for testing and contact tracing, medical
research, and sufficient hospital capacity. It also requires
working to ensure that businesses, schools, and public
transportation have what they need to reopen safely.
If the pandemic comes under better control, economic
recovery should follow. However, the pace of the recovery could
be slow and uneven. In the face of ongoing uncertainty,
households and businesses may remain cautious for a time,
increasing precautionary saving and reducing spending, hiring,
and capital investment. The longer the recession lasts, the
greater the damage it will inflict on households and business
balance sheets. And the depth of the recession may leave scars
on the economy, such as the deterioration of unemployed
workers' skills or the closure of many businesses. An important
goal with fiscal and monetary policies should be to speed the
recovery and minimize the recession's lasting effects.
The fiscal response to the coronavirus has thus far been
quite effective in our view. Enhanced unemployment insurance
and the Paycheck Protection Program have helped unemployed
workers and their families, together with many businesses,
survive the spring shutdowns. However, a number of programs
authorized by the Congress are coming to an end, and new
actions are necessary.
Our recommendations for further fiscal action are as
follows: First, nothing is more important for restoring
economic growth than improving public health. Investments in
this area are likely to pay off many times over.
Second, with unemployment still at record levels, enhanced
unemployment insurance should be extended, and complimentary
programs like food stamps adequately funded. Rather than making
a one-time appropriation, we think the Congress would be well-
served by tying supplemental unemployment insurance and other
support programs to the national or state unemployment rate,
thereby creating an automatic stabilizer.
Third, Congress should provide substantial support to state
and local governments. The enormous loss of revenue from the
recession, together with the new responsibilities imposed by
the response to the pandemic, has put their budgets deeply in
the red. To avoid the recessionary effects of major fiscal cuts
by those governments, Federal support should be substantial,
and conditions on the aid should not be overly restrictive.
Following our advice would further increase the already
record-level Federal budget deficit. With interest rates
extremely low and likely to remain so for some time, we do not
believe the concerns about the deficit and debt should prevent
the Congress from responding robustly to this emergency.
The top priorities at this time should be protecting our
citizens from the pandemic and pursuing a stronger and
equitable economic recovery. Thanks.
Chairman Clyburn. Thank you very much, Dr. Yellen. We will
now hear from Dr. Bernanke.
STATEMENT OF THE HONORABLE BEN BERNANKE, DISTINGUISHED FELLOW
IN RESIDENCE, THE BROOKINGS INSTITUTION; FORMER CHAIR, BOARD OF
GOVERNORS OF THE FEDERAL RESERVE
Mr. Bernanke. Thank you, Chairman Clyburn, Ranking Member
Scalise, and members of the committee, thank you for the
opportunity to testify before you today.
In my oral remarks, I will briefly summarize the Federal
Reserve's response to the coronavirus crisis. The Federal
Reserve has moved swiftly and forcefully in this crisis. It
eased monetary policy in March by lowering the Federal funds
rate nearly to zero and indicating that it plans to keep rates
low for several years. And the Fed may well do more in coming
months as reopening proceeds and as the outlook for inflation,
jobs, and growth become somewhat clearer.
In particular, to maintain downward pressure on longer-term
interest rates, the Federal Open Market Committee likely will
provide forward guidance about the economic conditions it would
need to see before it considers raising its target rate, as
well as clarifying its plans for further securities purchases
for quantitative easing.
The Fed has also been active beyond monetary policy. First,
the Fed has served as a market-maker of last resort by acting
to stabilize critical financial markets when capital or other
regulatory constraints have interfered with normal market
making in arbitrage. In March, uncertainty about the pandemic
led hedge funds and others to scramble to raise cash by selling
longer-term securities. The upsurge of the supply of longer-
term securities, including Treasuries, was more than dealers
and other market-makers could handle resulting in substantial
volatility.
To stabilize these key markets, the Fed purchased large
quantities of Treasuries and mortgage-backed securities. Risks
and liquidity premiums in these key markets have since returned
closer to normal.
Second, the Fed has served as lender of last resort to the
financial system, the classic function of central banks.
Fortunately, the financial system is in much better shape today
than it was during the financial crisis. The Fed, nevertheless,
has taken steps to ensure that the financial system, including
banks, broker dealers, and money market funds has sufficient
liquidity to operate normally and to keep extending credit.
Third, the Federal Reserve with the support of Congress and
the Treasury has also served during the current crisis as a
lender of last resort to the nonfinancial sector, backstopping
key credit markets disrupted by the pandemic. Using emergency
authorities, the Fed revived the financial crisis-era
facilities to stabilize commercial paper and asset-backed
securities markets. The Fed has also added new facilities to
lend to corporations and state and local governments, and to
buy outstanding corporate bonds.
By establishing these programs, the Fed has given private
investors the confidence to reengage by reassuring them that
the government would not allow these critical markets to become
dysfunctional.
The Fed also established the Main Street Lending Program to
lend through banks to medium-sized companies. It is too soon,
however, to judge its performance. This program is very
different from anything the Fed has attempted before and poses
difficult technical challenges. Questions remain about how many
banks and borrowers will participate. The Fed and Treasury may
have to further ease terms for borrowers and increase
incentives for banks for this program to have the desired
effect.
Is there more the Fed could do? As I noted, the Fed likely
will provide more clarity about its monetary policy plans, and
it may need to adjust the terms or borrower eligibility
requirements of its various lending facilities.
Broadly speaking, though, the Fed's response has been quite
comprehensive. As Chair Powell often notes, the Fed's
authorities allow it to lend but not to spend. Some households
and firms will need subsidies or grants rather than loans to
survive this challenging period. Spending is, of course, the
province of Congress.
Thank you, Mr. Chairman.
Chairman Clyburn. Thank you very much, Dr. Bernanke. And
thanks to you, again, Dr. Yellen.
We have now come to where each member gets five minutes to
ask questions. So, I am going to begin by yielding myself five
minutes.
And I would like to begin by asking Dr. Bernanke about the
op-ed piece that he wrote this week. And I am going to quote
from that op-ed piece. It said, a new package is needed in
order to stabilize aggregate demand and restore full benefit or
full employment.
Now. I would like to ask you, Dr. Bernanke, what do you
think will happen to the economy other the next few months if
Congress fails to pass a new stimulus bill?
Mr. Bernanke. Well I will focus on the state and local
government part of this. They are both the first-line providers
of critical financial services, health, education and the like,
and are also big employers. And one thing we learned in the--
after the financial crisis was that because of balanced budget
requirements at the state and local level, as states and
localities saw big declines in their revenues, they also had to
do serious cuts in their employment and capital investment
leading to a slower economic recovery.
Some recent estimates suggest that the contraction at the
state and local level slowed growth in the U.S. economy after
the crisis by about half a percentage point a year, which is
significant.
Now this crisis has had similar effects. On the one hand,
state and localities have had greater expenses to deal with the
health crisis to help companies reopen safely. On the other
hand, they see big revenue hits. One estimate is that the
revenue hit for states alone since February is over $500
billion.
If no action is taken to help the states and localities,
you know, avoid massive contraction, then it will have a
negative effect both on recovery but also on critical services
that they provide to their citizens.
Chairman Clyburn. Dr. Yellen, Dr. Bernanke has given us
some insight as to what will happen if we do not assist state
and local governments. I wanted to ask you what would happen if
we do not extend support to public health agencies to food
stamps and other public assistance programs? And unemployment
insurance, what will happen if we fail to move in those areas?
Ms. Yellen. Well, we have tried--we have both emphasized
that money spent on public health yields a very high return. It
means that the economy can get back on its feet more rapidly.
We can reopen and put people back to work, and, of course, we
also save lives in the process.
With respect to unemployment insurance, I am tremendously
concerned that the extended benefits are now scheduled to end
on July 31. I think, frankly, it would be a catastrophe not to
extend unemployment insurance. It has done a great deal to
support the incomes of a large number of individuals,
disproportionately low-wage workers, and minorities 40 percent
of whom have lost their jobs.
It has provided a good deal of support to them. And to the
economy more broadly because we need the spending that those
unemployed workers can do. Without it, we would simply see more
weakness--as their spending contracts, we would see more
weakness throughout the entire economy.
And those workers, especially the lower-income workers who
are benefiting from the $600, they have a very high propensity
to spend the money that they are given. We have seen higher-
income workers do more saving, but the lower-income workers who
are receiving those unemployment benefits are spending it which
benefits jobs throughout the economy.
There is the issue of work incentives. And if we had a
stronger economy and the unemployment rate were lower and we
were closer to full employment, I would worry about the
disincentives that having more than 100 percent replacement
ratio would involve.
But at this point, I really--there is such a shortage of
jobs that I really don't think this is. And I think there is
evidence in recent suggesting this is not really stopping the
economy from creating jobs and putting people back to work.
We do suggest that unemployment benefits could be based on
the individual's pre-unemployment wages with a replacement rate
that would not receive 100 percent. But I don't know at this
point if states all have the technical ability to put that into
effect.
Chairman Clyburn. Well, thank you very much for that. I see
that I am out of time. I do have one other question, but I'll
let the ranking member go now, and maybe he will loan me some
time later.
I yield to the ranking member.
Mr. Scalise. OK. Is that working, Mr. Chairman?
Chairman Clyburn. Yes, I hear you now.
Mr. Scalise. OK, thank you. We will let you get that last
question in.
But I do want to point out that when you look at what we
need to do to get our economy back open, this isn't a question
of reinventing the wheel. Clearly, we're dealing with serious
challenges that we're all working through. But let's look to
what did work to get us to that hottest economy in the world
before this.
That was a robust tax policy. It was making our country
competitive again. It was putting more money in the pockets of
families. Letting families have more control over their own
destiny, over their own money that they worked hard to earn.
And that was done by the Tax Cuts and Jobs Act. We saw
unparalleled growth in our country's economy, we saw the
ability to bring jobs back, and we can do that again once we
get through this.
That's why it's so encouraging to see what President Trump
is doing on Operation Warp Speed. It doesn't get enough credit
or attention, but we're seeing the full focus of the Federal
Government. Agencies like the FDA removing red tape so that
they can focus everything on finding vaccines, therapies and,
ultimately, a cure for COVID-19.
And we saw already the remarkable progress this week. We
hear from drug companies who are in Phase 3 of testing on very
effective vaccines. That's where our focus should be for long
term to get through this. And, hopefully, that happens soon.
And I appreciate that President Trump and Vice President Pence
are focusing so much time on that.
But then as we look to the health of our country, we also
need to look at opportunities we're going to have coming out of
this. As we push to get people back to work, how we can create
more incentives to strengthen this economy in America and
address what we saw that China did.
We know that China hoarded PPE. As we all complained about
the shortages of PPE at the very beginning of this, it's
because the bulk of it is made in China, and they were hoarding
the PPE while they were lying to us about this. That's why we
ought to have a hearing on holding China accountable to see
what they did to shut off the supply of that vital protective
equipment for our frontline hospital workers. When we were in
the midst of trying to find out what was really happening, they
hoarded it, and we didn't have that ability to get it.
We're now starting to make that here in America. We ought
to have incentives to create more jobs by bringing that back--
it's a national security item--bring that back into America,
create those jobs here in America. If you look at things like
the drugs that were made in China, we can make that here in
America. That would be something we ought to look at
incentivizing.
I hear from small businesses every day who talk about the
problems, the problems created by paying people. In many cases,
over 75 percent of workers in America, they have studied, are
making more money on the enhanced benefits than in their normal
job. And it's a true impediment. It's a true impediment when
you talk to small businesses across this country, like getting
them back to work.
I do want to ask Dr. Yellen, because you talked about a
substantial amount of money to bail out states. Do you have a
rough idea of how much money you are talking about? We have
already passed $150 billion to help the states get through
this. Are you talking about a $500 billion number, $1 trillion
number, can you quantify what you mean when you are talking
about this package that would bail out Sates?
Ms. Yellen. So, as Chair Bernanke mentioned in his response
to the chair's question, there is a study by the Center on
Budget and Policy Priorities that suggest that, I believe, it's
through 2022 that the shortfall for Sates alone is put at about
$550 billion. And there's perhaps not quite as large but also
tremendous shortfalls at the local level. So, I think we aren't
talking about very substantial cutbacks.
And Chair Bernanke and I are both happy to be serving on
state reopening committees.
Mr. Scalise. And, if I may, I appreciate that, and I
apologize, I know we're on limited time. You know, you talk
about $550 billion as a starting point, not even time for local
governments. I think we all are talking about this, but we need
to recognize there were many states that--not many, but there
were a few states that had massive budget shortfalls,
multibillion-dollar budget shortfalls prior to COVID-19.
So, the idea that the Federal taxpayer, which is already
stretched, should bail out those states that had failed
policies, you can look at the tax policies I talked about
earlier, many of those states had budget shortfalls because
they were taxing their people too high and because they were
running the good jobs out of their states.
That's what they should be focused on, focused on fixing
the problems they had prior to COVID-19 that were causing their
economies to collapse and businesses to flee and good jobs to
flee. Fix that now while we're in the middle of rebuilding
things. That's where the focus ought to be so that they can
come back stronger, they can come back in a more healthy
position, not just continue and ask the Federal taxpayer to
bail out their state problems. That's where the focus ought to
be.
I do want to ask Dr. Bernanke, you know, I cited the
American Academy of Pediatrics Study that talks about the
importance of bringing kids back to school for many reasons,
health reasons, getting nutrition, but also to be able to be
learning at the right pace.
Do you agree with the Academy of Pediatrics talking about
the importance to children of getting back in school, not just
learning at home?
Chairman Clyburn. I'm going to assist the ranking member,
your time has expired. But I am going to let Dr. Bernanke
answer this question, because I am sure you are going to allow
me to----
Mr. Scalise. I will allow you to finish.
Mr. Bernanke. Thank you. I will be brief.
Chairman Clyburn. Thank you.
Mr. Bernanke. My wife is a teacher, I do understand the
value of children of in-person instruction, plus the support
that they get. I understand the importance of working parents.
But there is a concern here, of course, about the health risks.
And I think that local districts are going to have to make
tough decisions based on their local conditions, you know, and
based on their evaluation of the public health situation.
I am not a doctor. I can't make that judgment. But local
districts are going to have to use the advice they get from
professionals to make those choices.
Mr. Scalise. And Dr. Birx Tuesday talked about some of
those steps you can take to do it safely as the Academy of
Pediatrics did too. No tradeoff between safety, but the
importance of getting kids back in school in a safe way can be
done. We have to do it.
With that, Mr. Chairman, I yield back. Thank you.
Chairman Clyburn. Thank you very much, Mr. Ranking Member,
before going to Chair Waters, I would like to present a
question because of what you raised, Mr. Ranking Member, is
something I think we ought to take a look at.
We have heard from several of my colleagues recently that
the next package ought to be capped at $1 trillion. The CARES
package itself is far in excess of that. The HEROES Act is
around $3 trillion, of which nearly $1 trillion is devoted to
state and local governments.
I would like to suggest, what do you think about capping
the next package at $1 trillion? Should that be? And if so, why
or why not?
Dr. Yellen.
Ms. Yellen. I would be concerned about capping it when we
know that the needs of the state and local governments come,
alone come close to that, and a substantial amount will also be
needed for unemployment insurance and for public health needs.
So, I don't know what the right number is. We need support,
also, that comes from all of that spending for economic
activities so that unemployment doesn't rise. So, per aggregate
demand and total spending in the economy, at this point, we do
need fiscal support as well.
So, I would be concerned with the cap at the magnitude you
mentioned,
Chairman Clyburn. Dr. Bernanke, what's your attitude about
that?
Mr. Bernanke. Well, I think that what--the reason for a cap
would be the concern about the deficit, which I understand. But
right now, as we talk about in our testimony, real interest
rates are negative, the interest burden is very low, there's a
big appetite for debt. It's an opportunity to take advantage of
our ability to borrow, to do something to help our economy
recover. In the longer term, we're going to have to worry about
sustainability. But right now, I think the priority ought to be
doing what needs to be done.
As Mario Draghi once said, whatever it takes, is probably
what we need to be thinking now.
I can't hear you, Mr. Chairman.
Chairman Clyburn. I yield to Chair Waters for five minutes
of questions.
Ms. Waters. Thank you very much, Mr. Chairman. For this
hearing. This is very important, and I am so pleased that you
brought the past chairs of the Fed to talk with us today.
Because not only are they responsible for our monetary policy,
they have shown us how effective they can be with being the
lender of last resort.
So, both of our past chairs have wonderful reputations and
backgrounds for the way that they have managed the Fed when
they were in charge, and I appreciate their observations, their
advice to all of us as we fight through this pandemic that's
confronting us all.
The first thing I would like to have past Chair Yellen
explain why Powell said that with the interest rates being low
that we should be very generous in the way that we deal with
this pandemic and the resources that we allocate to it? If
there was ever a time to put, you know, substantial support
into this economy, now is the time. What is it about the
interest rates that everybody should understand that made
Powell say that?
Ms. Yellen. Well, when interest rates are low, the cost to
the Federal Government in terms of interest burden on the debt
is extremely low. And I can give you as an example, because
interest rates were low even before the pandemic hit, and now
they've gone lower.
But between 2007 and just before the pandemic, the ratio of
Federal debt to GDP had doubled from 40 to 80 percent. And yet
the interest burden of that debt because interest rates fell
during that period and stayed low, it was no additional cost
relative to the size of the economy, and that's true and will
only be more true now.
So, I agree with Chair Bernanke that one day in the future,
we will have to get deficits after this is over and the economy
is recovered, we'll have to deal with deficits and get them
under control. But now is a time when I think it's not
necessary to worry about it.
And I guess the final thing I'd add is that in an economy
with unemployed resources, we don't have to worry about the
spending diverting activity away from other things.
Ms. Waters. Thank you so very much. We have heard the
connection between what the experts, the health experts are
advising us and how that helps to improve the economy if, in
fact, we wear masks, if we are social distancing, if we have
the PPE that we need, all of that.
So, we have been advised that a surge certainly has taken
place and we can see the results of that. And every time that
happens, it sets us back somewhat from being able to deal with
the economy. Is that correct?
Ms. Yellen. Regardless of what the rules are, we have seen
that people are afraid to engage in activities that risk their
health and pull back from it. And the worst the outbreak gets,
the more true that is. So, whatever helps public health enables
us to get people back to work.
Ms. Waters. So, because of that, we need leadership. And
now that we are talking about the schools, I believe that we
made a mistake with some of our governors in some of our states
opening up certain businesses too soon. We're seeing the
results of that.
So, I don't know where all of this confidence is coming
from about opening up these schools, get these children back
in. I think Mr. Bernanke is correct when he said the localities
in our school districts have to be careful, they have to make
sure that they can provide the safety, otherwise, we will
continue to have surges, and children will get sick, some may
even die. And this does not help the economy, does it?
Ms. Yellen. No, it doesn't. We do have to be careful. I
mean, the American Academy of Pediatrics Report and the
National Academy Report point that out. And it's also expensive
for the schools to make the modifications they need to be able
to open safely.
And I think Congress needs to think about funding the
expenses that are involved. Of course, it's an important goal
to reopen the schools. And I can't imagine who would disagree
with the priority that should be attached to that.
Ms. Waters. The last second or so I have here, minority
communities, Black communities, Latinx communities are
suffering. We suffered from a lack of testing. We suffered from
our hospitals not having all of the PPE. We suffered for, you
know, not even being eligible for unemployment. We suffered
because we still need food stamps, et cetera.
I heard something about perhaps looking at grants and
better workers to infuse, you know, capital and resources into
minority communities.
What are you suggesting we do for minority communities that
would help us be able to deal with this pandemic and not cause
us to die from it--or some have indicated we are dying and
getting sick.
Ms. Yellen. Well, with respect to access to capital, it
seems to me that businesses and minority communities really
face tremendous barriers. And I believe it's important for
Congress to do special things in order to provide funds for
these on particularly businesses and minority areas.
Ms. Waters. Do you think grants would be helpful instead of
looking for ways by which to keep your business open and then
take back the money? Could we use some grants?
Ms. Yellen. I think grants are important for many
businesses. Many businesses really didn't benefit in low-income
areas from PPP. They don't have strong relationships with
banks, but they do with CDFIs.
And I would say, I don't know if it's really feasible, but
I would love to see the Fed and Treasury explore a 13(3), maybe
something within the mainstream facility through CDFIs that
would be oriented toward these low-and moderate-income
neighborhoods and businesses.
Ms. Waters. Now, I want to talk about
[inaudible] for yield Mr. Bernanke and Congress to sign up
with all of these other economies the--that was so unusual to
see so many of you to sign on to something that was urging us
to, you know, to be very, very generous with this stimulus,
[inaudible] to have $3 trillion stimulus
[inaudible]. Why did you all sign that document?
Chairman Clyburn. The gentlelady's time has expired.
Ms. Waters. Can the gentlelady respond to that, Mr.
Chairman?
Chairman Clyburn. OK.
Ms. Yellen. We urge that because we feel it's important
both for equity and for the recovery of the economy.
Ms. Waters. Thank you Mr. Chairman.
Chairman Clyburn. Thank you, Dr. Yellen. The chair now
yields five minutes to Congressman Jordan.
Mr. Jordan. Thank you, Mr. Chairman.
Dr. Bernanke, what's more important, reopening schools or
protesting?
Mr. Bernanke. Opening schools safely is very important, and
people protest for the causes they feel are important as part
of the American way, as you know.
Mr. Jordan. Well, I agree with that, but I wish you would
tell Democrat leaders that because they obviously think
protesting is more important than opening our schools.
You hear Democrats at the Federal level, you hear Democrat
mayors, Democrat governors all talking about how they can't
reopen schools, while Mayor de Blasio can go out and stand with
a bunch of protestors and paint on Fifth Avenue in front of
Trump Towers, Mayor Garcetti can go out and kneel down to
protestors without a mask, bow down to the mob without a mask,
and that's fine, but, oh, he can't open schools.
Do you know how many school districts there are in the
country, Dr. Bernanke?
Mr. Bernanke. No, sir.
Mr. Jordan. Thirteen thousand school districts, 56 million
kids that deserve to get back in school--as you said earlier,
your wife's a teacher; my wife's a teacher--get back in school
and get their education. But Democrats seem to say: No, no, no,
they can't do that.
In fact, Democrats think there is lots of things they think
are--that protesting is more important. Democrats think
protesting is more important than going to church. Democrats
think protesting is more important than going to school, more
important than going to a loved one's funeral, more important
than going to work, we have seen from so many Democrats.
And I think what's interesting is we have now seen, in
Portland, over the last six weeks, some of the--I mean, we've
seen the city burn for the last six weeks, and I have yet to
see any condemnation come from Democrat leaders.
Six weeks of this happening. The protests, over the last
several weeks, 12 police officers shot, 130 injured, 60 Secret
Service people injured just in the District of Columbia.
What's more important, Dr. Bernanke? What's more important
to economic growth: Reopening schools, or protesting?
Mr. Bernanke. Well, I have not been involved in any of the
commentaries that you're referring to. I think----
Mr. Jordan. I understand.
Mr. Bernanke [continuing]. Opening schools----
Mr. Jordan. I'm asking what's more important to economic
growth? You're an expert in economic growth----
Mr. Bernanke. Economic growth, opening schools is more
important. Protesting is important for democracy and people who
have different views about what they think needs to be
protested about.
Mr. Jordan. Do you know what the Brookings Institute--
Institution, a place you know something about--do you know what
they estimated just when schools are just down for a few
months--do you know what they estimated the cost to the economy
would be?
Mr. Bernanke. I'm sure it's very large because of the
effects on working parents.
Mr. Jordan. Exactly, $2.5 trillion, $2.5 trillion, just the
cost of the protests, the damage, the rioting, the looting, the
destruction of property, just in one city, Minneapolis, $500
million.
And, as we know, this is happening in cities all across the
country, and, yet, somehow protest is allowed to continue.
That's fine. And I'm all for protests. I want everybody, under
the First Amendment, to be recognized and be allowed. That's
the hallmark of our country. But somehow Democrats say, no, no,
no.
In fact, Governor Newsom just closed down churches again in
California, but says nothing about the protests that continue
to take place. So, this is what I find troubling.
And now this push not to let kids go back to school. You're
familiar with the fact that the American Academy of
Pediatricians has said that kids should be back in school, that
we should reopen schools.
Mr. Bernanke. I believe, if I saw that study right, that
there are--you know, it has to be done safely.
Mr. Jordan. Of course. That they have----
Mr. Bernanke. Yes.
Mr. Jordan. Of course safely, but that's not what we hear
from Democrats. We just hear we can't open schools. We're all
for doing it safely.
Do you know how many kids under 17 have died of coronavirus
in the state of California, Dr. Bernanke?
Mr. Bernanke. Probably very few. Congressman, I have no
expertise on this. I'm not pretending to give you any kind of
advice on whether to open schools or not. That's not my area of
knowledge.
Mr. Jordan. Well, I'm just saying the place you work, the
Brookings Institution, did a study a few years ago that said
what a cost is to our economy, $2.5 trillion, and why we hear
from so many Democrats that we can't do it--I think we can. I
think we can do it safely. I think it needs to happen. That's
all we're saying. How about this: What's more important:
Opening schools, or defunding the police?
Mr. Bernanke. I think it's--you know, we can't defund the
police. We need police, but there are concerns about police
community relations and police behavior.
Mr. Jordan. Well, you need to have a talk with the L.A.
Teachers Union, because the L.A. Teachers Union said that
they're not going to open their school. They won't open their
school until they get an increase in taxes, until they get a
bailout for their district, until they get Medicare for all,
and until the police are defunded. Then they'll think about
opening the schools to help the students get the education that
will allow them to achieve the American Dream--something you've
done.
I notice, in your--your wife's a teacher. You went to MIT.
You went to Harvard. Ms. Yellen went to Yale. She went to
Brown. You know how important education is to accomplishing the
American Dream. Tell that to the L.A. Teachers Union, who says,
unless the police are defunded, they don't want to come back
and teach kids in school this fall.
Mr. Bernanke. I absolutely agree that education is
extremely important for everyone.
Mr. Jordan. Yes. We need Democrat leaders to step forward
and say the same darn thing, and say it's just as important as
going out, as Mayor Garcetti did, and kneeling down in front of
the--in front of the cancel-culture rioters. Education is just
as important, and we need our schools open.
Chairman, I yield back.
Chairman Clyburn. Well, thank you so much. I will say to
the gentleman, as one of those Democratic leaders who was also
a public school teacher--I started my professional career
teaching in public schools, but I'll also say I'm sitting in
Congress today because of a successful protest.
With that, I yield five minutes to Mrs. Maloney.
Mrs. Maloney. OK. Thank you, Mr. Chairman.
I had the pleasure of hearing testimony from both of our
witnesses today for many years on the Financial Services
Committee, along with Ms. Waters, and I have to say that it's
great to hear from you both again.
First, I'd like to ask both of you--we're in the middle of
the worst economic crisis of our lifetime by far. In April, a
staggering 20 million people lost their jobs, which was a
record for a state. It's the highest it's been since the Great
Depression. The unemployment rate rose to 14.7 percent.
But, in the last two months, the unemployment rate has
actually decreased, and now it's down to 11.1 percent. That
surprised me, because we're still seeing millions of people
file for unemployment insurance every week.
So, I want to ask both of you: Where do you see the
unemployment rate going? Is it going to get worse before it
gets better, or is it going to continue going down in the
months ahead?
And let's start with you, Dr. Bernanke.
Mr. Bernanke. It's very hard to forecast, but I suspect
that--we've seen some signs lately of some slowing in activity
because of the increased concern about the virus.
So, I don't think we'll see as rapid a decline as we've
seen recently. CBO had its numbers around 10.5; the Fed, its
numbers around 9 to 10 at the end of the year. Those seem like
reasonable ballpark estimates.
So, maybe a little bit lower than where we are now, but not
where we'd like to be.
Mrs. Maloney. OK. Dr. Yellen?
Ms. Yellen. Yes. I agree. A lot of the workers who lost
their jobs were on temporary layoff, and they maintained--and
this is good that they did--their attachment with their
previous firms. As soon as lockdowns ended and reopening
started, a reasonable number of those workers were able to go
right back to work.
But, as Chair Bernanke just said, with the resurgence of
the virus, progress is slowing and could even reverse. Even if
things had continued on a good track, I think it will take a
number of years--2, 3 years to get unemployment down to levels
anywhere close to where we were before the pandemic.
Mrs. Maloney. Thank you. As you both know, in the CARES
Act, we provided people who have lost their jobs with an extra
$600 a week in unemployment insurance. Businesses were shutting
down and laying people off through no fault of their own, and,
if everyone who was laid off because of the coronavirus stopped
spending at the same time, we'd see a massive contraction in
the economy and possibly even a depression.
From both an economic and a moral perspective, we had to
make sure that people who are unemployed could keep spending on
the necessities of food and clothing and so forth, and the
extra $600 a week has been critically important for the
millions of Americans who are unemployed, and it has prevented
a depression by boosting the aggregate demand.
This extra $600 a week is set to expire at the end of this
month, in just 14 days, which means that, in 14 days, we could
be headed over an economic cliff. But, now, you're both
economists; you know the importance of an aggregate demand.
So, I want to ask both of you: Do you believe allowing the
extra $600 a week in unemployment insurance--do you believe we
should let--do you think, if we have it expire, would it harm
the economy?
Let's start with you, Dr. Bernanke.
Mr. Bernanke. Well, we gave three priorities for Congress
on fiscal policy, and one of them was continuation of the
pandemic UI, which I do think is very important on both
humanitarian and also economic basis.
I think you can modify the structure to satisfy some of
your Republican colleagues in terms of avoiding the more than0
percent replacement in some cases, or, alternatively, giving
perhaps a special EITC for people who take jobs if there is a
differential.
So, there are some structural things you could do, but I
agree with the basic thrust that it's very important to
continue the support for the unemployed, which there is an
enormous number, of course, as you know.
Mrs. Maloney. And Dr. Yellen?
Ms. Yellen. Yes, I completely agree with that, both on
humanitarian grounds, and the spending is absolutely needed for
more pain not to be extended throughout the economy and for
unemployment to continue moving down.
Similarly, for state and local governments, which we also
prioritize, if there isn't substantial support there, we're
going to see massive layoffs in state and local governments,
and, again, the loss in spending, the loss in jobs will harm
workers throughout the economy.
Mrs. Maloney. And now for the flip side of the question: Do
you believe that, from a purely macroeconomic standpoint,
extending the extra $600 a week will boost the economy? What is
your analysis of how a straight extension of the enhanced
unemployment insurance would affect the economy? Would it
support aggregate demand?
Dr. Yellen, and then Dr. Bernanke, and I yield back.
Ms. Yellen. Yes. Yes, it does. I believe it supports
aggregate demand and spending in the economy that we need to
create jobs.
Mrs. Maloney. Dr. Bernanke?
Mr. Bernanke. We've advocated that the extra unemployment
insurance be tied in some way to the national unemployment rate
so that it goes up when unemployment goes up, and down and when
it goes down, and that would make it more responsive to
changing conditions.
Mrs. Maloney. Thank you, and I yield back.
Chairman Clyburn. Thank you, gentlelady.
The chair now yields five minutes to Mr. Luetkemeyer.
Mr. Luetkemeyer. Thank you, Mr. Chairman, and thank our
witnesses for being here today. I appreciated your testimony. I
serve on the Financial Services Committee as well and have
enjoyed the conversation and your testimony over the years
[inaudible] at all of so many financial----
In a March op-ed in the Financial Times, both of you said
that--I quote--to avoid permanent damage from the virus-induced
downturn, it is important to ensure that credit is available
for otherwise sound borrowers who face a temporary period of
low income or revenues, unquote--end quote.
I think that my personal opinion is I think this is
critical--this is a critical concept for Congress that we must
understand. Currently, with the stimulus of the CARES Act and
the forbearance banks have been given to customers, we have not
seen broad delinquencies and charge-offs yet.
However, as this forbearance ends and as depository
institutions and, more importantly, examiners of those
institutions get back to business as usual, I am fearful that
we will see a broad markdown of assets on balance sheets, and
even entire business lines of financial institutions similar to
what we did in 2008 and 2009.
I repeatedly called for financial regulators to provide
additional forbearance to financial institutions and allow them
the needed reserve, accounting, and capital relief necessary to
allow them to work with their customers.
I've got legislation that I believe accomplishes this goal,
and so my questions to you are: Do you think that additional
forbearance for financial institutions is necessary to allow
them the needed time to work with their customers, and, if our
economy continues to be shut down, are you concerned that the
classification of nonperforming loans will drastically impact
reserve accounts at depository institutions and, in turn,
decrease access to credit, particularly in low-and moderate-
income communities.
I'd like an answer from both of you, please.
Mr. Bernanke, do you want to start first?
Mr. Bernanke. Sure. I think forbearance is a bit risky. We
saw it in savings and loan crisis, you know, that we need to
make sure that banks are properly valuing their assets. But the
Fed has been trying to work with the banks. They've changed the
accounting standard, the CECL accounting standard, to make it--
they don't have to assess the depth of the recession quite the
same way.
They changed the supplementary leverage ratio. They're
working with--they're telling the banks to work with the
borrowers, as you described.
I think we don't want to--you know, it's really good news
that the banking system is in such strong condition, but I
think it's important to continue to evaluate them, for example,
through the stress tests, and, if it becomes necessary for some
banks to raise new capital, that was the thing that stopped the
crisis in 2009. If it becomes necessary to do that, I hope the
Fed and the other bank regulators will enforce that.
Mr. Luetkemeyer. Dr. Yellen?
Ms. Yellen. Yes. I agree with my former colleague, my
current colleague. I think it's important for the Fed and the
Fed has encouraged banks to lend and change regulations in ways
that make it easier for banks to lend.
But it's also very important in my view, as Ben said, that
they have the capital that's necessary to meet the lending
needs of the economy, and we've seen from the analysis in the
recent stress tests, the pandemic analysis, that about a
quarter of the major banks that are subject to that stress test
are likely to see capital fall below minimum levels.
If we have the W shape and, you know, a second wave of the
virus or if the recovery is very prolonged, and it----
Mr. Luetkemeyer. Thank you.
Ms. Yellen [continuing]. May prove necessary for the Fed to
ask them to raise capital.
Mr. Luetkemeyer. Well, you kind of made my case there with
your last comment, and I appreciate that, but I'm concerned.
Both of you are looking at it from a big bank perspective.
There are lots--most of the banks in this country are less than
$50 billion in assets. You're looking at credit unions that are
small in size.
Those are the ones, I think, that we need to be trying to
shore up and give the ability to give forbearance to the
customers, because they're the ones that supply the small
business loans in this country, and you and I, Dr. Yellen, had
this conversation in committee many times.
Without that forbearance--and we saw the lack of it in 2008
in 2009 and what it did and how devastating it was to the
businesses, our local communities, jobs, and the banks and
credit unions themselves.
So, I would appreciate a response to that.
Ms. Yellen. Well, many banks, including community banks,
have built some significant capital buffers in the aftermath of
the financial crisis, and it's appropriate for them at a time
like this to be able to bring those buffers down to support the
credit needs of their communities, but----
Mr. Luetkemeyer. I appreciate that.
Ms. Yellen [continuing]. I would agree with Ben on
forbearances. You know, we need to know what's happening in
those banks.
Mr. Luetkemeyer. OK. I have one quick question for you. And
you guys have both indicated your--how you would like to see
the $600 or any other sort of unemployment insurance extended.
What do you think is an incentive to get people back to
work? You're trying to take care of people unemployed. I'm
trying to get them back to work. What do you see as an
incentive? What would you support, or what kind of idea would
you have to get people back to work?
Continuing the $600 would be a detriment for people going
back to work.
Mr. Bernanke. I'm sympathetic to that, sir. You could lower
the $600 so that the replacement ratio is not above 100
percent, is the concern, and you can provide additional
incentives to work. For example, you could have an enhanced
unemployment tax credit for people who are at work, for
example.
So, I mean, there are ways to improve that--you know, that
ratio so that people have the appropriate incentive to go to
work without taking away the necessary support of the
unemployed.
Mr. Luetkemeyer. I know that the President is supportive of
a payroll tax cut, which to me would be an incentive for people
not only to stay employed; it's a 100 percent pay raise, but
also people to go back to work. So appreciate your comments.
Thank you. Great to see both of you again.
I yield back, Mr. Chairman.
Mr. Bernanke. Thank you.
Chairman Clyburn. Thank you.
The chair now yields to Ms. Velazquez for five minutes.
Ms. Velazquez. Thank you, Mr. Chairman.
I would like to relay testimony from a restaurant owner in
my district who testified before the House Small Business
Committee this week and stated that PPP, which did provide a
lifeline for her, is an eight-week solution to an 18-month
problem.
So, Mr. Chairman, I really thank you for holding this
important hearing.
Dr. Bernanke, three out of four small businesses have been
experiencing a decrease in revenue since March, and an
estimated 7.5 million small businesses are at risk of permanent
closure as a result of this crisis.
So, Dr. Bernanke, you were Federal chair--Fed chair during
the Great Recession when access to capital nearly froze for
small businesses. Congress made changes to the SBA's
traditional loan programs, including increasing the guarantees
and reducing fees.
As Congress weighs long-term recovery proposals for small
businesses, would you recommend similar changes to SBA loan
programs to provide access to affordable capital for small
businesses?
Mr. Bernanke. Yes. I think the PPP program was very helpful
in getting capital out to small businesses. SBA could be
modified. My colleague, Dr. Yellen, talked about the Fed and
the Treasury lending to CDFIs that could be particularly
relevant to minority communities, for example. So, I think
there are ways to support small business.
Many--many people--many small businesses are run by--on the
income of the individual who owns them, so, you know, using
family resources and credit cards and the like, and so
supporting the unemployed or supporting people broadly, it
would also be--would be helpful.
And I think there is an issue. At some point in the future,
we're going to have to--this economy may change in very
important ways. We have to allow that at some point to begin to
happen, but I think, for now, I would be inclined to want to
continue to provide support to small businesses that are being
hit by the virus.
Ms. Velazquez. Thank you.
Dr. Yellen, in your testimony, you mentioned that, because
the recession is unprecedented in so many ways, forecasting the
recovery is difficult.
PPP was enacted to keep employees on payroll, but small
firms have other fixed costs. Should Congress consider the bold
step of extending the eviction moratorium for individuals past
July 27 and expanding it to include small businesses?
Ms. Yellen. I think, with respect to small business
expenses, an approach that looked promising to me that is in
the HEROES Act is an employee retention tax credit. One exists
now, but the HEROES Act expands it.
And, for small businesses, it provides a tax credit for
expenses other than wage expenses, and that struck me as a
promising approach in terms of supporting smaller businesses.
Ms. Velazquez. Well, I'm concerned about those small
businesses that lack liquidity, but lack the cash that they
need in order to be able to pay rent, realestate costs, to
remain in those businesses. So, a tax credit in that respect
really doesn't help them.
Ms. Yellen. Well, it's a refundable tax credit, so they
would be eligible to receive the credit even if they don't have
profits.
Ms. Velazquez. Thank you.
Dr. Bernanke, consumer spending is at the heart of the U.S.
economy, and millions of small businesses operating in retail,
hotel, and leisure are struggling, as your testimony indicates.
Why is it so critical to extend enhanced unemployment insurance
now to support individuals and small businesses, and in what
amount would you recommend?
Mr. Bernanke. Well, as I mentioned, unemployment insurance
has a humanitarian aspect. We want people to be able to pay
their bills and to be stay in their homes. I think, also, I
would add that we need to worry about health insurance, which
is another thing that happens when you lose your job.
The other purpose of the unemployment insurance is to
increase aggregate demand. People will go out and spend, and
that will help the economy generally. But there is a very
powerful sectoral effect, and there are some sectors, like
restaurants, that are going to--it's going to be a while before
they can operate normally because of the effects of social
distancing and so on, and it's very hard to get around that
problem.
Ms. Velazquez. And, also, it is important that the public
health crisis, if it's not adequately addressed, we will
continue to face an economic uncertainty.
Consumers, if they don't feel safe, they don't want to go
into any restaurant or hotel or any of those small businesses.
Mr. Bernanke. That's correct.
Ms. Velazquez. Thank you. I yield back.
Chairman Clyburn. I thank the gentlelady for yielding back.
The chair now recognizes, for five minutes, Mrs. Walorski.
Mrs. Walorski. Thank you, Mr. Chairman. Thanks for our
witnesses as well. I'm grateful to have this conversation about
the economy, but I just wanted to convey my disappointment with
the minority not being able to have anybody on this panel
today.
If there is ever a time in this country when Americans are
literally desperate for bipartisan cooperation, it's now. I
mean, it's July 2020. So, I'm just disappointed that we're
having a one-sided conversation, the most important
conversation we've probably had on this committee, about the
recovery in this country, and I just think that--I'm so
disappointed, and I think the American people are as well.
But, to get to the point today, the pandemic is unlike any
crisis in our lifetime. Our country has experienced a
devastating loss of life. Emergency actions, like stay-at-home
orders, were necessary to slow the spread and flatten the
curve, but the picture that's emerging on a broader toll of
Americans' health that we can't ignore: We've heard plenty of
anecdotal evidence that loneliness and isolation are especially
hard on those battling depression or substance abuse disorders,
as well as victims of domestic violence.
We know, as Americans, many Americans are delaying or
skipping doctor visits for fear of contracting coronavirus.
It's staggering to think of the ripple effect that this is
going to have for years to come as we brace not only for COVID-
19 death toll, but for spikes in deaths from suicide, overdose,
heart conditions, cancer, and any number of other diseases that
are diagnosed too late. This is an all-encompassing tragedy.
Right now, millions of Americans are ready to return to
work. Businesses are ready to reopen their doors. This is a
positive step, I think, for Americans' mental and financial
health. In order to safely reopen our economy, we all need to
ensure access to the things like PPE, testing, and childcare.
Commonsense tells us every reopening plan should include those.
That's why it's been discouraging for me to see the
Democrats playing politics with recovery plans, and the one
that we're talking about today, the HEROES Act, for example,
was not a serious bill that included all sorts of blank-check
giveaways, such as restoring unlimited deductions for state and
local taxes, or SALT, as we all refer to it.
The nonpartisan Joint Committee on Taxation has founded
over--has found over half the benefits of this policy would go
to those with annual incomes of $1 million or more. Only one
percent of the benefits would go to those making less than
$100,000 a year.
Tax experts on both sides, left and right, agree that
restoring an unlimited SALT deduction is bad policy that would
do nothing to help our Nation's economic recovery.
Irresponsible bill would also extend the $600 we're talking
about per week and temporary supplemental unemployment benefits
from the CARES Act through January 2021.
I supported the CARES Act and the unemployment supplement
back in March. Much of the economy was going to be shut down
for an undetermined amount of time. This benefit helped pay--I
think we all understand. It helped pay rent, put food on the
table. It had brought peace of mind as people found themselves
unemployed or furloughed by no fault of their own.
But I've heard from small business owners all over my
district who are trying to open responsibly, and what they're
finding is that the supplement has distorted the job market.
It's easy to see why, in my home state of Indiana, workers
receiving the $600 per week are getting about three times as
much as they otherwise would on unemployment. In many cases, a
worker can stay on unemployment and make more money than if
they return to work.
The nonpartisan Congressional Budget Office said that
extending the $600-per-week supplement through January 2021, as
the HEROES Act proposes, would weaken the incentives to work,
decreasing the economic output, and decreasing unemployment. In
short, it would kill our economy.
Ways and Means have proposed a backdoor bonus that would
make work pay by allowing workers to keep up to two weeks of
the additional benefit after accepting a job, essentially
amounting to a $1,200 reentry hiring bonus.
Chairman Bernanke, the University of Chicago estimates that
over two-thirds of unemployment insurance recipients nationwide
are receiving more money on unemployment than they would if
they returned to work. What impacts of paying such a large
group of people at so much more than their normal incomes
happens, and then do you see our plan as incentivizing rehiring
a good thing as a way to incentivize work?
Mr. Bernanke. Well, I think, during the lockdowns, it
didn't make a lot of difference, because people weren't going
out to work anyway.
Mrs. Walorski. Right. Yes. Right.
Mr. Bernanke. I think--I've said now a couple of times----
Mrs. Walorski. Right.
Mr. Bernanke [continuing]. That it makes a lot of sense to
rethink the structure of UI, and maybe even put rewards on the
work side, like EITC or something--the thing about the back-to-
work bonus is that it rewards people who are unemployed and
cutting back, and they might earn more than somebody who was
there the whole time, so that's a question.
But I see no major contradiction between maintaining
adequate UI support for those who can't find work, but also
restructuring so that people have the appropriate incentives to
go back to work. I think those things can be done.
Mrs. Walorski. Well, I appreciate it. And, in my case, you
know, we're going to have companies shutting down that can't
rehire, because it's so big, the difference between
unemployment with that $600 a week. If it went to January 2021,
my district and my state would be in trouble as with the rest
of the country. There would be no jobs to go back to by that
point.
But I yield back, Mr. Chairman.
Chairman Clyburn. I thank the gentlelady for yielding back.
The chair now recognizes Mr. Raskin for five minutes.
Mr. Raskin. Thank you very much, Mr. Chairman.
As we meet today, we have 3.6 million coronavirus cases in
America, the most in the world, just eight days after we hit 3
million. Yesterday posted a single-day record of 77,000 new
cases in a single day, and three of our states--Florida,
Arizona, and Texas--are now facing record increases and maxed
out hospital intensive care capacity, and what do our
colleagues do? Well, they blame Democrat governors and Democrat
mayors and the Chinese Communist Party and the World Health
Organization; anybody but the President of the United States of
America.
What a fraud this is. What disinformation. What a pathetic
and transparent effort to distract America from what's really
going on. It's true that China covered up the virus at the
beginning.
But, Mr. Chairman, as I have shown several times before
with submissions to the record, Donald Trump covered up for
China 37 different times, praising President Xi for his very
good leadership, their excellent collaboration in the crisis,
and their beautiful, beautiful friendship.
So, our colleagues really must have an empty cupboard of
excuses that they have to go back to blaming President Trump's
very good friend, the head of the Chinese Communist Party.
And, while praising China, in January, February, March, and
April, President Trump destroyed our opportunity to wage an
effective national response to the coronavirus crisis, instead
burying America in his course of magical thinking, assuring the
public the virus would magically disappear one day and selling
to the public with his various pronouncements his belief in
different quack miracle cures, like injecting people with
disinfectant and drinking hydroxychloroquine.
Mr. Chairman, I'm sorry that we have spent any time on
these distractions, but they keep pumping out propaganda, and
we need to answer it.
I'd like to ask Chairman Bernanke this: The Federal Reserve
is using its section 13(3) powers under the Federal Reserve Act
to allocate part of the $454 billion of existing assistance for
states and municipalities.
Can you describe how much money the Fed has allocated to
the program for states and localities, and do you think--is it
your assessment that the Fed should be putting more money into
the states and localities?
Mr. Bernanke. Well, the Fed has not gone anywhere close to
using its existing capacity. Its only made one or two loans so
far.
I will still say that it's been worthwhile, because the
announcement of the program reduced quite a bit the risk
aversion and uncertainty in that market, and the market is
functioning better on a private basis. So I--you know, you
might consider changing the terms or lengthening the terms, but
I do think that a lot of the benefit has been felt in terms of
reassuring participants that the Fed is there as a backstop.
Mr. Raskin. Thank you.
Chairman Yellen, you said something very interesting, and I
just want to make sure I got it right. You said: Get the
pandemic under control, and economic recovery will follow.
During the course of this crisis, some people have seemed
to pose the imperative of public health and the imperative of
economic recovery as opposites; you can favor one or the other.
But you seem to be saying we need to focus on getting the
pandemic under control to advance public health in order for
the economy to come back, and I want to make sure that I got
you right on that.
Ms. Yellen. By and large, there is not much of a tradeoff,
and that everything that we can do and all the resources that
are needed to get the pandemic under control will speed
economic recovery, and that's why, in our testimony, we say
that there is a very high payoff on the public health side. It
will benefit our economy.
Mr. Raskin. Well, Chairman Yellen, President Trump pushed a
number of gullible Republican governors and mayors to opening
everything up way too quickly, and, at the same time, he was
not wearing a mask and sending all kinds of terrible mixed
messages about the public health protocols.
Now, those very states are having to reverse course and go
back to try to institute the public health protocols they
didn't do in the first place, and the reopenings have been
slowed.
Don't you think it's better to take the public health
problem seriously so we can really reopen the economy?
Ms. Yellen. Well, I think that's what we have seen
throughout Europe and much of the world where they had extreme
lockdowns, but then got things under control and were able to
open up in a way that they had enough testing, contact tracing,
masks, and other steps that remained under control, and it's
very expensive to have to shut down again to the economy, too.
Mr. Raskin. Thank you, Mr. Chairman. I yield back.
Chairman Clyburn. I thank Mr. Raskin.
The chair now yields five minutes to Dr. Green.
Mr. Green. Thank you, Mr. Chairman and Ranking Member, and
thank you to our witnesses.
America's businesses are facing unprecedented challenges
due to this pandemic. Government-mandated shutdowns have caused
numerous employees to lose their jobs and many businesses to
shudder.
For the sake of our witnesses, I want to let them know a
little bit about me. After I left the Army, I started a
healthcare company, and I too understand being an entrepreneur.
It is not easy. It involves a lot of risks and sleepless
nights. I'll never forget waking up in the middle of the night
to check the lockbox on that night's proceeds many, many
nights.
During my time as CEO of that company, our team took the
company from 180,000 in revenue to 212 million in annual
revenue in just eight years. I'm very proud of what we
accomplished, but, through all the difficulties and growing
pains that we faced, I can't imagine the challenges facing
small businesses today.
With the witnesses understanding a little bit about who I
am, I want to look at some economic performance during this
pandemic. I know Chairman Clyburn gave a grave picture of how
the economy is crashing. I'd like to point out it's really
those blue states that are continuing to crash economically,
and I can hear the retort now: Well, look at the increases in
cases in Tennessee, Florida, and Texas. I can't talk about
those states, but I can tell you that, in Tennessee, yes, our
cases are going up, but our deaths remain proportionately low,
and we're monitoring our ICU beds here in Tennessee.
Ventilators are at 32 percent utilization. That means 68
percent are just sitting there waiting. Recall the objective
was to flatten the curve; not stop every single infection. So,
protect the at-risk populations, use social distancing, and
open up.
We've done just that in Tennessee. Economically, our
Tennessee recovery is setting records. Just announced, after an
April unemployment of 15.5 percent; May, 11 percent, our June
unemployment is down to nine percent in Tennessee, with retail
sales booming. Restaurants and retail businesses are at the top
of the country for recovery. And our governor just announced
last night that our economic growth in Tennessee is only 0.2
percent below what we predicted it would be without COVID and
before it ever happened.
We have the lowest debt in our Nation per capita. We have a
fully funded pension plan. We are using our ample rainy-day
fund, money we set aside years, to distribute additional
dollars to businesses and medical providers.
It just goes to show it matters who governs. Conservative
policies that advance freedom--we need the prosperity, even in
a crisis. And, in Tennessee, we appreciate that the Trump
administration has taken bold action to provide economic
relief.
The President slashed streamlined regulations, pushed for a
payroll tax holiday to ease hiring penalties, worked with
Congress to enact the Paycheck Protection Program and billions
in additional low-interest loans for small businesses.
If the government is going to force businesses to close,
then it has an obligation to provide relief. The President has
also declared war on this virus, expediting emergency supplies
on a massive scale and ramping up efforts to create a vaccine
at, using his words, warp speed.
America is a resilient Nation. We'll bounce back stronger
than ever. It's critical that Congress works with the
President, and not just sits there and bashes the President,
and help America recover.
It's equally important we get our economy blasting on all
cylinders. As I and many of my colleagues have pointed out, the
cost of shutdowns are nearly equally as great.
As former Fed chairs, I'm grateful that you guys are here
to share your perspectives on the economic challenges our
Nation is facing. And, real quick, my first question is to
Chairman Bernanke: How much debt is enough? I mean, we're at 22
trillion before this thing happened. It looks like we're
upwards of 10 more trillion. I mean, what is too much?
Mr. Bernanke. Well, just first going back to the first part
of your comment, there is a lot of evidence that people's
behavior does depend on the illness in the local area. So, I
don't know about your state. We'll have to see how that works
out, but there is that issue, and it makes a lot of sense.
I'd also mention that lockdowns are not the only way to
address the problem. There is other tools, like masks and tests
and tracing and so on, and I'm hopeful that that will be used.
On debt, you know, like I said, given how low interest
rates are around the world--and that's not just a monetary
policy thing; this is a global trend that goes on, that's now
going on for 30 years, of interest rates coming down and down.
The burden of the debt is not as high as the dollar amount
would make you think, and this is a critical situation----
Mr. Green. How much is too much? I mean, I just am looking
at what's the number? Is it a debt administration----
Mr. Bernanke. It's not a number; it's a trajectory. The
problem is, when it keeps growing and growing and the interest
keeps compounding and getting bigger and bigger, you get to a
point where either the burden of the interest is so high, you
have to raise taxes or cut spending, or, alternatively, you run
into an inflation situation. That's the kind of outcome you
want to avoid. We're not that close to it now given the level
of our debt burden.
Mr. Green. The money we're printing isn't going to cause
inflation?
Mr. Bernanke. No. People said it would after 2008. They
were wrong, then, too.
Chairman Clyburn. The gentleman's time has expired.
The chair now recognizes, for five minutes, Mr. Foster.
Mr. Foster. Thank you. And, you know, I too would like to
stay on that same point.
One of the factors that prevented an adequate fiscal
response to the Great Recession was the very politically
successful narrative that we were somehow spending ourselves
into hyperinflation and defacing the dollar.
Dr. Bernanke probably shares with me the fond memories of
former Senator from Illinois, Republican Mark Kirk, traveling
to China in 2009 to warn officials that they should not buy
U.S. Treasury securities or other U.S. debt because U.S.
spending was, quote, driving us to a default, and that the
Federal Reserve bank was, quote, creating hyperinflation, which
is a mantra that we've heard from Republicans again and again
and again, and are apparently hearing once more.
So, first, did the Republicans' prediction of
hyperinflation materialize, why or why not, and what were the
actual interest rates compared to hyperinflation?
Either one of you--I guess start with Dr. Bernanke.
Mr. Bernanke. Well, as you know, inflation was very low,
and, in fact, the Fed has had a great deal of difficulty
getting inflation up to the two percent level, and interest
rates, which include an inflation premium, have been quite low
as well, pretty much in the two percent range until recently,
and now under one percent.
Mr. Foster. Thank you. And are you aware of a worse
prediction in macroeconomics?
Mr. Bernanke. There are a lot of bad predictions in
macroeconomics----
Mr. Foster. All right.
Mr. Bernanke [continuing]. Respond to that one.
Mr. Foster. All right well, for the record, it would be
amusing to see a list of
[inaudible] appears on the
[inaudible] prediction.
Now, going into this crisis--the question is: How much debt
is too much? Going into this crisis, the net worth of Americans
was about $120 trillion.
Chairman Clyburn. Will the gentleman yield for a moment?
Mr. Foster. Yes.
Chairman Clyburn. We need some people to mute, because
we're getting a lot of feedback. Please, if you're not
speaking, mute yourselves.
Mr. Foster?
Mr. Foster. All right. Can I resume here?
So, going into this crisis, the net worth of Americans was
roughly $120 trillion, and the market value of property
directly owned by the U.S. Government, though it's hard to
estimate, but it's been estimated in the range of 200 to $300
trillion.
So, in contrast, going into this crisis, our government had
a publicly held debt of roughly $20 trillion, and--which will
probably be around 25, perhaps $30 trillion when the
coronavirus crisis has been dealt with.
So, my question is: Are there any credible circumstances
under which our government would be unable to pay its debts as
a result of a fiscally sufficient response to the coronavirus
crisis?
Dr. Yellen?
Ms. Yellen. So, I think it's hard to imagine. If
something--some shock were to happen that drastically caused
interest rates to rise--and I really can't imagine what that
would be--then the Federal Government would face strains
because of a higher interest burden on the debt, and would have
to deal with it.
Now, you know, eventually some steps do have to be taken in
my view to deal with deficits to get them back under control
when this is over so that the debt-to-GDP ratio stabilizes
rather than continuing to rise.
Mr. Foster. I agree. But I think--I guess you concur that
there is no short-term emergency that we're facing?
Ms. Yellen. No, none.
Mr. Foster. Thank you.
You know, in terms of--as we contemplate the next COVID
relief package, we can allocate Federal spending in many ways,
you know, direct payments to individuals; rental assistance;
payroll and unemployment support; grants or subsidies to
businesses, large and small; you know, subsidized or guaranteed
loans to businesses, or relief to state and local governments.
So, just putting aside all equity issues, which of these
provides the biggest macroeconomic bang for the buck, and where
should we look for objective and competent advice on this?
Mr. Bernanke. Our recommendations were, first, public
health--that has a very high return--both the medical side and
also the safe opening side.
The second is unemployment insurance, both because of
humanitarian reasons, and also because people unemployed spend
a great deal of their income. And the third would be state and
local.
Those, I think, are the priorities. There is other things
you might want to look at, like supporting small business. I
think the PPP program did a lot of good, but those are the
three, I think, that, in our judgment, are the most important
priorities.
Mr. Foster. Yes. So, has anyone tried to actually quantify
this? I mean, you know, specifically is there modelling that's
done by the CBO and the Fed? I mean, incorporate the different
multipliers for this different kind of spending, or not? We
just--are we sort of on our own in Congress here?
Mr. Bernanke. I would imagine the CBO has got estimates. I
don't have them to hand.
Ms. Yellen. There is a huge----
Mr. Foster. All things occur in variable. Yes.
Ms. Yellen [continuing]. Huge amount of work on this. I
don't know the CBO estimates, but what different marginal
propensities to spend out of income that goes to different
groups in the economy, there is a vast amount of work on that.
And, as been said, unemployment compensation to low-wage
workers, virtually all of that is spent, and it would be
similar for state and local government spending that are among
our top priorities. Very high impact on spending in the
economy.
Mr. Foster. Thank you. And I'm out of time and yield back.
Chairman Clyburn. Thank you, Mr. Foster.
The chair now recognizes Mr. Kim for five minutes.
Mr. Kim. Thank you, Mr. Chairman, and thank you all for
gathering here and talking about this.
I wanted to just start by responding to a comment made
earlier in this hearing. Another member of this committee
pressing this point about schools, cited the American Academy
of Pediatrics about next steps with our kids.
I was interested in learning more about this, so I just
quickly researched this, and I found an important clarifying
comment made by the Academy regarding this statement being
misunderstood and misrepresented, and I wanted to read part of
it.
Candice Jones from the AAP said, ``The original guidance
was always written as being a strong advocate for the goal of
kids physically being present in school with a lot of things to
consider and that's where things got misrepresented and
misunderstood.''
Then in fact, she actually goes on to say, ``We have to
consider COVID activities in the community.'' ``This should not
be politically motivated,'' and we have to think about what's
best for our kids, teachers, and families.
In fact, the American Academy of Pediatrics joined with the
American Federation of Teachers, National Education
Association, and others to issue a joint statement saying:
Science should drive decisionmaking on safely reopening
schools. Public health agencies must make recommendations based
on evidence, not politics. We should leave it to health experts
to tell us when the time is best to open up school buildings,
and listen to educators and administrators to shape how we do
this.
For instance, schools in areas of high levels of COVID,
community spread should not be compelled to reopen against the
judgment of local experts. A one-size-fits-all approach is not
appropriate for return-to-school decisions.
Withholding funding from schools that do not open in person
full time would be a misguided approach.
These are incredibly important things to consider here. I'm
a father of a young boy that's supposed to start school soon. I
would love to have him get a great education and be able to
enjoy his year in kindergarten.
I want everything for him, and I don't want anyone to
accuse me or anyone else of not wanting my kid or our kids to
have the education that they deserve. But my education--my
public school education that I got in my district also taught
me to respect science and expertise and to make sure families
and education professionals are part of that discussion.
Going back to the topic of our hearing here, I wanted to
just go to Chair Bernanke. I thank you for what you've been
saying, the work that you've been doing with regards to state
and local governments and need to be able to fund that.
I was actually just on a Small Business Committee hearing
this morning where Treasury Secretary Mnuchin--I asked him
about this issue, and he wouldn't commit to me that he would
support this type of aid in the next funding package because we
should not, quote/unquote, ``bail out states with mismanaged
budgets,'' is how we talked about it there.
So, I want to ask, you know, your stipulation on this. Does
your experience on a state reopening commission give you any
concern that additional funding for state governments in the
midst of this pandemic will create incentives for
mismanagement?
Mr. Bernanke. No. I think the money can be structured in
ways that eliminates that incentive. It can be done in terms of
block grants, you know, for education, for example, or for
healthcare. It can be done by formulas that don't relate to the
existing tax burden, things like population, unemployment rate,
et cetera.
So, I think there is ways to provide the money that will
not be--provide an incentive for mismanagement. You can make
sure--you could require that the money not be used to increase
pension funds or cut taxes, for example.
So, I don't think that's really an issue. And the most
important issue is that the states and localities are both big
employers and also the front line in terms of critical services
to the pandemic.
Mr. Kim. Yes. I appreciate that. And, look, in addition to
the issue about mismanagement, though, you addressed, I also
want to address the use of that term ``bailout'' here, because
it keeps coming up again. It came up in this hearing as well.
In my state of New Jersey, we only get back around 75 cents
to 81 cents for every dollar we put into the Federal
Government. Other states get back a dollar, over a dollar,
sometimes over two dollars for every dollar that they put in.
So, I just don't appreciate this notion that Federal taxpayers
are bailing out states like mine.
For years, residents of my state have been helping other
states, doing more than our fair share. Now we need help, and
we're just asking for what is fair here in the middle of a
pandemic.
But, even beyond that point, Chair Bernanke, you talk about
sort of the strong sense and the challenges that we face at the
state level could have dire circumstances on the national
economy.
So, it's--I want to just hear a little bit more from you
about that, about, if we don't help states, what is that going
to do when it comes to our responsibility to our national
economy?
Mr. Bernanke. I think we made this mistake in the recovery
from the 2007-2009 recession after the global financial crisis.
We had an $800 billion Federal program, fiscal program, but the
states were forced to contract, lay off people. And an estimate
I saw recently was, as I mentioned before, is that cut about a
half a percentage point off the growth rate as the economy was
trying to recover from that serious recession.
So, it will have implications for spending and jobs, for
the economy as a whole, as well as for people, you know, within
New Jersey.
Mr. Kim. Great. Thank you so much.
Mr. Chairman, back to you.
Chairman Clyburn. Thank you so much.
We have now reached the end of our period of questions.
The chair would like to recognize the ranking member for a
closing statement if he would like to make one.
Mr. Scalise. OK. Thank you again, Mr. Chairman, and good to
see both Drs. Bernanke and Yellen, and we really have been
talking a lot about what we need to do to reopen the economy
safely--always the key term there. And there are really good
examples out there. It would have been good to hear even more
opinions on how it's being done, because, when you go all
around the communities--and I get to go to a lot of different
places to see what people are doing smartly--you can learn from
what other people are doing as you work to reopen.
I know, again, I talked about the meeting that I had with
the Vice President on Tuesday. What Vice President Pence did is
brought his whole team down. You had Dr. Birx there. You had
all these medical experts, Seema Verma from CMS.
You had the head of the LSU system and the head of the
Southern University system. I think it's the only Historically
Black College and University system, not just school. And they
were both talking about what they are doing to safely reopen.
It can be done. They both confirmed that. Dr. Birx confirmed
that it can safely be done. You don't do it if it can't safely
be done. It can safely be done.
So, then our challenge--our challenge as policymakers, as
leaders, is to go figure out how to do it, not to allow anybody
the copout of saying, ``Well, it's hard, and we're just not
sure, so we won't do it.'' Go talk to the people who are doing
it safely, because there is a serious cost--a serious cost.
You know, when you go back to the Academy of Pediatrics,
they talk about, sure, you've got to follow guidelines. It's
not about whether or not to follow guidelines. You've got to
follow the CDC guidelines and your state and local guidelines,
but you can do it, and there is a cost of not doing it. They
talk in this report about the damage to kids.
There is a cost to kids; not just in learning. There are a
lot of other things, too. A lot of kids get their basic
nutrition from school. A lot of kids with disabilities get
their basic needs met in school. That's not being done if
you're closing schools.
You know, for some of these school systems to say they're
not going to reopen or a teacher's union to say they're not
going to come back to work unless police are defunded or
something ludicrous, think about the kids.
You know Mr. Jordan talked about the over 50 million kids
that are going to be losing out, and they're losing out if they
don't get their schools reopened.
So, you know, Coach Orgeron talked about this with Vice
President Pence. And sports, some people think are trivial.
Sports are key to uniting communities. It's something in the
psyche of people that they want to see their sports come back.
But he talked about the human aspect of it, and this applies to
the over 50 million kids that would be denied that opportunity
to go back.
He said: A year ago today, Joe Burrow was projected to be a
sixth-round draft pick, but, because he had that opportunity,
because he worked hard and he got to be around a system where
he could prove himself, in the course of those next eight
months, he became the number-one draft pick, maybe one of the
most storied careers of a quarterback in college football
history, winning the Heisman Trophy. All of that would have
been denied.
And think about the other 50 million-plus kids in America
that will be denied opportunity if we don't do the hard work of
figuring out how to do it. Not whether or not to do it, but
actually doing it.
It's something that we've got to challenge ourself to do.
Like I said, we put a man on the moon. We can absolutely do it.
The doctors say you can do it--Dr. Birx, the American Academy
of Pediatrics. Let's go get it done.
Mr. Chairman, I yield back.
Chairman Clyburn. I thank the ranking member for his
statement, and I just want to reiterate that, at the beginning
of the hearing, you asked to enter certain documents into the
record. I did not object.
Of course I want to point out that, last week, when
President Trump started pushing to fully reopen schools without
regard to public health guidance, the American Academy of
Pediatrics issued a clarification. You just heard it from Mr.
Kim about--so his statement will go into the record. But I want
to emphasize that statement said that science should drive
decisionmaking on safely reopening schools.
Now, I noticed, my friend, that you talked about Dr. Birx
being there with the Vice President and Southern University and
LSU being there. The fact of the matter is I would love for
some elementary school teachers to have been there, for some
kindergarten teachers to have been there, for some
superintendents from those public-school districts around
Louisiana to have been there.
They are the ones who are on the front lines. They are the
ones who are committed to taking care of these little children
all day, every day; not Dr. Birx, not the Vice President, not
the President or the athletic directors at LSU, or Southern
University.
I'm a proud graduate of an HBCU. We just closed down our
program, all, for the whole fall. And I love going to
homecoming, and I love watching my team play.
But that's not what this is about. This is about educating
our children in a safe, healthy environment, and we need to go
with the experts when it comes to that.
I went down to LSU when Clemson played LSU. I'm a big fan
of Joe Burrow's. I hope he has a successful career, but he's
not going to have a successful career if he can't stay healthy.
And he is not insulated from this virus just because he got the
Heisman Trophy. We've got to do what's necessary to keep him
healthy.
So, today, in closing, I want to thank Chair Bernanke and
Chair Yellen for being here today. We appreciate your
distinguished records of government service and your expertise
that you have shared with us this afternoon.
I hope that Congress will use this to chart a path through
to the other side of this terrible pandemic. This hearing has
made clear that the Federal Government's economic recovery
efforts so far are not sufficient, and, without further action,
we face even greater economic turmoil. This turmoil will have a
disproportionate impact on communities of color.
Today's hearing has also made clear that there are steps
our Government must take now to put us on the road to economic
recovery. First, as our witnesses explained in their written
testimony--and I quote--``nothing is more important for
restoring economic growth than improving public health,'' end
of quote.
We cannot hope for an economy to recover until we
successfully control this pandemic.
Second, Congress must take bold action now and pass a
substantive economic recovery package, like the HEROES Act,
that includes substantial support to state and local
governments.
As the witnesses testified today--and I'm quoting again--
``these governments will have to lay off workers and limit
essential services until they get Federal help,'' end of quote.
Chair Bernanke and Chair Yellen eloquently explained why
the economy cannot afford for Congress to do anything less than
immediately pass a comprehensive and robust recovery measure.
Finally, the Fed should adjust the terms of eligibility
toward lending facilities to ensure that all borrowers have
access to credit and explore additional facilities to support
lending to households and small businesses that have been
harmed by this crisis.
Drs. Bernanke and Yellen steered the Nation out of the 2008
financial crisis. Congress and the administration should heed
their advice and act now if we hope to get on the path to
economic recovery, in a manner that is effective, efficient,
and equitable.
Without objection, all members will have five legislative
days within which to submit additional written questions for
the witnesses, to the chair, which will be forwarded to the
witnesses for their response. I ask our witnesses to please
respond as promptly as you are able to.
This meeting--this hearing is adjourned.
[Whereupon, at 2:34 p.m., the subcommittee was adjourned.]
[all]